If you are the manager of an Arizona manager managed LLC or a member of an Arizona member managed LLC, do you know how to sign contracts on behalf of the LLC?  If not, your ignorance could cost you big bucks.  The recent Pennsylvania case of Hazer v. Zabala, 26 A.3d 1166, 2011 Pa. Super., found that the member of a PA LLC was liable for amounts owed on a lease because the member did not properly sign the lease on behalf of the LLC.  This case is an important lesson for every LLC member and manager.

I have said many times that people who form Arizona limited  liability companies mistakenly believe that once they file the LLC’s Articles of Organization they are automatically protected from the debts and obligations of the LLC.  The primary reason people form an LLC is to shield themselves from the LLC’s activities and liabilities.  Unfortunately, owner protection is not automatic.  There are any number of ways that a member or manager of an LLC can become liable for the LLC’s debts.  For members and managers of an Arizona LLC to obtain the protection from liabilities offered by Arizona’s LLC laws, they must operate the LLC in compliance with applicable LLC law.  Most people who form an Arizona LLC do not know what Arizona LLC law is and therefore frequently cause the LLC to engage in activity that violates Arizona LLC and creates a risk that the members and managers could be found liable for the LLC’s debts.

It goes without saying that it is not likely your LLC will comply with Arizona LLC law if you do not know what the law is.  The primary reason I wrote my 170 page book called the “Arizona LLC Operations Manual” is I want to inform Arizona LLC members and managers about Arizona LLC law so they can cause their LLC to comply with the law.  One important and fundamental aspect of Arizona law is exactly how should a contract be worded so that the LLC rather than a member or manager is liable under the contract?  My Quick Start Guide has sample signature blocks that illustrate exactly how the signature of the LLC should appear in a contract.

Facts in Hazer v. Zabala

The case involved a lease that was signed by a member of Zabala Broker, LLC.  The member, Juan Zabala, signed his name on the lease and underneath is signature he printed “DBA/ZABALA BROKER, LLC.”  The court ruled that Mr. Zabala was personally liable on the lease because he signed it in his name, not as the member or manager of his LLC.

For the signer to avoid personal liability and for the LLC to be the party liable on the lease the contract should have designated the LLC as follows:

The first paragraph of the lease (or any contract) should have read:

Zabala, Broker, LLC, a Pennsylvania limited liability company

The signature block as the end of the lease (or any contract) should have read:

Example 1: For a member managed LLC:

Zabala, Broker, LLC, a Pennsylvania limited liability company

By: _______________________________
Juan Zabala, member

Example 2: For a manager managed LLC:

Zabala, Broker, LLC, a Pennsylvania limited liability company

By: _______________________________
Juan Zabala, manager

Members and managers must know how to designate their LLC properly in contracts because they may become personally liable  on the contract if it is not worded correctly.

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