Wednesday, February 22, 2017

Who Can Sign on Behalf of a Company?

To answer this, the first thing you need to do is look at the Bylaws (if the company is a corporation) or the Operating Agreement (if the company is an LLC). There are normally provisions in those documents that state who has authority to bind the company in contract.

Sometimes it’s “all members.” In that case, any member or shareholder can sign on behalf of the company without the need of any further resolutions or approvals.

Other times, it’s specific officers like President, Secretary, CEO, etc. enumerated in the Bylaws or the Operating Agr. Yet, other times, the question is left up to the Board of Directors to resolve (e.g. there may be a provison like ”the Board, by resolution, may authorize any officer or agent to enter into any contract or to execute any instrument in the name of the company”).

If the Bylaws or the OA are silent as to who has the authority to sign, the Board (or all members) can adopt a resolution authorizing certain person(s) to sign on behalf of the company. For example:

RESOLVED, that CEO of the company is hereby authorized, until otherwise ordered, to enter into, execute and deliver in the name and on behalf of the company, any contract, agreement, conveyance or any other instrument that may be deemed by him necessary and proper for the business of the company, without further act or resolution of this Board. 

“Apparent Authority”

Keep in mind, though, that, even if the person who signedon behalf of the company technically did not have the right to do it, there are laws that protect innocent third parties against that. This legal concept is called “apparent authority.” It means that, if somebody in your company acts like he has the power to sign, and then signs something, the document will be enforced against your company even if that representative did not technically have the right to sign on behalf of your company.

In California, this law is spelled out in Corporations Code Section 208(b). Another provision you need to be aware of is in Section 313, which states that when President and Secretary (or two other officers described in Sec 313) sign a contract, it will be enforced against you regardless of whether those officers had company authorization to sign, regardless of what company bylaws say.

How to Sign

To avoid personal liability for the contracts you sign, always make sure to include your title within the company and the name of the company. When you sign a contract on behalf of a company, the company is liable, not you.  Otherwise, there is a possibility that the other party can try to sue you personally for almost everything you own.



[Name], President