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Thursday, April 9, 2015

Signing Business Contracts

How do you sign a business contract? 

0. Pass it by your attorney.

It is fine to accept risk, it isn't good to ignore it. Risk hides, and attorneys find.

1. Sign using your organizational title, if signing for the business.

"Jenny Smith, CEO of Awesome, Inc." not "Jenny Smith"... the business has accepted responsibility not Jenny Smith, as an individual. Make sure the document reflects as much.

2. If signing for yourself, simply sign your name.

"Jenny Smith" only ... you have accepted personal responsibility.

3. Don't fudge the name of your business.

There is no close enough for business names. Close enough names lead to the path of accepting personal liability. "Awesome, Inc." isn't the same as "Awesome" or "Awesome, Co." or "Awesome Super, Inc." or "Excellent, Inc." (no matter what your bank, tax adviser, or accountant tells you.)

4. Date that signature on the day its is actually signed.

Back dating signatures leads to fraud charges for example ...

5. Boilerplate does not exist, and definitions are important.

"Standard" language doesn't mean it is something you need to agree to. False peer pressure isn't a good reason to ignore provisions. When people claim something is boilerplate or a common definition they are hiding something, even if it is their own laziness. (Think about how that reflects on how they will perform in a contract.) See #8.

6. Saying something in a contract doesn't make it so.

You may try to put a leash on a fish and try to play fetch, but it doesn't make a fish a dog. Contracts are defined by the law (common law, local law, state law, federal law, international law, administrative rules, etc.) and you need to read them in context. A typical example is even-though you may call someone an independent contractor in a contract, common law, the IRS, the Department of Labor (among many others) see past the name and look at how the facts apply to the law recognizing when you are trying to call an employee an independent contractor. Do the same.

 7.  Make sure the other person signing the contract has the authority to sign the contract.

Although the law for the most part may allow you to rely on the principles of agency, it usually pays to double check that it makes sense that the business will be bound by the person signing the contract. Can a personal assistant sell off major assets? Can a member of an LLC hire someone? Only one true answer exists ... perhaps. Avoid the legal analysis and if possible go straight to the source and verify the agent's authority. It isn't a step you have to take, but may want to take. The Gold Standard is a board resolution or certificate under penalty of perjury signed by (at least) the secretary of the business.

8. Read the Contract. Read the Contract. THEN agree with yourself that the contract is correct and only then sign the contract.

Be on guard when there is a greater interest in you signing the document rather than reviewing it. Typical scenarios involve claiming things are standard (standard isn't good), pointing out "important" clauses and not letting you read the other clauses, referencing other documents that you haven't seen. Understand how the contract works. Every clause, every provision, and every definition .. even boiler plate.