If you sign contracts on behalf of a corporation – whether as an officer, director or shareholder – be careful not to give a creditor the argument that you assumed personal liability for the corporation’s obligations under the contract.

The law generally holds that an officer, director or shareholder of a corporation who signs a contract in his or her representative capacity does not assume personal liability unless there is clear and explicit evidence of the individual’s intent to be bound. The rationale underlying the rule is simple: in modern times, commerce is usually done between corporations and not individual officers, directors or shareholders, who often own little or no stock in the corporation.

Of course, an individual may voluntarily accept personal liability for a corporation’s debts and obligations. The most common example of a voluntary assumption is where the owner of a small business executes a personal guarantee to obtain a commercial bank loan. Under those circumstances, it is easy to prove the individual’s intent to assume personal liability for the debt because the personal guarantee is often contained in a separate loan document, which clearly states that the individual agrees to be personally liable. In addition, the individual will almost always derive a substantial personal benefit from the arrangement, thus providing additional proof of his or her intent.

Unfortunately, not all agreements are so clear on their face. Some contracts may include boilerplate terms and conditions that seek to make the corporate representative jointly liable for the company’s obligations. The meaning of such provisions, however, may be obscured by legalese or buried within long, confusing paragraphs. When the contract is ambiguous or unclear, a question regarding what the individual intended when he or she signed the contract can become an important issue in a lawsuit.

In judging a person’s intent to assume personal liability, the courts almost always look to the language of the document first. Courts believe that written evidence of the parties’ intent is more reliable than oral testimony. If the contractual language is clear on its face, the courts will not consider extrinsic evidence to contradict the terms of the contract. Where, however, the document is unclear, the courts will permit the admission of extrinsic evidence to ascertain the individual’s true intentions. Extrinsic evidence can take many forms, but the most common form is the party’s own testimony.

Importantly, the general rule precluding personal liability only applies when the identity of the corporation is known or reasonably should be known to the other party. Under legal traditions, the corporate master is referred to as a “disclosed principal.” Where the principal is undisclosed, the general rule does not apply and the individual will be personally liable, unless the parties to the contract agree otherwise.

Consider whether you are assuming personal liability for corporate obligations the next time you sign a contract or fill out a purchase order. First, read the document carefully to make sure the language does not impose any obligations on you, personally or by name. Second, make sure only the corporation is identified as a “party” to the contract. Finally, sign the document in your representative capacity by using your business title, such as president, vice president or similar title. At the end of the day, you do not want to be stuck personally with the bill for the corporation’s debts.