Who signs on behalf of an entity?
A commonly asked question when an entity is involved with a transaction is; who has authority to sign on behalf of that entity?
Limited Liability Company (LLC)
Two documents are of central importance concerning Limited Liability Companies:
- Operating Agreement: This internal document governs operations, members’ financial and managerial privileges, and identifies the LLC managing members. Managing members are signatories with authority to bind the LLC. Signatures on all documents must clarify if the person is signing as an individual or on behalf of the LLC.
- Articles of Organization: This document is filed with the state to formally establish the LLC.
While many templates are available online, an effective Operating Agreement must be highly specific to your business. Most templates lack clauses tailored to your needs (such as those governing managing members and ownership percentages). An improperly prepared document may be ineffective due to its wording. If you face challenges navigating this process, consider seeking legal advice from experts like Mehalko & Moghul. Our business law attorneys can prepare a customized document for your LLC, addressing your individual needs.
Corporation
The Articles of Incorporation must be examined first. This document names the corporation’s officers, details their respective duties, and determines each officer’s authority. It also identifies the person(s) authorized to bind the corporation. They should sign in their representative capacity (e.g., John Smith, President).
There can be multiple people with this authority, or some organizations may require more than one person to sign on the corporation’s behalf. An agreement may be invalid if improperly signed or signed by the wrong person. To avoid these complications, consider consulting an experienced business law attorney.
Be cautious of generic forms lacking specific information. These will cause delays in determining who can sign on behalf of the corporation and may hinder your transactions.
Partnership
There should be a Partnership Agreement detailing the identity of the partners and their respective shares. This document must also detail how the partnership is to be operated and who has the authority to sign on behalf of the partnership.
Often in small organizations or family entities, these documents do not exist. It presents a problem with lenders, settlement companies, or when signing contracts. In a real estate closing situation, there is a need for documents to be drafted in compliance with lender and title insurance requirements.
The same caution should be exercised here as to generic forms printed off the internet. A form with only a name on the first page and a signature on the last page can not be used in a contract situation. This blank form gives no one any authority to sign. Mehalko & Moghul can draft these documents for you, so they are completed to avoid the delays incurred when the Partnership documents are needed.
How to resolve document issues
In the case of an LLC, an Authorization Agreement can be signed by all LLC members designating the specific person to sign on behalf of the LLC. This agreement is used when the designated signatory is unavailable. We can have this prepared for very specific situations and for a limited duration, depending on what is needed.
In the case of a corporation, we can draft an authorizing document to show who can sign on behalf of the corporation. In the partnership situation, the same type document can be created.
Each situation is different depending on the type of entity, the members and the situation. Any entity that needs to work with a LLC, corporation or partnership will need these documents early in the process so it can be reviewed and any issues resolved to keep the transaction moving.
When working in a situation where an entity is a party, always ask for the organization papers to confirm that the correct person is signing on behalf of that entity. Asking early in the process can help you avoid problems when you are attempting to complete the deal.
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