Fort Worth contract attorneys are the first to tell you that a business that has been properly formed and registered with the Secretary of State is legally recognized as an entirely separate entity from the individual(s) that formed the business. An important consequence of this recognition is that the business itself must enter into contracts and other legally enforceable agreements — not the individual(s) that may comprise it.
When Contracts Introduce Unintended Liability
As Fort Worth contract attorneys, we know that business owners in Texas oftentimes do not know this. They enter into contracts they believe to be on behalf of their business or company, when in actuality they are not. Instead, they themselves are the ones personally liable to perform under the contract — not their business. This question of liability, between the individual signing the contract and the business, all depends on how the individual signs on the contract.
Be Specific as Possible in Every Contract
As an example, let’s say an individual operates a donut shop company of which they are the president and sole shareholder. To facilitate business operations, the individual enters into a contract with a supplier to purchase flour for the donut shop company’s use. However, the individual signs a contract with their own name only and without any indication they are acting with authority on behalf of their donut shop company, like this:
BUYER:
Individual’s Signature
Individual’s Name
When an individual signs a contract like the above, even if fully intending for the flour to be on behalf of their donut shop company, the individual is still the one personally liable under the contract if payment is not made!
So how does one enter into a contract on behalf of a business in order for the business to be liable under the contract? It is about as simple as you think: have the contract say so!
A signature line such as this:
BUYER:
Individual’s Signature
Donut Shop, Inc., President
This indicates to the world that the individual is acting on behalf of another, in this case Donut Shop, Inc., in the individual’s representative capacity or position with the business, in this case President, to purchase the flour. Where a contract indicates this relationship and representative capacity, it is much more likely the business, and not the individual, is liable under the contract. This is also a simple example, and the issue of liability can quickly become more complex when the contract is between employees of a business or businesses that own other businesses!
Call Before You Sign: Contact Fort Worth Contract Attorneys
Knowing this, be sure to carefully review contracts you sign that you intend to enter on behalf of your business and ensure that it clearly indicates you are acting with authority on behalf of your business.
If you need any assistance in reviewing or preparing a contract you wish to enter into on behalf of your business, the Fort Worth contract attorneys here at Lovelace Law, P.C. would be happy to assist you!
