A common error we see in everyday real estate practice stems from confusion about how documents should be signed when the customer or client is a business entity (LLC). Also known as 'signature styling', this is an important element to understand for contract preparation.
There is a short list of contracts that Realtors use in daily practice where it is especially important to know how to properly style a signature when the client or customer wishes business to be transacted under a business name. These include, but are not limited to:
- Buyer Representation Agreement
- Listing Agreement
- Lease Agreement
- Independent Contractor Agreement
Why is this important?
For consumers: The primary reason individuals form an LLC is to eliminate risk by limiting personal liability. With so many boxed and online solutions for creating LLCs, do-it-yourself methods of forming a company may not provide a consumer with the same operational guidelines or counsel that would come from working directly with an attorney who could advise on such matters.
We find that many business owners neither understand signature responsibility nor proper protocol that establishes they are signing on behalf of the company --and not as an individual. Signing legal documents incorrectly not only creates exposure for all of your personal assets (such as real property, personal property, bank accounts), but may also invalidate the legitimacy of a legal document.
For Realtors: On a purchase agreement, the way a buyer is named on a contract will customarily dictate how name is taken in title. Likewise, when it comes to listing or leasing properties, realtors have a duty to know that the individual(s) who are party to a transaction have the legal right and authority to engage in that transaction. Tenants also have a right to know the identity of their landlord. By ensuring that signatures are properly styled, we are serving our clients' interests, complying with licensing requirements, and abiding by ethical and competency standards for practice.
Bottom Line: Signatures must be obtained from authorized individual(s) of an entity, and must styled correctly.
So, as a realtor, how do I know what name to write on a contract, and who needs to sign? -- Or how do I know that the agent on the other side of a transaction got it right for their LLC clients?
Start by securing a copy of the company's Articles of Organization and Signatory Resolutions. This will establish:
- The correct, full legal name of the LLC
- The members of the LLC
- The correct LLC business title for each member (e.g., 'member', 'manager', 'CEO')
- Which member(s) can or must sign to create a binding agreement in the name of the LLC
A savvy realtor may also fact check entity registration and good standing by cross-referencing public information through the Secretary of State for the state in which the business was formed. This tip can help protect your valuable time by validating the company's existence through proper filing, as well as to provide insight on business practices and possibly character. If a company is not in good standing, take caution. At the end of a transaction, your good name will be on the line right along with your client's.
Note: both realtors and their clients should be prepared and willing to share this information with cooperating brokers, lenders, title companies and customers who ask for proof of identity. LLCs are not veiled curtains for individual parties to hide behind, and these documents should not be withheld or 'protected' under 'privacy' claims. Investors or landlords who operate in this manner should start alarm bells sounding in your head.
Rule #1: Companies cannot sign for themselves.
One of the MOST ridiculous things we have ever seen is where a listing agent hand-wrote the name of her client's company on the signature line of a lease agreement, and tried to pass it off as an executed contract. Not only was this fraudulent activity on her part, but it was also completely incorrect for proper legal styling.
Proper LLC signatures will include the name of the individual signing, followed by that person's business title and the full legal company name.
Example: "Ima N. Vestor, Member, Million Dollar Mansions, LLC"
Rule #2: Initials should match the name of the individual signing.
Another common point of confusion we see -- especially relating to digital signatures -- is that individuals will try to write in company initials instead of their own personal initials. Line items requiring initials should reflect those of the individual signing. So, using our example above, we would expect to see Ima N. Vestor's intials as "INV" -- not "MDM".
Hint: This same rule applies if the signing party is an executor of an estate, or power of attorney. Remember, individual people -- not companies, buildings, trusts, or roles -- sign documents.
Rule #3: Personal Signatures Are Needed for Personal Guarantees
If an agreement is being personally guaranteed, a personal signature, in addition to an LLC signature, may be required.
Rule #4: All required signatures must be included to bind an agreement.
If the signatory resolutions for the LLC require that ALL members must sign for a document to be legally binding, then ALL members must sign and initial the contract before it can be executed.
The resolutions spell out the authority of members, and whether or not one individual has the power to bind the LLC in legal agreements where signatures are not required for additional parties (members).
If all members' signatures are required, and only one member signs, you don't have a deal.
When in doubt, seek the advice of an attorney or tax professional. We find that our title company partners are invaluable resources when it comes to signature styling and ownership vetting.