Industrial Hemp — Careful Attention Needed to Prevent Personal Liability for Company Debts
When undertaking an act you intend to be an obligation of your corporation or limited liability company [LLC], you must make certain that the person you are dealing or contracting with is aware that the obligation is not yours individually. If you are not attentive and careful, a court could rule that you are personally obligated to pay your company's debts.
Applied to your business dealings, particularly with industrial hemp and the hemp farming business where both federal and state statutes and both federal and state regulations apply and are intertwined, the lessons in the Suntans Unlimited lawsuit discussed below should be heeded.
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As defendant in a case involving a lease of a building, Val Sweeny learned this lesson in a costly way. The written lease recited that the parties were "R. H. Wilkinson, as Lessor, and Suntans Unlimited, as Lessee." The signature line of the lease described the lessee as "Suntans Unlimited, By: Val Sweeney." Suntans Unlimited was not described as a corporate or LLC entity there or any place else in the body of the lease agreement, and nowhere in the lease was Sweeney himself referred to as appearing and acting as an Officer or Manager of such a company. Even so, when the rent was paid each month, it was with checks drawn on a checking account of a corporation, those checks clearly identifying the party making payment as "Suntans Unlimited, Inc."
The lessee defaulted on the rent after eight monthly payments and the lessor filed suit against Val Sweeney personally. The court described the issue as being whether Sweeney had met the affirmative duty imposed on him by law to disclose to Wilkinson that Sweeney was acting on behalf of a company. The court stated that in order to avoid personally liability, "it is imperative that one claiming the benefit of corporate capacity … be shielded with the proper documentation … to prove this capacity." Unable to find the proper documentation, the court held Sweeney personally liable for the company's delinquent lease payments.
Taking proper precautions at the beginning of a business or contractual arrangement as a hemp grower, processor, hemp seed seller and buyer or contract carrier, will nearly always prevent unintended consequences. Had Sweeney been careful at the outset, he probably would have been successful defeating any personal liability. At the very least, Sweeney should have insisted the body of the written agreement describe the lessee as "Suntans Unlimited, Inc.," and should have insisted that the signature line of the lease describe the lessee as "Suntans Unlimited, Inc., By: Val Sweeney, President," or "Manager" if an LLC.
People should never assume in commercial or business transactions that the person with whom they are dealing is schooled in the way a corporate or LLC party, or an individual acting in only a representative capacity, should be described in the final signed document. Even though you may have made it clear verbally or via text or email messages throughout the course of weeks of negotiations with a particular person that your actions were on behalf of a company entity, you simply must continuously be on your guard, must allow yourself sufficient time with the written contract documents before you affix your signature, and thereafter.
One should develop the practice of close attention to all business transaction documents at the time of signature — leases, crop or equipment loans, mortgages, land and equipment purchases — failure to do so could result in personal liablity for something intended as a company obligation.
More information and further reading on Louisiana’s Industrial Hemp Program
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Disclaimer: This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.