The bigger the transaction, the more important it is to make sure your business contract signatures are proper.
Here are three common costly mistakes companies make with their business agreements.
- The wrong person signs the contract
- A person signs the agreement in the wrong capacity
- One or more key signatures are missing
Wrong Signatory
In order to get a deal, often you’ll see someone sign business contracts who shouldn’t be doing so either on behalf of your company or the other party.
Related Article: Business Contracts – 5 Mistakes To Avoid As An Entrepreneur
B2B Business Contract Signatures
In business-to-business (B2B) agreements, this error frequently happens when a signatory lacks signing authority to bind the party on whose behalf the signature is made. For example, the signatory is a low level employee who cannot bind the company or is a corporate executive who has not been authorized by the employer to do a unique major transaction outside the ordinary course of business (e.g. a high-dollar asset sale or purchase).
B2C Business Agreements
In business-to-consumer (B2C) contracts, it’s a common for a company to erroneously permit a minor sign an agreement instead of having it signed on the minor’s behalf by a custodial parent or legal guardian.
Wrong Capacity
Poorly drafted agreements will often contain signature lines that have signatories sign in the wrong capacity. Two common variations of this mistake occur:
(1) the person signs in their individual capacity instead of on behalf of the business entity they represent; and
(2) the person signs on behalf of a company when the intent was to have impose individual liability on the signatory instead of using the entity as a shield.
Related Article: Business Contracts – Why You Should Avoid Email Deals
Missing Business Contract Signatures
Invariably when there’s a wrong signatory to an agreement (e.g. because of lack of signing authority), there’s also a missing signature that should have been on the contract.
In B2B deals, one of the most common missing signature errors involves having a person sign in more than one capacity. For example, if an entrepreneur is signing an agreement on behalf of a startup limited liability company (LLC) or Subchapter S corporation, you may want the entrepreneur to sign the agreement a second time in the owner’s individual capacity to impose personal liability that encourages performance.
Related Article: 5 B2B Contract Signature Mistakes That Can Bankrupt You
In B2C transactions, perhaps the most common error is to have one spouse sign an agreement as a consumer in situations where the signatures are both spouses’ signatures are needed for the contract to be binding and/or encourage performance because of the risk to marital estate assets if there is a material breach by the consumers.
Need Help With Your Business Agreements?
If you have existing agreement templates you routinely use at your company but are concerned about their signature lines or other potential legal issues, set up a phone consultation with Business Contracts Lawyer Mike Young to discuss what you need and get legal advice.
And if you need a new agreement prepared – either for a unique transaction or as a template to use repeatedly in your business – Attorney Young can prepare that for you too. Be sure to check out our Business Contract Legal Protection Package.
