Don’t let marketing strategy expose you to personal liability

Business News | 14 Jun |

You completed all the statutory steps to organize your business as a corporation (or LLC or other entity).  Why?  Because creating a separate entity for your business can insulate you, as its owner, from becoming personally liable for business debts.  Nevertheless, while you’ve followed all the steps to create the corporation, you may have been convinced to not use your long, clunky “corporate name” for marketing purposes.  Instead, your marketing guru may want you to use an abbreviated or truncated version of it or some different tradename for one or more reasons (works better with a selected logo, more mobile friendly, easier to remember, etc.). 

Marketing recommendations may be to use a short name or phrase, rather than your full entity name

Daryl Manhart is a lawyer with Burch & Cracchiolo, P.A., practicing primarily in commercial transactions, litigation, and general civil appeals.

What could go wrong?   Well, you could be exposing yourself to the personal liability that you probably incorporated to minimize or avoid. 

First, statutes authorizing the creation of entities invariably state that the name of the business “shall” contain one or more of certain words or abbreviations identifying the type of entity.  Corporate statutes require the name to contain something like “Corp.” or “Inc.”   

Second, since entities can only act through individuals as their agent, here’s some agency law.  When an agent (i.e., you) makes a contract for its principal (i.e., your business), the party who is liable as between the principal and the agent is dependent on the level of disclosure.  An agent who fails to disclose that the contract is being made for its principal, is personally liable on the contract as if the principal does not exist.  An agent who discloses that he/she is acting for a principal without identifying that principal also is liable personally (unless the other party otherwise agrees).  Only an agent who in making a contract discloses both that he/she is acting for a principal and identifies that principal is not personally liable on the contract. 

When you hold yourself out for business with just your marketing name, you may be giving up entity protection

So when your website (and other marketing material) is all about identifying your business with that catchy tradename, but doesn’t include your full, actual business name, you could be leaving yourself open to trouble.  The burden of disclosure is on you and the disclosure must have occurred by the time of transacting business – that is, before or at the time of contracting. 

People conducting business using business cards, purchase order or receipt forms, stationery, and the like with only some shortened version of their entity’s legal name (particularly if omitting statutorily required words like “Inc.”) or just a fictitious (albeit catchy) tradename have had to defend against claims of personal liability of the business owner.  You may defend based on past dealings or some other basis from which you can show that the other party should have known you were acting as agent for a disclosed entity, but that costs you extra time and money and may not be successful.    You organized as an entity in the first place intending to avoid that risk.

Make sure you can point to pre-contractual disclosures of your full entity name

Consider this, then.  On your website, set it up however you want for your marketing – use the short version of your entity name or your desired tradename.  But somewhere on that page, like if you have a physical address at the bottom of the page, include your entire business name (particularly if you are doing sales via that website).  If you have a form of purchase order, receipt, or stationery, however much you want to emphasize that name you are using for marketing, make sure your entire business name is somewhere on there, too.  Although less problematic, it’s a good idea to have your business cards also reflect the full entity name. 

Don’t forget it’s important how you sign documents, too

Now, while we’re on this subject, remember that when your business contracts with others, you want to show the full entity name on any promissory notes and contract documents, and you also want to show that the person signing is doing so as a disclosed agent of the entity, and not personally.  So, don’t just sign your name to that service contract your vendor put in front of you.  If it does not already show your entity is the contracting party, write in the full name of your business, sign below that entity name, and after your signature indicate you signed as an officer or agent (i.e., “its President”). 

You intend to operate your business as an entity to minimize or avoid personal liability.  That makes it your responsibility to make sure those with whom you do business know that they are transacting with that entity and not with you using a fictitious name for a sole proprietorship or general partnership. 

 

Daryl Manhart is a lawyer with Burch & Cracchiolo, P.A., practicing primarily in commercial transactions, litigation, and general civil appeals. 

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