How Franchisees Can Avoid Personal Liability in Contracts
A common thing I see from franchisees is that they include only the name of their franchise in an agreement as opposed to including their corporate or limited liability company name. Most of the time the names are different. For example, if my franchise is "Tops Franchise" but my corporate name is "Rush Nigut Enterprises, Inc.", I need to make sure the corporate name is included in the contract.
I had this exact thing happen to a franchisee client. He failed to include the name of his corporation in a contract and used only the name of his franchise. The court ruled that he was personally liable for the debt because he had not disclosed to the other side that he was signing in a corporate capacity.
So be careful to always include your corporate or LLC name and sign with your title, (i.e. President, Vice-President, member, etc.).
Agency law is a wonderful and quirky thing. I would like to point out that not only do you need to sign the contract in your corporate capacity, but the contracting party should be the corporation. This is another good example where people should ask a lawyer before they sign significant contracts.
Thanks for the good advice. What if your corporation is doing business under a fictitous business name? Would it be sufficient to use the DBA name in the contract?
Vaughn, Thanks for the great question. In general, if your DBA name (fictitious name in Iowa) is filed with the appropriate agency such as the Secretary of State in Iowa, it is probably sufficient to use the fictitious name in the contract. However, since it is so easy to include the corporate name, I would just include both so there is no confusion. Keep in mind, the answer to that question could vary from state to state.