LLC Authorization to Sign: Everything You Need to Know
LLC authorization to sign is generally assigned to a managing member who has the authority to sign binding documents on behalf of the LLC.3 min read
2. The Process for Signing Documents on Behalf of an LLC
Updated Ocotber 16,2020:
LLC authorization to sign is generally assigned to a managing member who has the authority to sign binding documents on behalf of the LLC. When signing, the managing member must clarify if the signature is as an individual or in their capacity to sign as the representative of the LLC.
LLC Authorization to Sign Process
An LLC is member-managed unless otherwise noted in the company's operating agreement. In some states, the choice to form as a member-managed entity is documented in the LLCs articles of organization. Within the company's operating agreement, it can be specified that specific decisions related to management require the approval of all members before they are deemed binding.
The operating agreement for the LLC will specify the manager and validate the person's authority to manage the LLC and sign documents on behalf of the entity. The members of an LLC can choose who they want to designate management authority for the LLC to. This can be to one or more members. This person can also be a non-member. The designated person or persons is usually required to be listed in the LLC's articles of organization when they are filed with the state.
Regarding third parties, the member given the authority to act on behalf of the limited liability company is authorized to sign documents, including contracts, that will incur liability for the LLC. Agents appointed by LLC members or managers can bind the LLC for specific matters or general business activities. An attorney can also be authorized to enter into settlement agreements in lawsuits filed against the LLC.
Some limited liability companies will opt to be manager-managed versus member-managed. In this business structure, one or more persons from the ranks of the members of the company or a non-member are appointed. The manager-managed appointee has the authority to bind the company with their signature even though the appointee is not a member of the company.
Members also have the option to set up the LLC with officers. This could include a secretary, financial officer, or a board chairman. This information is noted in either the operating agreement or articles of organization. In some states, designated officers have the authority to sign binding contracts.
Members or a manager of an LLC can designate signing the authority to sign to any person (a member or a non-member) they choose. Stipulations can be added that limit the scope of the individual's authority, such as being authorized to sign checks but only up to a certain amount and for specific bills only.
Managers are the only people authorized to enter into contracts on behalf of a manager-managed LLC. The owners of the LLC cannot operate or enter into binding contracts unless the authority is assigned to them by the manager(s). In this situation, a manager-managed LLC operates much like a corporation wherein shareholders cannot sign for the corporation.
The Process for Signing Documents on Behalf of an LLC
It is important that the person(s) authorized to sign on behalf of an LLC understand how to properly sign so as not to incur the risk of personal liability. To sign, do the following:
- Include your full name.
- Include wording that specifies you are signing "on behalf of" the LLC.
- Include your relationship to the LLC, such as member or manager.
Not following protocol could hold you personally liable for the contract. For example, a member signs a contract "John Smith" instead of "Smith LLC, a Georgia Limited Liability Company - John Smith, Member." The difference is that John Smith is signing as an individual and not as a member, which provides no protection. The same holds true for managers or officers making the same mistake and being held liable for a contract.
Equally as important as signing the contract properly is reviewing its contents prior to signing. Read the contract carefully, paying close attention to the language used in the contract to ensure it does not indicate you will be held personally responsible. Even though you may sign the contract according to the proper protocol as the designated LLC manager, the language could be such that it would make you liable if it not worded properly.
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