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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