Secrets to a Successful Business Contract

When Signing a Contract Can Threaten Your Home and Savings
Refer to Example C. The signature section contains three names, presumably one name associated with each company. By signing the contract this way, a controversy lies in wait. Were these individuals signing for the companies? Or were they really signing on behalf of themselves, even if the agreement itself contains the correct legal names of the companies? Because the way they signed the agreement makes it appear they signed on behalf of themselves, the signers' personal assets could be at risk.

The purpose of signatures on contracts is to memorialize the party's agreement to what's written down. Signatures, or signature blocks as you will often see them referred to in legal discussions, should clearly indicate who's agreeing. In this case it's not Peter Pink but Peter Pink on behalf of a company.

The signature block should start with who's agreeing to the contract. If it's Miff Company of Boston, that's how the signature block should start. If it's a person, the signature block would start with that person's name. This is how the Uffelhoop contract should be drafted:

Example D: Miff Company Inc. of Boston, Moff Inc., and Muff Company LLC agree that they'll split the cost of a booth at the Uffelhoop trade show. Each of us gets to use it.
Signed:

Miff Company Inc. of Boston
____________________
Peter Pink, Purchasing Officer

Moff Inc.
____________________
Georgia Gray, Officer

Muff Company LLC
____________________
Steven Silver, Treasurer

These signature blocks start with the names of the parties agreeing to the contract, then follow with evidence of the agreement (an actual signature), and then documentation of who belongs to the signature and that person's status with the contracting party.

It's important to think this through. Who or what do you want to enforce this agreement against if there's a conflict? Is it the company? Is it the company's rich owner? I have seen the signature block used to "capture" an unknowing person or business as a party to a contract. If you want to potentially have access to the owner's personal assets in a contract dispute then draft the signature block like Example C above--it's likely the person signing won't realize the legal implications. If Peter Pink was a billionaire and had signed the agreement in Example C it's possible his personal assets could be used to satisfy a judgment issued against Miff Company resulting from a dispute over the contract. But if you're the one signing a signature block like the "Peter Pink" example and you don't want your assets to be at risk, then don't sign. If it's your intention to bind only your company's assets in the contract then make sure that the signature block is drafted to reflect that the company is the one signing the contract.

Who can bind a company to a contract? This differs according to state law, but in general if the person signing appears to have the authority to sign on behalf of the company, as evidenced by business cards, title, and other "trappings of authority" conferred by that company, the company will have to stand behind whatever is signed. If you intend only certain people in your company to be able to bind your company to a contract, then make sure that's stated on invoices, purchase orders, and other forms and contracts. It's common to see statements like, "Only the signature of the president of Moff Inc. will bind the company to an agreement. Any other signature has no binding effect."

If you're concerned the person signing a contract on behalf of the other party may not have the authority to bind the company, check to see if that company's purchase orders or other contractual agreements indicate only an officer or some other designated person can execute the agreement, or changes to the agreement. Call the owner or president of the company and ask who has the authority to bind the company. Does the person signing appear to have the authority and title you'd give someone in your company whom you would authorize to sign contracts?

You can ask that the agreement be signed by an officer of the company, if the company is a corporation, by the managing member, if the company is a limited liability company, or by the general partner if the company is a partnership. State law gives these individuals authority to bind a company. You can often determine who's designated in these capacities for the company you're dealing with by calling the state agency that regulates business entities in the state where the company was formed. Sometimes the state agency's web site has this information.

What if the business entity is a sole proprietorship or a partnership? If it's a sole proprietorship, the sole proprietor must sign. In community property states, the sole proprietor's spouse may also have to sign in order to allow recovery of any damages against the community assets. You may want to consult an attorney about this. If a partnership is involved, the general partner should sign for the partnership. An example of both types of signature blocks follows:

Example E: Piff Partnership and James Elliott agree that they will split the cost of a booth at the Uffelhoop trade show. Each of us gets to use it.
Signed:

Piff Partnership
____________________
June Ellis, General Partner
____________________
James Elliott, Sole Proprietor

For more information on how to avoid common contract pitfalls, read Business Contracts: Turn Any Business Contract to Your Advantage from EntrepreneurPress.com.

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