Officers and LLC management

The Officer’s Signature: Authority, Binding Effect, and Personal Exposure

Officer authority asks two separate questions: is the corporation bound, and is the officer personally liable? The answer turns on the source of authority, the corporation’s manifestations to the outsider, the outsider’s knowledge, and the capacity in which the officer acted.

Start with actual authority. An officer has express actual authority from the articles, bylaws, board action, or a valid delegation. The officer may also have implied actual authority reasonably necessary to perform the assigned office or expressly authorized task. A board-imposed limit can remove actual authority even when the officer’s title remains unchanged.

Then test apparent authority. The corporation is bound when the corporation’s manifestations reasonably cause the outsider to believe the officer is authorized, and the transaction falls within that apparent role. The manifestation must come from the corporation, not merely from the officer’s own assertion. A title such as “treasurer” or “president” can help create reasonable reliance for ordinary transactions associated with that office, but it does not automatically authorize an extraordinary transaction. An outsider who knows of the limit cannot reasonably rely on apparent authority. A secret internal restriction may defeat actual authority without defeating apparent authority.

Ratification is a separate route to corporate liability. After learning the material facts, the corporation may affirm the unauthorized transaction expressly or by conduct such as accepting its benefits. Ratification treats the act as authorized for purposes of the transaction, but it does not automatically make the officer a contracting party.

Keep corporate liability and officer liability in separate boxes. If the principal is disclosed and the officer signs in a representative capacity, the officer ordinarily is not personally liable on the corporation’s contract merely because the officer signed it. Personal liability may arise if the officer personally guaranteed performance, signed as an individual, acted for an undisclosed principal, or breached an independent duty. An officer who purports to act for the corporation without authority may also face a claim for breach of the implied warranty of authority, unless the outsider knew the officer lacked authority. That claim is not the same as saying the corporation’s debt became the officer’s debt.

Read a supplied rule by locating its operative verbs-such as “binds,” “has authority,” or “is liable”-then identify the conditions, the exception introduced by “unless,” and the consequence. Do not stop after finding an internal restriction; ask whether the outsider knew it and whether the corporation separately manifested authority.

This chapter is not starred: legal resources may be supplied when it is tested, and where they are not, you need only demonstrate recognition that the topic is at issue.

The nearest partnership comparison is RUPA (1997) § 301(1): a partner’s act apparently carrying on in the ordinary course binds the partnership unless the partner had no authority and the person dealing with the partner knew or had received a notification that the partner lacked authority. Do not transplant that ordinary-course rule to a 2013 LLC.

The Usable Floor: LLC Status Before Authority

For an LLC, first determine the management regime; only then analyze who could make the decision. Examine the operating agreement for an express choice between member-managed and manager-managed. If it is silent on the management mode, ULLCA (2013) supplies a member-managed default.

In a member-managed LLC, each member has equal management rights under the default rules. A matter arising in the ordinary course ordinarily may be decided by a majority of the members. A matter outside the ordinary course ordinarily requires the consent of all members. In a manager-managed LLC, managers have equal management rights under the default rules. An ordinary-course matter ordinarily may be decided by a majority of the managers, while an extraordinary matter ordinarily requires the consent of all members. The operating agreement may alter these voting and management arrangements unless a nonwaivable statutory protection prevents the alteration.

That internal governance answer is not automatically the external authority answer. ULLCA (2013) § 301(a) states that “a member is not an agent of the LLC solely by reason of being a member.” ULLCA (2013) has no statutory ordinary-course or apparent-authority rule for members or managers. Instead, authority comes from agency principles, the operating agreement’s allocation of authority, manifestations by the LLC, and any filed statement of authority. Thus, “member-managed” identifies who has internal management rights; it does not mean every member automatically binds the LLC in every transaction. Likewise, “manager-managed” identifies the internal decision makers; it does not make every manager’s act binding regardless of an outsider’s knowledge or the scope of authority.

Private ordering can change the default. An operating agreement may appoint managers, reserve specified decisions to members, require unanimity rather than majority approval, or allocate particular authority to one person. An outsider’s reliance analysis must therefore ask what the agreement or the LLC’s conduct authorized and whether the outsider knew of a limitation. A private restriction can matter internally even when it does not defeat apparent authority externally.

The management-mode sequence is short enough to run before reading the transaction’s details:

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The floor you hold in memory is therefore not a list of subsection numbers. It is the distinction between member-managed and manager-managed, the member-management and manager-management default votes, the rule that membership alone is not agency, and the order of operations: agreement, default regime, internal approval, external authority, then liability. Exact statutory wording, exception lists, and filing effects belong on the supplied page when available.

Recurring errors arise from concrete facts:

• Treating a board instruction not to exceed a dollar limit as conclusive against an outsider who received no notice confuses actual with apparent authority.

• Treating a member’s signature as binding solely because the LLC is member-managed ignores ULLCA § 301(a).

• Treating a silent operating agreement as manager-managed reverses the ULLCA default.

• Importing RUPA’s ordinary-course rule into a 2013 LLC supplies a statutory rule that is not there.

• Treating an officer’s unauthorized signature as the officer’s personal debt ignores disclosed-principal doctrine unless there is a guarantee or another basis for personal liability.

The Supplied-Rule Test: Two Answers Hidden in Six Choices

Use the following supplied provisions for the item. The first provision addresses membership status; the second supplies the management default; the third supplies the agency bridge that ULLCA leaves to agency law.

ULLCA (2013) § 301(a): A member is not an agent of a limited liability company solely by reason of being a member.

ULLCA (2013) management default: If the operating agreement does not specify the management mode, the LLC is member-managed.

Supplied agency rule: An entity is bound by an actor’s act when the actor has actual authority or apparent authority. Actual authority exists when the entity’s manifestation to the actor reasonably indicates authorization. Apparent authority exists when the entity’s manifestation to the outsider reasonably causes the outsider to believe the actor is authorized. An actor is not personally liable on a contract solely because the actor acted for a disclosed entity.

Harbor Light LLC has two members, Priya and Mateo. Its operating agreement says nothing about management. For two years, Mateo and Priya have jointly run the business, and the two members repeatedly agreed that Priya would negotiate and sign warehouse leases for the LLC. Priya signs a three-year warehouse lease with Landlord, identifying herself as “a member of Harbor Light LLC.” Before signing, Landlord knows Priya is a member but receives no notice of any restriction on her authority. Mateo objects the next day and says that Priya had no authority because the operating agreement never expressly authorized her to sign leases.

The Three-Question Check: Authority, Status, and Private Ordering

High-Yield Points - ⚡ Biggest Takeaways

Separate entity liability from the officer’s personal liability. For an LLC, read the operating agreement before applying the member-managed default. Membership or management status alone does not establish external authority under ULLCA (2013). A secret authority limit may defeat actual authority without defeating apparent authority.