When a person is performing some act that is intended to be an act of a corporation, that person must make certain that those with whom he is dealing are aware the act is one by the corporation and not an act of his individually. Carelessness and inattention can make you liable personally for a debt of a corporation. A defendant in a recent case learned that lesson in a costly way.

The case involved a lease of a building. The written lease recited that the parties were "R. H. Wilkinson, as Lessor, and Suntan's Unlimited, as Lessee." The signature line of the lease described the lessee as "Suntan's Unlimited, By: Val Sweeney." Suntan's Unlimited was not described as a corporate entity anywhere in the body of the lease, and nowhere in the lease was Sweeney referred to as appearing and acting as an officer of a corporation. Nevertheless, when the lessee paid the rent each month, it was with checks drawn on a checking account of the corporation, those checks clearly identifying the lessee as "Suntan's Unlimited, Inc."

The lessee defaulted on the rent after eight monthly payments and the lessor filed suit against Val Sweeney personally. The court described the issue as being whether Sweeney had met the affirmative duty imposed on him by law to disclose to Wilkinson that Sweeney was acting on behalf of the corporation. The court stated that "it is imperative that one claiming the benefit of corporate capacity, in order to avoid personal liability, be shielded with the proper documentation ... to prove this capacity." Being unable to find the proper documentation, the court held Sweeney personally liable for the lease payments.

Taking proper precautions at the beginning of a business or other contractual arrangement will nearly always prevent unintended consequences at the end. Had Sweeney been careful at the outset, he probably would have been successful defeating any personal liability. At the very least, Sweeney should have insisted the body of the written lease describe the lessee as "Suntan's Unlimited, Inc.," and should have insisted that the signature line of the lease describe the lessee as "Suntan's Unlimited, Inc., By: Val Sweeney, President."

People should never assume in their commercial or business transactions that the person with whom they are dealing is schooled in the way a corporate party to a transaction must be described. Even though you may have made it clear throughout the course of weeks or even months of off and on negotiations with a particular person that your actions are on behalf of a corporate entity, you simply must be on your guard through to the very end, you must take sufficient time with the written contractual documents before you affix your signature.

Courts have held time and time again that "a person's signature on a document is not there as an ornament, or ornamentation." That is, if a contractual obligation is signed by "Val Sweeney," then it is Val Sweeney who is obligated; and, if the document is signed by "Val Sweeney, as President of Suntan's Unlimited, Inc.," then it is only Suntan's Unlimited, Inc., that is obligated.

Even if the person with whom you are dealing on behalf of your corporation, for example a banker about a business loan, insists that you take on personal liability for the performance of the transaction, you should still negotiate for a loan by the bank to your corporate entity, with your entering into the transaction only as a personal guarantor. With the passage of time, you may one day be able to renew the loan without your personal guarantee.

Not only must you thus be thorough and mindful to create and maintain all the appropriate internal corporate records once incorporated (such as minutes of shareholder and director meetings and other corporate board resolutions), you must be vigilant to always be clear and unambiguous with your corporation's "external" documents, too, such as contracts, loans and other written agreements it enters into with third persons and others of the general public.

If you are not clear with the public and have been careless and inattentive, you can find yourself faced with personal liability for an obligation that you never intended and possibly even the other party with whom you dealt initially did not intend either.