Small and mid-sized businesses need to make sure they use the right names in their contracts. It’s actually really easy to mess up, so follow along to learn how to do it right.
After reading this post, you should read our post on signing a contract: The right way to sign a contract.
First, an intro to why this matters…
The party to a contract is the person or business responsible for all of the obligations in the contract. Thus, if an obligation isn’t performed, the named party is the one who will be held responsible. If it’s an individual, then that individual will be personally liable. If it’s a business, then the business will be liable, but the owners/employees of that business generally will not be (subject to a few exceptions).
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For individuals, insert their name into the preamble (the opening paragraph of the contract). It’s best to use their formal legal name (ie, Christopher rather than Chris), although that isn’t necessarily required in most situations.
Naming a business entity is a bit harder. First, you need to make sure you are using their actual legal business name (not an abbreviation or fictitious name). That legal name will almost always include a designation of their entity type (for example, LLC or Inc.). Second, you should reference the state in which they are incorporated (since different companies can register the exact same legal name in different states).
To accomplish those goals, look up the company in the Secretary of State’s website for the state in which they are likely incorporated (usually their home state or Delaware). In that database, you can find their legal name, their entity type, and the state in which they were incorporated.
Once you have all of this information, insert their legal business name in the preamble. It should look something like this: “NewCo, LLC”.
A “DBA,” “Doing Business As,” or a “Fictitious Name,” is just that: a fake name. It’s like a nickname. In theory, you can bind someone to a contract using their DBA/Fictitious Name, but it’s best to avoid that.
Both individuals and businesses can operate under a DBA/Fictitious Name, but in each case, when it comes to identifying them in a contract, you should use the conventions identified above.
If you want, you can include a statement in the preamble to name the DBA, but it isn’t necessary. For an individual, it might look like this: “Chris Brown (d/b/a Brown Enterprises)”. For a business, it might look like this: “NewCo, LLC (d/b/a Brown Enterprises)”.
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There’s so much more to learn! Here are a few related guides you should read: