A commonly asked question when an entity is involved with a transaction is; who has authority to sign on behalf of that entity?
Limited Liability Company (LLC)
Two documents are of central importance concerning Limited Liability Companies. The Operating Agreement & Articles of Organization. The Articles of Organization is filed with the State, to establish the LLC. The Operating Agreement governs operations & members' financial and managerial privilege, as well as the managing members of the LLC. The managing member is a signatory with authority to bind the LLC; or sign documents on its behalf. The signature on all documents must discern if they are signing in their individual capacity or on behalf of the LLC.
There are many templates available online. However, this document must be very specific in nature. Most templates do not contain agreements & clauses specific to the business you are contemplating (managing member and percentage ownership for example). If not prepared properly this document may be rendered useless based on verbiage. Mehalko & Moghul can prepare this document for your LLC. We have specific prepared verbiage to address your individual needs.
The Articles of Incorporation first need to be examined. This is where the officers of the corporation are named and sets out the details of their respective duties, and determine the authority of each officer. This is also where the name of the person who has authority to bind the corporation will be found. Once again, they should sign in their representative capacity, i.e., John Smith, President.
There can be multiple people named as having that authority; i.e. one officer of the Corporation or several. Some organizations require more that one person to sign documents on behalf of the Corporation. You may find an agreement invalid if it was not properly signed or signed by the wrong person.
Once again be careful when printing generic forms with no specific information in the document. This will lead to a delay in determining who can sign documents on behalf of the Corporation and may delay your transaction.
There should be a Partnership Agreement detailing the identity of the partners and their respective shares. This document must also detail how the partnership is to be operated and who has the authority to sign on behalf of the partnership.
Often in small organizations or family entities, these documents do not exist. It presents a problem with lenders, settlement companies, or when signing contracts. In a real estate closing situation, there is a need for documents to be drafted in compliance with lender and title insurance requirements.
The same caution should be exercised here as to generic forms printed off the internet. A form with only a name on the first page and a signature on the last page can not be used in a contract situation. This blank form gives no one any authority to sign. Mehalko & Moghul can draft these documents for you, so they are completed to avoid the delays incurred when the Partnership documents are needed.
How to resolve document issues
In the case of an LLC, an Authorization Agreement can be signed by all LLC members designating the specific person to sign on behalf of the LLC. This agreement is used when the designated signatory is unavailable. We can have this prepared for very specific situations and for a limited duration, depending on what is needed.
In the case of a corporation, we can draft an authorizing document to show who can sign on behalf of the corporation. In the partnership situation, the same type document can be created.
Each situation is different depending on the type of entity, the members and the situation. Any entity that needs to work with a LLC, corporation or partnership will need these documents early in the process so it can be reviewed and any issues resolved to keep the transaction moving.
When working in a situation where an entity is a party, always ask for the organization papers to confirm that the correct person is signing on behalf of that entity. Asking early in the process can help you avoid problems when you are attempting to complete the deal.