When a real estate investor thinks of asset protection the LLC is the first entity that typically comes to mind. As it should because the LLC is the primary defense for investors from lawsuits stemming from harm associated with real estate.
Avoid Personal Liability by Signing Contracts Correctly
State LLC Acts routinely provide that a member in a LLC is not labile for the debts or obligations of the LLC solely by reason of being a member. This liability shield is fairly strong unless a member gives it up either intentionally in a contract or by mistake.
How Do Investors Void a LLC's Protections?
An easy way to mistakenly give up your protection is by not properly signing agreements with the appropriate signature block that designates your representative capacity. When signing a LLC the signature block should contain the LLC’s name and the title of the signing member, or manager. Mishandle this important step and the courts may not be so forgiving
Here are some common errors I have come across:
John Doe on behalf of ABC, LLC — (John has not indicated his position)
John Doe, ABC LLC — (John has not indicated his position or representative capacity)
John Doe Manager — (John has indicated his position but not his representative capacity or LLC name)
John Doe President — (LLCs do not typically appoint officers)
How to Sign on Behalf of a LLC?
When signing on behalf of you LLC you should sign as follow:
John Doe on behalf of ABC, LLC as its Manager (in the case of a member managed LLC you would use Member/Manager) or in the case of a Corporate Manager – John Doe, President of XYZ, Inc, on behalf of ABC, LLC as its Manager.