In a recent District Court Appellate decision, the court determined that when two individuals entered into a contract with a third party without disclosing that (as far as they were concerned) they were entering into that contract on behalf of their LLC (limited liability company), that the LLC could not enforce the contract with the other party. Worse, the individuals exposed themselves to personal liability for the third party’s claims, effectively negating the limited liability that they sought when they formed the LLC. Writing for the unanimous court, Judge Sabita Singh wrote that “the onus was not on [the third party] to determine with whom they were dealing; rather, the [LLC owners] bore the burden . . . to disclose the identity of [the entity] on whose behalf they were acting.” For all business owners the lesson is clear: Just because you have formed and operate a corporation or other limited liability entity, you still must disclose that to those you do business with. As a practical matter, always use your business name on your business cards, web sites, emails and correspondence, and sign contracts only in the name of your business entity.
Contact Lloyd Sanders with questions about this entry.
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