Don’t Sign a Contract on Behalf of a Corporation or LLC Until the Corporation or LLC is Organized

Don’t Sign a Contract on Behalf of a Corporation or LLC Until the

Corporation or LLC is Organized

 

      If you sign a contract for a corporation or an LLC before it is organized, you can be held liable on that obligation.  This rule has long existed under the law of agency, and is expressly set forth in many corporation and LLC statutes.  Still, people do exactly what they should not and get held liable, as evidenced by a recent decision from Idaho.  KDN Management, Inc. v. WinCo Foods, LLC, 164 Idaho 1, 423 P.3d 422 (Idaho July 30, 2018).

      Here, an individual entered into an agreement for certain maintenance services at grocery stores.  He entered into the agreement prior to formation of the corporation.  When the relationship went south, and the corporation could not satisfy its debt, the court held that the  individual would be held jointly and severally liable with the corporation on the subject obligation, citing Idaho Code § 30-29-204.

“Because KDN was not incorporated until after the contract with WinCo was formed, the District Court’s holding that Nelson was jointly and severally liable with KDN under the theory of pre-incorporation liability is affirmed.”