By Vinay Jain, Chief Legal Officer at Shake
You may have noticed that people sometimes sign agreements as individuals, and other times on behalf of companies that they work for. Let’s take a look at what it means to sign an agreement on behalf of a company versus signing as an individual.
When you sign an agreement as an individual, you are personally vouching for the fulfillment of that agreement, and are personally liable for the consequences of failing to fulfill it.1 For example, suppose things don’t work out as planned in an agreement you signed in your own name. Let’s say the other party sues you and wins. You now have to personally fulfill whatever obligation the judge imposes upon you, whether it’s to pay the other party or perform on the agreement.
It’s different when you sign on behalf of a company. A company is a legal entity separate from the people behind it.2 So when you sign for a company, the company is liable, not you. The company is party to the agreement. Thus, if the court decides in the other party’s favor, the entirety of that money must come from the company’s assets, not directly from the personal accounts of the people behind the company. This is why some people choose to form a company for their business even though they are only one person — they don’t want to risk losing everything in the off chance that a big judgment is entered against them.
Keep in mind, though, you can’t sign on behalf of a company that is not validly formed and registered. And simply signing under an assumed name (e.g., “Jim Jones d/b/a3 Jim’s Auto Shop” does not make your company validly formed and registered. In such case, your liability would not be limited in any way.4 You have to take the proper steps to incorporate, including registering with the state and filing appropriate documents.
There are other things to keep in mind when signing on behalf of a company. First, you must have the authority to bind the company to an agreement. This is called being an “agent” of the company.5 The company can directly give you authority as an agent in writing, or it can imply such authority by acting in a way indicating that you have it.6
Second, there are limits on the extent to which your personal liability is limited by a company. In cases of fraud, other intentional wrongdoing, or egregious illegality, a court may still find you personally liable.7
Recap & Tips:
- When you sign a contract on behalf of yourself, you are personally liable.
- When you sign a contract on behalf of a properly incorporated company and have the authority to bind that company, the company is liable, not you. There may be exceptions in cases of egregious illegality or fraud.
- In order for a company to be bound to an agreement with your signature, you must be authorized as an agent of that company.
- See Black’s Law Dictionary (9th. ed. 2009), personal liability (“The quality or state of being legally obligated or accountable to another or to society, enforceable by civil remedy or criminal punishment.”) ↩
- Id., corporation. ↩
- Short for “doing business as.” ↩
- 18A Am. Jur. 2d Corporations § 236. See also Grinnell Mut. Reinsurance Co. v. Haight, 697 F.3d 582, 587 (7th Cir. 2012) (under Illinois law, the use of d/b/a does not create a separate legal entity); Am. Exp. Travel Related Servs. Co., Inc. v. Berlye, 202 Ga. App. 358, 360, 414 S.E.2d 499, 501 (1991) (the use of d/b/a is merely descriptive of the corporate entity behind it). ↩
- See Black’s Law Dictionary (9th ed. 2009), agency. ↩
- See, e.g., Mill St. Church of Christ v. Hogan, 785 S.W.2d 263, 268 (Ky. Ct. App. 1990) (the court found a painter to have implied authority, as he had done similar jobs in the past that had required him hire others and the nature of the job required others to work with him on it). ↩
- 1 Fletcher Cyc. Corp. § 14. 1 Treatise on the Law of Corporations § 7:8 (3d). ↩