Contracts: How to Establish the Right Contracts

Your rights may be affected by how you sign a contract

There are a variety of ways to sign a contract nowadays, including faxed and electronic signatures (both covered below), as well as the old-fashioned method of using paper and ink. Whatever path you use, it's critical that all parties are properly listed – that is, the signature section should represent the type of company (corporation, sole proprietorship, etc.) as well as the authority of the individual (vice-president, general partner, etc.) Failure to do so could result in serious consequences. Some of the details for listing entities and signing authority are explained here.

Individuals and sole proprietors are the most common types of business owners. If you're running a one-person firm and haven't incorporated or formed a limited liability corporation, you're a lone proprietor. If you or the other party is a lone proprietor, you can simply sign your names because, unlike a corporation or partnership, a sole proprietorship is not a separate legal body. Both spouses should sign the agreement if the business is a married couple doing business as a sole proprietorship.

Partnerships. When two or more persons run a business but haven't incorporated or formed a limited liability corporation, it's called a partnership. Partnerships can exist without a formal agreement specifying that they are a partnership; yet, the law frequently believes that many parties working together as a corporation are general partners. If one of the parties is a partnership, the agreement shall be signed on behalf of the partnership by a general partner. Because limited partners do not have the capacity to bind the partnership, they should never sign agreements. Only one of the partners must sign. The partnership's name, as well as the name and title of the person signing on the partnership's behalf, should be listed in the signature block.

EXAMPLE: Dan, a marketing consultant with IC, agrees to conduct market research for The Argus Partnership, a Michigan partnership. One of the general partners is Carlos Sanchez. He executes the following agreement on behalf of the partnership:

Carlos Sanchez

The Argus Partnership

A Michigan Partnership

By: ____________________

General Partner

Corporations. A corporation is a sort of commercial entity that is sanctioned by state law and established to limit the owners' personal liability. If one of the parties is a company, the agreement must be signed by someone with the capacity to sign contracts on the corporation's behalf. This authority is assumed to be held by the corporation's president or chief executive officer (CEO). The corporation will not be legally obligated by the contract if the individual signing does not have authority. A corporation's signature block should include the company's name as well as the name and title of the individual signing on the company's behalf.

EXAMPLE: Carmen Mendez, Inc. enters into joint venture negotiations with a competitor. Linda Smith, the corporation's president, signs a contract. The signature block in the contract should look like this:

Linda Smith

Kiddie Krafts, Inc.

A California Corporation

By: _____________

President

Limited-liability corporations (LLCs). A limited liability company (LLC), like a corporation, is a type of business entity that limits the owners' personal responsibility and is governed by state law. Members are the owners of limited liability firms. Members have the option of hiring others to run their business (called managers). A member or management should sign an agreement with a Limited Liability Company.

EXAMPLE: Molly is hired as a freelance programmer by AcmeSoft LLC, a limited liability firm, and she signs a contract. Tom Tucker, the company's manager, signs the agreement on AcmeSoft's behalf. The signature block in the contract should look like this:

Tom Tucker

AcmeSoft LLC

A California Limited Liability Company

By: ______________

Manager

Dates. Include the date when you sign an agreement, and make sure the other party does as well. You do not have to sign on the same day as the other party.

Changes to the Agreement that are final. It is sometimes necessary to make last-minute revisions to a contract before it is signed. If you prepared the agreement on a computer, it's easiest to make the modifications on the computer and then print a new agreement. It is not, however, legally required to prepare a new agreement. Rather, the revisions might be scrawled or typed onto all existing copies of the contract. If you adopt this method, make sure that everyone who signs the agreement also signs their initials as close to the alteration as feasible. If neither of the parties who sign the complete document initials each modification, doubts about whether the change was part of the agreement may emerge.

Copies of the Agreement are available. Each party should keep a signed copy of the agreement; if signing ink, make at least two copies. Check that each copy has all of the necessary exhibits and attachments. Both of you should sign both copies, and each of you should keep your signed original.

Agreements that can be faxed. Fax machines are commonly used by businesses to communicate. The agreement is signed by one side and sent to the other, who signs it and faxes it back. If no party disputes that the faxed signature is a fax of an original signature, it is legally adequate.If the other party argues that a faxed signature was forged, proving its authenticity may be difficult or impossible, given how easy it is to fake a faxed signature with modern computer technology. However, because forgery allegations are uncommon, this is usually not an issue. Even so, it's a good idea for you and the other party to exchange signed originals via mail or air express after the fax.

Electronic signatures are a type of electronic signature. Electronic contracts and signatures are just as valid and enforceable as traditional ink-on-paper contracts. The Electronic Signatures in Global and International Commerce Act (ESGICA), passed by Congress in 2000, addressed the uncertainty that had previously hampered e-contracts. An electronic contract is a contract that is created and "signed" entirely electronically, without the need of paper or other tangible copies. For instance, suppose you draft a contract on your computer and email it to a business associate, who responds with an electronic signature expressing acceptance. Because an electronic contract does not allow for a traditional ink signature, people indicate their electronic signatures in a variety of ways, such as typing the signer's name into the signature area, pasting in a scanned version of the signer's signature, clicking a "I accept" button, or using cryptographic "scrambling" technology. There are other methods for creating an electronically "signed PDF'' document, and you can look into them using your favorite search engine. Coded cryptographic signatures can also be used to create electronic signatures. A video on creating electronic agreements is available.

After the agreement has been signed, it is possible to change it. There are no contracts written in stone. If circumstances change and you both agree to the changes, you and the other party can always modify or amend your agreement. Only a written amendment signed by both parties should be used to update an agreement. The amendment should declare that it supersedes the original contract and that it contains all of the revisions.

​​​Yoel Molina, Esq. (AKA “Mo”)

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