Does the way you sign your name put you at risk?

Photo courtesy of Seinfeld Season 7 Ep 3 - The Maestro

Photo courtesy of Seinfeld Season 7 Ep 3 – The Maestro

As a business owner the list of legal disputes, claims, and exposures you are at risk for is almost unlimited.   It seems when you think you have heard it all, another business finds itself in an unsolicited spotlight.  The McDonald’s Hot Coffee Lawsuit from 1994 inspired Jerry Seinfeld to use it for a storyline  and it created some classic scenes with Kramer and his attorney “Jackie Chiles” (It’s outrageous, egregious, preposterous!).

The reality is as a business owner you are always at risk of being found liable in a claim.   You may try with your best efforts and intentions to educate yourself and train your employees, but accidents happen and if you happen to be on the wrong end it can be disastrous.   Overland Park based attorney Donald Whitney shared some valuable suggestions on ways to prevent this at a recent business meeting.

3 simple things every business owner can do

1)      Separate your business from your personal assets.  If you are a sole proprietorship every transaction you have with a client or customer puts 100% of everything you own at risk should there be a claim filed against you. If there is ever a judgment against you for business debt or liabilities you have 100% of your non-exempt assets at risk.   Partnerships can be just as bad if not worse.  In a partnership both of the individuals are at risk for 100% of the partnership’s debts, even if they are caused by one partner without the knowledge of the others.  Create a clear divide between your business and your personal assets; form a Corporation or an LLC (Limited Liability Corp).

2)      Know how to sign your name.   Make sure your contract to be a corporation names you as a representative of the corporation and not a personal name.    This should also be how you sign your name when signing legal documents on behalf of your business.   Below are two correct examples, followed by three incorrect.    The point is to not sign your name in a way that insinuates personal obligation.

  • ABC Company, Inc.

By__________________

John Doe, President

 

  • ABC Company, LLC.

By__________________

John Doe, Member  (or other title)

 

  • Do NOT simply sign  “John Doe”
  • Do NOT simply sign  “John Doe, Shareholder”
  • Do NOT simply sign “John Doe, Director”   or any other title

 

3)      Don’t keep all your eggs in one basket.   Many small businesses may not think this pertains to them; they aren’t big enough, they only have one location, it will be too expensive to insure, etc.  However, if your business includes any real estate (or other asset of significant value:  specialized equipment, fleet vehicles, even intellectual property) you may be unnecessarily putting those assets at risk.  The reality is you do not need to have a large company for this to be an issue worth addressing.   If these examples sound like it could be your company, consider separating these assets into separate businesses.  Claims against your operating company (with whom your customers deal) are less likely to place at risk your real estate assets or equipment assets, if those assets are owned by separate companies that only lease them to your operating company.  A simple example of this would be:

ABC Real Estate, Inc.   –   ABC Operations, Inc.   –   ABC Equipment, Inc.

You could even further insulate the owners by creating a Holding Company between these separate businesses and yourself (or the ownership).

The point of all of this is that regardless of your business, things happen that are often beyond your control.   Bad things can happen to good people and good businesses.  What you don’t want to be doing is unnecessarily putting your family, your company, or yourself at risk.  You have worked way too hard to get what you have.

Do you have any stories of people being sued (or a favorite Seinfeld episode)? Please feel free to share your thoughts on this subject; we value your comments.

Chris Steinlage, Kansas City Business Coach

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