Key Takeaways:

  • LLCs can be managed by members or designated managers, with signing authority often outlined in the operating agreement or articles of organization.
  • Individuals signing on behalf of an LLC should indicate their role (e.g., member, manager) and sign in a way that clearly binds the LLC, not themselves personally.
  • Signing authority can be actual (expressly granted) or apparent (implied by position or conduct), which can affect the validity and enforceability of contracts.
  • Third parties rely on the representation of authority, making it vital for LLCs to document and communicate internal authorizations clearly.
  • LLCs can delegate signing authority to officers, attorneys, or non-members, with the scope of authority often limited by the operating agreement.
  • Not understanding the LLC authorization to sign process can expose members or managers to unintended personal liability.
  • Consulting a business attorney can ensure your LLC’s signing process aligns with state laws and protects all parties involved.

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 specifies the manager and validates the person’s authority to manage the LLC and sign documents on its behalf. 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.

Understanding Actual vs. Apparent Authority in LLCs

Understanding the distinction between actual and apparent authority is crucial in the LLC authorization to sign process.

  • Actual Authority: This is the explicit permission granted to a member, manager, or agent to act on behalf of the LLC. It is typically established through the LLC’s operating agreement, resolutions, or internal communications.
  • Apparent Authority: This arises when a person appears to third parties to have the authority to sign for the LLC, even if no such authority was officially given. If an LLC manager routinely signs contracts, third parties may reasonably assume they are authorized to do so, even if their internal authority is limited.
    To mitigate the risks of unauthorized commitments, LLCs should:
  • Clearly define and document the signing authority of each member, manager, and employee.
  • Communicate any changes in authorization to third parties.
  • Regularly review contracts to ensure signatories align with internal designations.

Delegation of Authority in LLCs

In the LLC authorization to sign process, it is common for members or managers to delegate signing authority to others, such as employees or outside representatives. This delegation can streamline operations but requires careful oversight. Key considerations when delegating authority include:

  • Scope of Authority: Define what types of documents the delegate can sign (e.g., contracts, checks) and any limitations (e.g., maximum dollar amounts).
  • Written Authorization: Delegations should be documented in writing, preferably through an internal resolution or the operating agreement.
  • Revocation of Authority: Establish a process to revoke delegated authority if circumstances change.
  • Employee vs. Non-Member Authority: While members and managers often hold broad authority, non-members, such as employees, typically require specific written authorization to sign on behalf of the LLC. Regular audits can ensure that delegated authorities act within their prescribed limits.

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.

Risks of Improper Authorization in LLC Contracts

Failing to follow proper authorization procedures in the LLC authorization to sign process can lead to significant legal and financial consequences:

  • Personal Liability: If a signatory fails to clarify that they are signing on behalf of the LLC, they may be personally liable for contract obligations.
  • Binding the LLC Without Consent: An individual acting without proper authority could bind the LLC to an unfavorable contract, leading to internal disputes or financial loss.
  • Challenges in Contract Enforcement: If a third party questions the signatory’s authority, it could delay or invalidate the contract, harming business relationships. Best practices to reduce these risks include:
  • Always including the LLC’s full legal name and the signatory’s title when signing documents.
  • Training members, managers, and employees on proper signing procedures.
  • Maintaining organized records of who holds signing authority and updating this information as needed.

Electronic Signatures and Modern Signing Practices

With the rise of digital transactions, electronic signatures are now widely accepted in the LLC authorization to sign process. Under the federal Electronic Signatures in Global and National Commerce Act (E-SIGN) and the Uniform Electronic Transactions Act (UETA), adopted by most states, electronic signatures hold the same legal weight as handwritten ones. When using electronic signatures:

  • Ensure the signatory still has proper authorization to bind the LLC.
  • Retain a clear record of the signed document and the electronic signature process used.
  • Confirm that the counterparty recognizes and accepts electronic signatures. LLCs should adopt internal policies on e-signature platforms and protocols to ensure compliance and security.

Best Practices for LLC Signing Authority

To safeguard your LLC and minimize liability, follow these best practices in the LLC authorization to sign process:

  • Clarify Roles in the Operating Agreement: Specify who has the authority to sign on behalf of the LLC and under what conditions.

  • Use Consistent Signature Blocks: Always sign contracts using a uniform signature block, such as:

    Smith LLC, a Delaware Limited Liability Company By: John Smith, Member

  • Educate Team Members: Ensure all members, managers, and authorized employees understand their signing limitations.
  • Implement Internal Approval Procedures: Require internal approvals for contracts exceeding a certain dollar amount or involving critical business terms.
  • Regularly Review Authority Designations: Periodically review and update internal records to reflect any changes in signing authority.

Frequently Asked Questions

  1. Who can legally sign contracts on behalf of an LLC?
    Members, managers, or authorized agents can sign contracts for an LLC, as defined in the operating agreement or state law.
  2. What happens if someone without authority signs a contract for an LLC?
    The contract could be invalid, or the unauthorized person might be personally liable, depending on the circumstances.
  3. How can I prove my authority to sign for my LLC?
    Providing the operating agreement, a resolution, or articles of organization that specify your role and signing authority can serve as proof.
  4. Are electronic signatures valid for LLC contracts?
    Yes, electronic signatures are legally valid under federal and state laws, provided the signatory has proper authorization.
  5. Can an LLC limit a manager’s signing authority?
    Yes, the LLC’s operating agreement can specify limits on a manager’s authority, such as requiring member approval for contracts over a certain amount.
     

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