Among the benefits of operating your startup or freelance business as a Limited Liability Company or Corporation is the limited liability for the company’s owners (learn more about business structures). Limited liability means the company’s owners will not be personally liable for the debts, obligations, and liabilities of the company. As a result, even if your company loses a lawsuit, your personal assets will be safe (unless your veil is pierced, learn more).
However, many entrepreneurs and freelancers make a very serious error when signing contracts by signing as individuals rather than on behalf of their company. When they do this, their personal assets become subject to claims from the other parties to the contract.
Here’s how you can avoid that unfortunate result.
Usually, the parties to the contract will be identified in the first paragraph of the contract, the preamble.
To properly name your company, fill in your company’s legal name (the one on file with your Secretary of State). You should also include the entity classification such as LLC or Inc. In the example below, the legal name is “Newco, LLC.”
The signature block of your contract is very important. In the image below, you’ll find three examples of signature block options. Let’s examine each of the examples:
When you are ready to sign contracts for your startup or freelance business, make sure you use the right format depending on your circumstances.
(This article is general in nature and is not legal advice.)
How to draft and negotiate contracts to create better deals.
What is a Contract?
Essential Contract Terms
Reviewing & Negotiating