Asset Protection: Signing a Business Contract
“Often the difference between a successful person and a failure is not one has better abilities or ideas, but the courage that one has to bet on one’s ideas, to take a calculated risk – and to act.”
–Andre Malraux (French Historian, Novelist and Statesman, 1901-1976)
As I described in the previous “Asset Protection” blog entry, corporations and other liability-limiting entities are used, among other reasons, to mitigate risk by providing a firewall of protection between business debts and liabilities and personal assets. Too often in defending breach of contract lawsuits against businesses, the personal assets of business owners are at stake because the signature on the contract is arguably that of the owner instead of the business. A business entity can only act through its agents–be they employees, officers, or directors. The question is, how should one of these agents sign a contract on behalf of the business entity to minimize exposing the agent to liability on the contract for which the agent’s personal assets become exposed?
The answer is two-fold: a) avoid signing a personal guarantee; and b) follow the signature guidelines found in the instructive statute, Texas Business & Commerce Code (“TBCC”) section 3.402. When someone signs a personal guarantee, that person does so with knowledge that his or her personal assets may be exposed to satisfying the underlying obligation, if necessary. However, when signing other agreements, it is not as clear that personal assets may be at stake due to improperly signing the agreement.
First, the agreeing business entity should be unambiguously identified within the agreement (and preferably within the signature block as well). Second, the representative or agent signing on behalf of the business entity needs to be authorized by the business to sign on its behalf. Third, the signature needs to unambiguously demonstrate that the representative is signing in his or her representative capacity and not signing in his or her individual capacity.
An example of a proper signature block is the following (assuming John Doe is properly authorized to sign on behalf of Business, Inc. generally, or for the specific agreement):
Signed: Business, Inc.
By: John Doe
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