A limited liability company (LLC) is a business structure that protects its owners from personal responsibility for its activities, including its debts or liabilities. Protection from personal responsibility is the most significant advantage of creating an LLC. An LLC can have a single owner (member) or can have multiple owners (members).
LLCs are hybrid entities offer unique advantages to its members. They combine the characteristics of a corporation with those of a partnership or sole proprietorship. LLCs are easier and cheaper to form than corporations while limiting the liability of the owners more than a partnership would. Its Owners are called Members, rather than partners or shareholders.
The limited liability feature of LLCs make LLCs very attractive to investors of real estate, as well as many other business ventures. In fact, the LLC is the most common form of business entity in Georgia.
Articles of Organization and Operating Agreements
LLCs are governed by Articles of Organization, which are filed with the Georgia Secretary of State. Operating Agreements of the LLC provide the rights and limitations of the members, including whether there is a right to buy and sell real estate. The articles may allow every member to buy and sell or it may restrict that function to only certain members. The operating agreements are not public records, although they can be recorded, for example, as an exhibit to a document. They must be reviewed by the closing attorney to confirm the right of the signer to bind the LLC.
What if the Signer Does Not Have Authority to Bind the LLC?
If there is no authority to bind the LLC by the signer in the operating agreement, the LLC can disclaim the contract and the other party will have no recourse. The closing attorney will require the Articles and Operating Agreement to review and confirm that the signing party has the authority to bind the LLC.
Duty to Investigate
It is a party’s duty to investigate public records as a part of due diligence, so parties who deal with limited liability companies should be aware that if there are limitations on the authority of any or all of the members or managers in the articles of organization, properly recorded with the secretary of state, the limitations will be conclusively binding against the party dealing with the limited liability company.
For example, if a member of a limited liability company contracts to sell property owned by the company to a buyer, and the articles of organization (properly filed in the secretary of state’s office) prohibit the members from conveying property on behalf of the limited liability company, the buyer would not have any recourse against the limited liability company for conveyance of the property. In a situation like this, the buyer is deemed to have known that the member had no authority to sign the contract because the buyer could have obtained and reviewed the articles of organization.
Signature of an LLC
The information in the signature block of an LLC should include the name of the LLC, the name of the person signing for the LLC and the authority given to the signer, such as Member or Managing Member. Attaching the Articles of Incorporation and the Operating Agreement to the Purchase Agreement is a great help in authenticating the authority of signers.
Weissman, Seth. The Red Book on Real Estate Contracts in Georgia (pp. 322-324, p. 343). BookBaby. Kindle Edition.
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