New business owners are frequently concerned about personal liability stemming from claims against their new business. That’s a subject that comes up in virtually every discussion that I have with someone forming, or thinking about forming, a start-up. Start-ups are also very interested in using a trade name (also called a fictitious name, assumed name, doing business as name, or d/b/a), because they often find the formal name (including the use of ?LLC,? ?Inc.,? or the like) too clunky or otherwise inconvenient.
But using a trade name without clearly disclosing the formal entity it represents can lead to personal liability for the individual agents involved. This situation arose in a recent case from North Dakota, Bakke v. D & A Landscaping Co., LLC, (N.D. Aug. 16, 2012), in which a landscaper who had properly formed a limited liability company and did not otherwise engage in veil-piercing conduct was nevertheless found personally liable for breach of contract, fraud, and negligence.
In that case, a couple had commissioned a landscaper to do work on their backyard. The couple received a business card, which contained a reference to ?D&A Landscaping, along with the name of the individual landscaper, Andrew Thomas, but with no title associated with Thomas’ name. The business card made no reference to the formal entity associated with the trade name, D&A Landscaping Company, LLC. Thomas also provided the couple with an estimate, a drawing, and proposals, none of which suggested that D&A Landscaping was an LLC or that Thomas was an agent for an LLC.
The court found that because Thomas had failed to disclose the identity of the LLC, personal liability was proper. This result is consistent with case law from other jurisdictions finding that an agent?s disclosure of the trade name of a company without the full disclosure of the company itself was not sufficient to protect the agent from personal liability. See Odyssey Travel Center, Inc. v. RO Cruises, Inc., 262 F.Supp.2d 618 (D. Md. 2003).
SMART TIP: Always use the formal name of your legal entity (including? ?LLC,? ?Inc.,? ?Ltd.,? or similar designations) on your business cards, in marketing materials, e-mails and other correspondence, and especially in contracts, proposals, quotes, and other materials that could bind you or your company if accepted. Always use a title (e.g., CEO, Vice President, Manager) on business cards, letters, e-mails, and other materials where your name appears. And finally, when you sign contracts or other documents, always ensure that the signature block indicates that it is the LLC that is being bound, and that you are merely signing as an agent or officer of the company (e.g., by using ?By? before your name or ?Its? after your name and before your title).