(February 6, 2012): You consult with an attorney, do all the necessary due diligence, start a company or corporation, and finally begin doing business. You execute many contracts for services or supplies, signing as the “president” or “manager’ of your corporation. You assume that each contract is between the corporation and the service provider.
Later on, there is a dispute on whether or not the corporation owes for certain services or supplies. You get a demand letter from an attorney. You are unconcerned about the letter, however, because if the corporation is sued, you will have an attorney file an answer on behalf of the corporation.
You are then served with a lawsuit – not to the corporation – but to you, individually. The lawsuit alleges that “you” agreed to pay any debts or past due amounts.
You ask “How can this be?”
Beware of the small print – it can be bad for your wallet. Read the small print at the bottom of an account application or agreement with a service company, such as a print shop, or supply store, such as office supplies or production materials. Many times the small print contains a provision that states something like:“ The party signing this agreement acknowledges he/she will be individually liable on this account and that he/she has the full authority to act as agent for the party in whose name this order is placed.”
By signing the agreement, you have not only agreed that you had the authority to enter into the agreement on behalf of the corporation, but also that you would be individually liable for any debts or past due amounts.
So, if you are an officer, president, or manager of a corporation, always read the fine print before you sign a contract. Better yet, call your attorney and have him/her review the contract. Many times the other party will agree to strike that provision, or the corporation can agree to indemnify you individually. As always, an ounce of prevention is worth a pound of cure.