LLC Operating Agreements: Understanding the "Authority to Bind"

Rule

When financing a property through an entity such as an LLC, the underwriter must verify that the individual signing the loan documents has the legal "Authority to Bind." This authority must be explicitly granted within the entity’s formal organizational documents, typically the Operating Agreement.

Lendency Insight

A common cause of closing delays is a "vague" Operating Agreement. If your agreement simply lists "Members" but doesn't specifically designate a "Managing Member" with the power to execute debt on behalf of the company, our legal counsel cannot clear the loan for funding. We recommend that investors review their documents during the escrow period to ensure this language is present. If it is missing, a simple amendment to the Operating Agreement can often resolve the issue before it impacts your closing date.

Common Scenarios & FAQs

• What if I am a Single-Member LLC? Even if you are the sole owner, the document must still state that you have the authority to enter into contracts and borrow money.

• Can an "Authorized Signatory" sign? Generally, no. We look for a Managing Member or a person with an ownership stake (minimum 20%) to provide the personal guarantee and execute the core loan documents.

• What happens if my Operating Agreement is 10 years old? As long as it is the most recent version and remains in "Good Standing" with the Secretary of State, an older document is perfectly acceptable.

Key Definitions

• Authority to Bind: The legal power granted to an individual to enter into a contract that is legally binding upon the entire entity.

• Managing Member: The individual designated in an LLC's operating agreement to manage the company's daily operations and sign legal documents.