Pushing the Envelope a Little Far When It Comes to Benefits of Incorporating
In catching up on my CLE (continuing legal education for the nonlawyers out there) reading the other day I came across a case in which a businessperson actually HAD listened to their lawyer, but took the lesson a step too far. One of the things I always try to impress on folks for whom I have just formed a corporation or limited liability company is the importance of respecting the event of formation and acting accordingly. Specifically, I explain that it is important to sign all legal documents for the new company in a way that clearly shows the intent to sign in a representative capacity. This protects the signer from unintentional personal liability.
So if the name of the company is Raztigger Enterprises, Inc., the signature line should look like this:
Raztigger Enterprises, Inc,
By__________________________
Teri G. Rasmussen, President
If we're talking a limited liability company, then it would look like this:
Raztigger Enterprises, LLC
By__________________________
Teri G. Rasmussen, Member
If we're dealing with a form and there's not enough space for a proper signature block, at least remember to put your title after your name:
Teri Rasmussen, Member.
In Westgate Village Shopping Center v. Parker, 2008-Ohio-2571 (6th App. Dist.), Patricia Parker got just a little bit too smart with respect to signing a shopping center lease. As is often the case, the landlord presented Ms. Parker with both a lease and a lease guaranty with respect to premises to be leased to her company, Horizons Computer Traning and Employability Center, LLC. The guaranty agreement indicated that "the undersigned" guaranteed the payment or f rent and other charges under the lease. Ms. Parker signed the lease guaranty as "Patricia Parker" and then wrote the words "Executive Director" immediately beneath her signature.
When the company defaulted on the lease and the landlord sued Ms. Parker, she contended that she had signed the guaranty as a representative of the company and not in her personal capacity. Pretty smart, huh? Well, the trial court thought so and sided with Ms. Parker.
The Court of Appeals reversed and held Ms. Parker personally liable, basically on common sense grounds that there's no point to guaranteeing your own debt. The Court of Appeals referenced an earlier case involving a similar fact pattern and adopted its holding to the effect:
"the general rule of interpretation governing this kind of signature is that such words as "president" are merely descriptive of the character or capacity of the person signing the document" and do not allow the individual signing the guaranty to "deny the personal liability imposed by the clear and unambiguous language of that guaranty",
While certainly an interesting defense, the appeals court got it right. While Ms. Parker may have taken the point a little far, it doesn't change the importance of remembering in most cases to indicate your representative capacity and respect the separateness of the company you have formed. Here's a letter I often send to clients concerning importantt things to remember about acting in ways that do just that.
