How to Sign LLC Checks to Protect Your Personal Liability

An LLC check represents a financial obligation of your business, not a personal one. Proper signing helps maintain the legal distinction between the business and its owners. Mishandling check signing can undermine the protection an LLC offers, potentially exposing your personal assets to business debts.

Identifying Authorized Signers

An LLC determines who can sign checks through its operating agreement. This document outlines the duties and responsibilities of members and managers, including financial authority. While some states do not legally require an operating agreement, it is a sound practice to have one.

If the operating agreement does not explicitly designate check signers, authorization may occur through formal board resolutions or member votes. A manager-managed LLC grants managers the authority to conduct day-to-day business, including signing checks. In a member-managed LLC, members have the authority to sign on behalf of the entity.

Formalizing these authorizations with the bank is a necessary step when setting up the LLC’s business bank account. Banks require authorized signers to fill out an application, provide identification, and sign related documents. Common roles authorized to sign checks include managing members, treasurers, or specific officers.

The Correct Way to Sign Checks

Physically signing an LLC check requires a specific format to ensure it is treated as a business obligation rather than a personal one. Include the LLC’s full legal name on the signature line. This clearly identifies the entity responsible for the payment.

Below the LLC’s name, the signer should include their own name and their title within the organization. Examples of appropriate titles include “Managing Member,” “President,” or “Treasurer,” or simply “Authorized Signer”. For instance, a correct signature format would be “ABC LLC, By: John Doe, Managing Member.”

This specific format is important because it clearly indicates that the individual is acting as an agent of the LLC, not in a personal capacity. It reinforces that the check is a business transaction, helping to prevent any ambiguity about who is legally bound by the payment.

Protecting Your Personal Liability

Consistently using the correct check signing format helps maintain the “LLC veil,” which separates your personal assets from business debts. Improper signing can inadvertently create an appearance that you are acting on your own behalf, rather than as an agent of the LLC. This can put your personal assets at risk if the business faces financial difficulties or legal challenges.

The concept of “piercing the corporate veil” refers to a court disregarding the limited liability protection of an an LLC and holding its owners personally responsible for business debts. Courts may consider piercing the veil if there is a lack of true separation between the LLC and its owners, or if fraud or wrongful actions occur. Using the LLC’s bank account for personal bills, for example, is a common misstep that blurs this distinction.

Beyond proper check signing, other practices reinforce the LLC’s separate identity. These include maintaining dedicated business bank accounts, ensuring all contracts are in the LLC’s name, and keeping clear financial records.