A few articles back I discussed the importance of not being a sole proprietor and why forming a business entity with your state is so important. You can check that out here in case you missed it. So hopefully after you read that, and any other warning I’ve given, you know that having a business entity is extremely important.
With that proper business, entity comes certain formalities that need to be followed in order to avoid “piercing the corporate veil” as we call it here in the biz. All this means is that keeping your personal world and your business world as separate as possible is really important under the law in order to keep the personal liability protection your business entity affords you.
How you sign contracts related to your business is one of those important formalities that need to be followed. This shows not only the courts but also your clients and partners that your business and personal life are two separate things.
What does this look like when applied?
All of your business contracts should be written using your formal business legal name. For example, my business is registered as Montgomery Law, PLLC, so when I define the parties to a contract between me and someone else, Montgomery Law PLLC is listed as the party, not me personally.
Try not to deviate from this name within the contract, and in other contracts you use. If you utilize one type of contract often, having a template with your information already filled in can be helpful in this regard.
If you have a DBA or a doing business as, registered with your state you may be able to use that rather than the full formal name of your legal entity. That DBA will carry the same formalities as using the full legal name and if you’re using a DBA that is what the public knows you as so you can use that in your contracts if you would like.
Setting up the Signature Block:
I know this may seem silly but there is definitely a standard way you can do this for all of your agreements. The signature block should list your business entity’s legal name above the signature line, and then you may sign your own name on the signature line but underneath that, it needs to include your title and something like representative. Let me show you below:
Montgomery Law PLLC
Shannon Montgomery, Owner/Representative.
OR you can set up your signature block this way too!
Montgomery Law PLLC
Name of Signer: Shannon Montgomery
And don’t forget to date the contracts as well!
Why staying consistent is important.
Consistency is key in basically all areas of life, and your business contracts are no different. You might want to do a quick deal with a friend or family member and not bother with a formal contract, but as we all know, even families sue one another. Formalizing the relationship with an agreement that is properly signed is only going to help.
I don’t think you should ever make exceptions to using formal contracts. They don’t have to be long, or all “legalese” but they need to be written down, signed by you as the business, the other party, and properly dated. If you’ve taken the steps to set up a business entity to gain personal liability protection, you must follow the formalities that come along with that.
I know it can be hard to strike the proper balance between personal connections with clients and keeping things professional, but this is one area where you can’t afford to let the personal side of things get in the way.
If you have questions or are confused about what other formalities you should be following as a small business owner feel free to email me at Shannon@montogomerypllc.com!
Please note that this is not meant to be legal advice for you or your situation, this is merely some legal research and knowledge on the given topic.