Why do I have to use “LLC” in my business contracts and in the advertising for my business?

Most states and jurisdictions have enacted some form of the Limited Liability Company Act.  This Act allows members of the LLC to limit the amount of risk that they subject themselves to personally.  LLC’s file articles of organization with state agencies in order to give notice to other entities of their existence.  Furthermore, agents or members of an LLC need to let other people (or other organizations) know that they are not doing business on their own behalf, but on behalf of their LLC.

 

So why is that so important?  Generally if the existence and identity of the LLC is known and disclosed to the other party, then that agent or member of the LLC is not a party to any contract that he negotiates.  But, if that member or agent doesn’t disclose that information, or put the other party on notice that they are making a contract for the LLC, then that agent or member will be inferred to be a party to the contract.    This would negate the purpose of the LLC in the first place, and impose personal liability on the agent.

 

So, if John has a his Donuts, LLC business, and he wants to contract with Jane for flower and other ingredients for his business, he must make sure that Jane knows that the contract is with Donuts, LLC and not with John himself.  John should make sure that his business card notes his business name, with “LLC” printed thereon.  The same goes for most advertising and other methods that Johns utilizes to makes other people aware of his business.  When he goes to make the contract with Jane, he needs to make sure that he signs it as the member or manager of Donuts, LLC, and not solely in his own name.

 

In this way, Jane knows that she is dealing with a business, and will only be able to go after Donuts, LLC’s assets if the business defaults on the contract or doesn’t pay her for products  received but not paid for.  John would not be personally liable to Jane on the flour and ingredients contract if his business has problems down the road.   The only way John would be liable is if he commits some type of fraud or wrongful conduct with the contract, or if he doesn’t observes the proper formalities with the LLC, coupled with wrongful conduct in its management.  (Other articles on this site address this process.)

 

Contact your local counsel in order to make sure that your small business conducts its affairs properly so as to avoid personal liability for yourself.

 

Photo By: Moyan Brenn