Who signs on behalf of an entity?

The issue that comes up often when an entity is involved with a sale is; who has authority to sign on behalf of the entity? If a limited liability company is involved, the Operating Agreement is needed. The LLC should have an Operating Agreement that details how the company is to operate. This is NOT the Articles of Organization, which is the document filed with the state to establish an LLC. The Operating Agreement will name the different members and set out the respective shares held by each member. Most importantly, for the settlement company, is identifying the managing member. The managing member to the person who has authority to bind the LLC. That is the person who needs to be present at the closing to sign documents on behalf of the LLC. That person should sign all documents as the Managing Member to confirm they are not signing in their individual capacity.

If a corporation is involved, the Articles of Incorporation need to be examined. This is where the officers of the corporation are named and details their respect duties. This document will also set out the authority each officer has with respect to the corporation. This is where the name of the person who has authority to bind the corporation will be found. The person given the authority to sign closing documents named in the Articles is the person needed at closing. Once again, they should sign in their representative capacity, i.e., John Smith, President.

The same situation is followed in a partnership. There should be a partnership agreement detailing who the partners are and their respective shares. This document will also spell out who has the authority to bind the partnership. This person needs to be at the closing and sign as a partner.

Often in small organizations or family entities, these documents do not exist. It presents a problem with lenders and settlement companies as to who should be present at closing to sign documents. In that case, there is a need for documents to be drafted in order to comply with lender and title insurance requirements. In the case of an LLC, an Authorization Agreement can be signed by all LLC members designating the specific person to sign on behalf of the LLC in order to bind the LLC. In the case of a corporation, an authorizing document can be created to show who can sign on behalf of the corporation. In the partnership situation, the same type document can be created.

Each situation is different depending on the type of entity and the members. The closing company needs to obtain these documents early in the process so, if there is a problem, it can be resolved by the closing date.

Mike’s takeaway;

When closing a case where an entity is a party, always ask for the organization papers to confirm that the correct person is signing at the settlement. Ask early in the process to avoid late problems on closing day.

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