Contracts: Why Having Each Party’s Legal Name is Important
Photo by Kelly Sikkema on Unsplash
Author: Ty Leitow
Last Updated: January 25, 2024
Whether we realize it or not, contracts form a core part of what keeps our professional and personal lives moving forward. From cell phones and internet, to cars, Netflix and houses, contracts are the legal backbone giving structure to all the things we need and want. For businesses, having good enforceable contracts is an essential part of being successful.
When you think about what makes a contract good, things like price, cost, term, warranty, and payment terms may come to mind.[1] And while those are all very important, a good contract is also one that is enforceable. No matter how beneficial the terms of an agreement are, if the contract doesn’t include a few key elements, it may not be legally enforceable, which can have severe consequences.
One often-overlooked part of written business contacts is the names of the parties to the contract. Generally, a written contract between businesses must accurately identify the parties to the contract. Failing to list each parties’ legal name can result with the contract not being legally unenforceable. That means a party could lose out on the benefits of the contract and be unable to legally force the other party to perform its obligations under the contract.
A company’s legal name is the name listed on the company’s articles of incorporation/organization, which are filed with the Secretary of State (for corporations, limited liability companies, and some partnerships) or with the county or other local government office (for sole proprietorships and some partnerships). This legal name is what’s listed on the company’s tax filings and is the name that is connected to the company’s Tax EIN.
While a company’s legal name should be listed on all formal documents and agreements (tax forms, press releases, government filings, and contracts, etc.), it’s often not used in marketing materials, websites, or social media. A company may use part of its legal name, or a variation of its legal name in these less-formal types of publications, or it may have a trade name or doing-business-as name, all of which are not technically a company’s legal name. Moreover, for large conglomerates with many affiliates and subsidiaries, it can be difficult to determine which legal entity you’re contracting with.
Sometimes determining a company’s legal name is nothing more than a minor inconvenience, and other times it can be quite difficult. Regardless, there can be severe consequences for not having each party’s legal name on a contract.
Companies that do not have in-house legal, or have an understaffed legal department, often gloss over this legal-name requirement. This is especially true when companies utilize non-legal staff to draft contracts or complete fill-in-the-blank template contracts. In most cases, having a slightly incorrect party name is okay, but if a name is so wrong to cause ambiguity on who is actually entering into the contract, a court may hold the contract to be unenforceable.
A Party’s Legal Name.
What is a Contract. Before we discuss why having the proper legal names of the parties in a contract is so important, let’s briefly cover what a contract is. A contract is simply a legally enforceable agreement between two or more parties.[2] In business, most contracts are written, but not all contracts have to be in writing, and yet other contracts, depending on the subject matter, do have to be written to be enforceable.[3]
Legal Name. Assuming all the basic elements of a contract are present (see footnote 2), for each party to be legally bound to the terms of a contract, they must be properly identified (and the proper person must sign for each party; for more details on signature authority, click here). Specifically, each party’s legal name should be written on the contract. If the name written on the contract is substantially different from the actual legal name of the party, a court could rule that the contract is not enforceable.
Unlikely, but Severe Consequences.
A Matter of Degree. Some people, especially non-attorneys, are surprised to learn how important having the right legal name on a contract is. While it is somewhat rare for a court to hold that a contract is unenforceable simply because a party’s name on the contract was not its legal name, it has happened. There is a point at which a party’s name is so inaccurate that a court will not enforce the contract. It’s often a matter of degree, taking into consideration how fair or unfair enforcing the contract would be to the aggrieved party, and the specific facts and circumstances of the case.
Common Example. Often, this issue arises when Party A wants to enforce a term of a contract, but their own name in the contract was wrong. In some cases, courts have held that because Party A’s legal name was not on the contract, and it’s reasonable to expect a party to know its own legal name for the purposes of contracting, the court will not allow the contract to be enforced against Party B.[4]
Easy Risk to Avoid. Businesses can easily eliminate this enforceability-risk by taking a few simple steps to ensure the proper legal names of the parties are in every contract the company enters.
How to Determine a Party’s Legal Name
Just ask. Practically speaking, the first step in determining a party’s legal name is to ask.[5] Whether trying to determine your own company’s legal name, or the other party’s legal name, you should start with asking. The legal, accounting, and finance departments will know the legal name of the company. You can also verify a company’s legal name by asking for a copy of the company’s articles of incorporation or a signed copy of the company’s W-9 tax form, both of which list the legal name of a company.[6] Generally, if you’re asking for the other party’s legal name, having an email or statement from their company’s attorney, accountant or CFO should be sufficient.
Doing Business As. For those who don’t work with or manage contracts often, it may seem a little overkill to focus so much on figuring out the legal name of a company. However, determining and verifying the correct legal name of a company is often much more involved than simply looking at a company’s website or social media. In many cases, even an employee’s signature block in company emails does not list the legal name of the company.
For example, let’s say your company’s marketing and website identifies your company as ABC Supplier. However, ABC Supplier may just be the common way your company refers to itself, or it may be your company’s trade name or “doing business as” (“DBA”) name.[7] If “ABC Supplier” is a registered DBA, it may be okay to use that name in a contract. However, if ABC Supplier is just how the company’s employees refers to the company, there’s potential risk in using it in contracts.
To continue the example, let’s assume that ABC Supplier is not a registered DBA, and your company’s legal name is actually ABC Brother’s Holding Company, Inc., and you use ABC Supplier in all of your company’s contracts. Here, there is risk that the contracts could be held unenforceable by a court, especially if using “ABC Supplier” reasonably confused the other party about the identity of your company, or reasonably confused your company with another company with a similar or same name.
Trust, But Verify. You may have heard of the Russian Proverb, “Trust but Verify”, and it applies here when determining the legal name of a party. As stated above, practically speaking, often the easiest and most efficient way to determine a party’s legal name is to simply ask. However, unless a lawyer or accountant is providing the name, you should take a trust-but-verify approach. Sales professionals, marketing managers, and the like may all honestly believe the name they tell you is the company’s legal name, but it may instead just be a common name used by employees, trade name, fictitious name, or DBA.
There are a variety of methods to confirm the legal name of a company. The right, or best method often depends on three things: (1) How unique the common name or DBA of the company is, (2) the amount of information about the company you have readily available, and (3) the type of business entity the company is. Generally, it will be easier to verify a company’s legal name if the common or provided name is relatively unique, you know where the company’s headquarters is, and the company is a corporation or limited liability company.
Legal Name Verification Methods. If you find yourself in a situation where you need to quickly determine or verify a company’s legal name, here are four things you can do.
Online business entity search on a Secretary of State website. Corporations, limited liability companies and some partnerships are required to file incorporation and/or organization documents with the Secretary of State (“SOS”) where the company is incorporated/organized in. Additionally, companies are required to file registration documents with all other state SOS’s that the company operates in. In the US, each state’s SOS provides a searchable database of companies that have incorporated or registered in their state. For example, this is where you can search for companies in Michigan. When you find the company on an SOS website, the listing will tell you key information about the company, including its legal name and registered agent and address. Some SOS websites even provide copies of the company’s incorporation/registration documents. Searching a SOS database for a company is often the best method of verifying the legal name of company.
Online business entity search at the county level. In some jurisdictions, businesses that are sole proprietorships or general partnerships may be required, or have the option, to file registration documents with the county or city they are located in. At this level, online, searchable databases are less common, and you may have to call the municipality’s office to conduct a search of business records.
For sole proprietorships, the person who is the owner is also the business. That is, the business and the person are not separate legal entities. They are considered one and the same even if the proprietor uses a business name. However, sole proprietors may file a trade name at the county (or city) level. For example, let’s say John Smith runs a plumbing business as a sole proprietorship, and his business card says John’s Plumbing. Here, his business’s legal name is simply his name, John Smith. However, if he files a trade name with the county, he can use John’s Plumbing in his marketing. Technically, the proper way to list John Smith’s legal business name would be “John Smith, doing-business-as John’s Plumbing”.
Partnerships can be a little trickier. Depending on the jurisdiction, general partnerships may not be required to file any registration documents with the SOS or at the county. On the other hand, limited partnerships usually are required to file registration documents with the SOS and/or county. Similar to sole proprietorships, partnerships may also register a trade name at the county level. An example of a county trade name search may be found here.
Check the company’s privacy policy or terms of use on their website. If a company has a website, it’s legal name can often be found in its privacy policy and/or terms of use listed on the company’s website. Usually links to these policies can be found near the bottom of the webpage.
Review a signed copy of the company’s W-9 tax form. A W-9 tax form is an IRS tax form that lists a company’s legal name along with its Tax EIN. W-9 forms are signed, usually by the CFO or accountant, and may be reasonably relied upon to verify a company’s legal name. Generally, these forms are submitted with a company’s tax filings, and are often required as part of due diligence for finance transactions, vendor review, and customer onboarding. Requests for a signed copy of a W-9 form should not receive much pushback, especially if the request is related to legal-name verification for contract purposes.
[1] In-house legal departments will often refer to these categories as “commercial terms”, or “business terms”, which are contract terms that present more of a commercial or business question, rather than a legal question.
[2] Legally speaking, there are certain elements that must exist for a contract to be legally enforceable, including mutual assent, offer, acceptance, consideration, capacity and legality. For a more thorough discussion of the legal elements of a contract, check out this article by Cornell Law School.
[3] For example, in most US states, the following types of contracts must be in writing to be legally enforceable: purchase and sale of real property, contracts that will take longer than 1 year to complete, real estate leases with a term of longer than 1 year, contracts with a value in question above a certain threshold (varies by state), and contracts for the sale of goods with a value over $500.
[4] Keller, Herschel. Getting the Name Right on the Contract Really Matters. Gentry Locke Attorneys. Accessed December 5, 2023. https://www.gentrylocke.com/article/getting-the-name-right-on-the-contract-really-matters/
[5] It’s a common part of the contacting process to ask for the legal name of the parties, and the ask can be as straight forward as “Please send me the legal name of your company for the contract.”
[6] On the articles of incorporation/organization, you’ll want to perform some due diligence to make sure the company’s legal name has not been changed since the articles of incorporation/organization were adopted.
[7] A “doing business as” name, or “DBA”, is an alternative name for a company, usually registered with a Secretary of State, or occasionally a county. DBAs may also be referred to as a “trade name”, “assumed name”, or “fictitious name”. From a contract enforceability perspective, listing a DBA on a contract is usually acceptable, but it’s generally preferrable to use a company’s legal name.