Understanding how to collect a debt owed to you requires starting with the basics. The first thing you need to figure out is who owes you the money. There’s often a difference between the person you’ll be dealing with about the debt and who is legally responsible for the debt.
Take a commercial lease for example. You’re the landlord and the business renting your space is overdue by months on rent. And, of course, you want to collect the debt you are owed. A business manager, let’s say Susan, may be your primary point of contact for the business that is renting from you. She may be the one who normally sends you the rent payments and who notifies you of repair issues. But Susan may not be the business’ owner. If the lease is with the company Susan works for, and she has no ownership interest in the company, then dealing with her about an unpaid debt may prove to be a dead end. And even if Susan does have an ownership interest in the company, legally speaking, there’s a big difference between whether the company is responsible for the debt or whether the owner(s) of the company are personally responsible.
So it’s important to know who’s on the hook – legally. In the case of a signed agreement, such as a lease or other written contract, the responsible party will be the named person or entity listed in the agreement. For instance, if the contract is with “XYZ Company, LLC,” then (in most instances) you will only have recourse against XYZ Company, and not against the owner of XYZ Company. It can be difficult to understand this distinction, but companies and their owners are legally different, even though functionally they might seem to be the same. Stated differently, the law allows individuals to use a “corporate form” to conduct business that can shield them from personal liability.
The best time to understand this distinction between individuals and companies is, of course, prior to entering into any agreement. Once a contract has been signed, you can’t change it unless everyone who has signed agrees to the change in writing.
Another important thing to remember is that before signing you should investigate to determine whether the company listed on your agreement is a valid legal entity. To do so, you simply need to make sure the company is listed with your Secretary of State. The Secretary of State in each state keeps a record of all businesses that are licensed to do business in that state. If your contract lists the name of a Georgia business, but the business isn’t registered with the Georgia Secretary of State, then the business doesn’t legally exist. This means that the individual who signed for the business is not entitled to the protections of the “corporate form” and would instead be personally responsible for any debt.
This often comes up in the context of “doing business as” or trade names. For instance, Jimmy may run a lawn care business known as “Jimmy’s Lawncare.” If Jimmy hasn’t filed paperwork with the Georgia Secretary of State, however, then Jimmy is personally responsible for all contracts entered into on behalf of Jimmy’s Lawncare. This is true regardless of what Jimmy’s business license or invoice may say.
It can often be hard to determine who the responsible party is, especially in non-contract cases. Fortunately, the Downs Law Team is here to help! Reach out to us with any questions or concerns you have regarding your agreements, contracts or uncollected debts. We have the experience to help you navigate this confusing territory and will work to make sure your best interests are protected and your debts are recovered. Contact us.