Whether you are an individual entering into a contract with a business entity such as a corporation, partnership, or LLC, or vice versa, one basic and fundamental (but sometimes fatally overlooked) checklist item is to ensure that the individual executing the contract on behalf of the business entity has the legal authority to sign on behalf of the company and legally bind it. If the person executing the agreement on behalf of the corporation, limited liability company, partnership, or other business association is not someone authorized to sign and bind the company, it could invalidate or void the entire agreement and spell disaster for the parties involved.
Some of the ways to ensure this does not happen to you include:
Doing a business search on the California Secretary of State website https://bizfileonline.sos.ca.gov/search/business and reviewing a corporation or LLC’s filings with the SOS to determine whether the individual executing the agreement on behalf of the company is a key officer or manager.
Having a clause in the written contract whereby the business entity represents and warrants that the person executing the agreement on behalf of the company is legally authorized to do so.
Reviewing corporate or company minutes of the Board of Directors or other governing body to determine whether the Board or governing body has authorized or ratified the signatory’s authority to enter into contracts.
Reviewing governing documents of the business, such as the Corporation’s Articles and By-Laws, the LLC’s Operating Agreement, or the partnership’s Partnership Agreement, to determine how the entity is structured and in whom authority to bind the company lies.
If you have any questions or concerns about whether the nuts and bolts of your contracts are in working order, please do not hesitate to schedule a consultation with us at info@nicolailawfirm.com or call us at (310) 714-7034.
Information contained in this Memo is intended for informational and educational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney. It is likely considered advertising.
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