Entrepreneurship is the life-blood of our economy. However, most new businesses fail and many of the others eventually get sued. State legislatures have attempted to reconcile these two facts by setting up laws that allow entrepreneurs to limit their personal risk when undertaking a business venture.

Undertaking a business venture while protecting personal assets is possible through the use of a business entity. When a business entity is formed, the general extent of risk is limited to the assets of the entity itself and generally does not extend to the personal assets of any officer, director, or shareholder. Common business entities include corporations, limited partnerships, and limited liability companies. While each type of entity offers certain legal protections, the structure of each is not appropriate for all business scenarios. To determine which entity will work best in your situation, visit with an attorney in your jurisdiction knowledgeable about the various structures and their costs and benefits in terms of costs to set up, maintain, and various tax treatments.

Corporations and other liability-limiting entities are often used to mitigate risk by providing a firewall of protection between business debts and liabilities and personal assets. Too often in defending breach of contract lawsuits against businesses, the personal assets of business owners at stake because the signature on the contract is arguably that of the owner instead of the business. A business entity can only act through its agents–be they employees, officers, or directors. The question is, how should one of these agents sign a contract on behalf of the business entity to minimize exposing the agent to liability on the contract for which the agent’s personal assets become exposed?

In Texas, the answer is two-fold: a) avoid signing a personal guarantee; and b) follow the signature guidelines found in the Texas Business & Commerce Code §3.402. When someone signs a personal guarantee, that person does so with knowledge that personal assets may be exposed to satisfying the guarantee. However, when signing other agreements, it is not as clear that personal assets may be at stake due to improperly signing the agreement.

First, the business should be unambiguously identified within the agreement and signature block. Second, the business’s representative signing the document needs to be authorized to sign on behalf of the business. Third, the signature needs to unambiguously demonstrate that the representative is signing in his or her representative capacity and not signing in his or her individual capacity. An example of a proper signature block is:

Signed: Business, Inc.
By: John Doe, President

In addition to your homestead, the following personal property assets are exempt from garnishment or seizure by a creditor provided the collective value does not exceed $30,000 for an individual or $60,000 for a family:

(1) home furnishings, including family heirlooms;
(2) provisions for consumption;
(3) farming or ranching vehicles and implements;
(4) tools, equipment, books, and apparatus, used in a trade or profession;
(5) wearing apparel;
(6) jewelry as long as its value does not exceed 25% of the total value limitations;
(7) two firearms;
(8) athletic and sporting equipment, including bicycles;
(9) a vehicle for each licensed driver or a vehicle used for the benefit of a non-licensed driver;
(10) the following animals and forage on hand for their consumption:
(A) two horses, mules, or donkeys and a saddle, blanket, and bridle for each;
(B) 12 head of cattle; 60 head of other types of livestock; and
(C) 120 fowl; and
(D) household pets.

A revocable trust allows the grantor to alter, amend, or revoke the trust prior to death. Therefore, the trust can be undone if the grantor so chooses.