A limited liability company is a legal entity you can create to operate your business. Every state has its own LLC laws that specify how to create an LLC and establish its management structure. An LLC is a unique type of legal entity because it protects your personal assets from the debts and liabilities of the business, while giving you considerable flexibility regarding how to manage the business, including designating who is authorized to sign on behalf of the LLC.
LLC Members' Management Authority
Each state’s LLC laws define the LLC owners as “members” and specify that each member is authorized to act on behalf of the LLC, unless the members decide otherwise. As a general rule, each member will have authority to run the LLC in proportion to his percentage ownership in the LLC; however, this only applies to a vote among the members on what action the LLC should take. With regard to third parties, a member who has authority to act on behalf of the LLC can sign documents, such as a contract, that will incur liability for the LLC.
Read More: Can I Change an LLC From Members to Managers?
Designated Managers for an LLC
LLC members can choose to designate management authority for the LLC in one or more members, or in a non-member. Most states require this choice to be specified in the LLC initial filing to create the LLC, such as the articles of organization. Additionally, the members who choose to designate a manager will adopt an operating agreement for the LLC that will specify the managers' authority. Any person designated in the operating agreement to manage the LLC, whether he is a member or not, has authority to sign documents on behalf of the LLC.
Authority to Delegate Signing Power
In addition to specifying a manager for the LLC with signing authority, the members or manager of an LLC can designate any person to have signing authority. The designated person is not required to be a member or manager. For the most part, such a delegation of authority will be limited to specific situations. For example, the designated person may have check signing authority, but only up to a specified amount and for regular monthly bills, as opposed to general signing authority.
Authorized Signing Basics
All persons authorized to sign on behalf of the LLC must understand how to properly sign on behalf of the LLC, or risk incurring personal liability. Proper signing requires you to include your name plus wording that indicates you are signing on behalf of the LLC and your relationship to the LLC, such as manager or member. Also, when signing any contract on behalf of the LLC, you should review the contract language carefully to determine that it does not indicate that you will be liable personally. Even if you sign the contract properly as a designated manager of the LLC, the contract language may make you liable if it is not properly worded.
- SBA.gov: Limited Liability Company (LLC)
- Delaware Code: Limited Liability Company Act: Managers
- Nevada Legislature: Limited-Liability Companies
- SBA.gov: Operating Agreements; the Basics
- Small-Business-Lawyer.com: A Guide to Limited Liability Companies (LLCs)
- LLC Law Monitor: Sometimes an LLC's Signature on a Contract Can Result in a Member's Personal Liability