Key Takeaways:

  • If you are authorizing someone to act on behalf of the company, there must be proper documentation to verify this.

  • The authorization letter must clearly define the scope of authority granted.

  • Unauthorized signatures can void contracts and lead to legal liability.

  • Changes in signing authority must be communicated to stakeholders to avoid legal issues such as unenforceable contracts.

When you are operating your business in a fast-paced environment, you might have to make quick decisions to adapt to changes. For this reason, many company executives give employees the authorization to sign on behalf of the company. This is a very important responsibility with many legal implications. For this reason, it is important to know how to clearly define and document the scope of signing authority to minimize risks of legal complications. 

 

What is an Authorization to Sign on Behalf of a Company?

An authorization to sign on behalf of a company refers to the formal process through which a company gives legal permission to another individual to sign documents and enter agreements on the company’s behalf. This is sometimes called “Legal Delegation of Authority” or “Legal Representation Authority”.

This type of authorization is extremely crucial for any business, as it is legally binding and enforces the company to enter into a contract or agreement signed by its authorized representatives.

Without proper authorization, any signed agreement or contract would be void and might even put the company at risk of legal disputes and lawsuits.

 

Legal Implications of Authorization

When a person is given the authority to sign on behalf of the company, they carry significant legal liability and responsibility. This authorized individual can legally commit the company to contracts, agreements, or other obligations. If any legal disputes occur thereafter, the company will be held liable.

In addition, if the authorization is given without following proper procedures or documentation, it can have severe legal consequences. Contracts could be nullified and the company may face damages to its profits and reputation. 

Moreover, the person who signed without proper authorization may also face lawsuits and be held liable for unauthorized acts, which can have career-ending implications.

 

How to Grant Signing Authority to an Individual

Granting the authority to sign on behalf of a company involves a formal, step-by-step process that may involve multiple parties. Below is a step-by-step guide to granting this authority.

Step 1: Get Board Approval

The first step you need to take is to get approval from the board to legally grant signing authority to the designated person. This involves formalizing a resolution that outlines the scope of the designated person’s authority, whether it's for specific transactions, general contracts, or operational documents.

Step 2: Prepare Formal Documentation

After getting board approval, you need to prepare formal documentation such as a corporate officer authorization form or a power of attorney. These documents should clearly specify the person authorized and the scope of their authority to act on behalf of the company. In some cases, corporate bylaws amendment may also be required if the bylaws do not already address signing authority.

Step 3: Draft A Formal Authorization Letter

After preparing the necessary documents, you must draft a formal authorization letter outlining the scope of authority to the designated person, and the length of time for which the authorization is valid. The letter should also clearly state any limitations or exceptions as appropriate. 

Step 4: Communicate To All Relevant Stakeholders

Once you have officially given authorization to sign on behalf of the company to an individual, you must communicate this information to all relevant stakeholders including departments within the company, third-party vendors, etc. Not doing so may not only disrupt the company’s operations but could nullify contracts as well.

 

Templates and Examples of Authorization Letters

Now that you understand the steps for granting an individual the authorization to sign on behalf of the company, here are a few sample authorization letter templates that you can use. These templates can be used for different scenarios.

General Signing Authority

You can use this template when granting an executive or senior manager ongoing authority to sign contracts or other legal documents on behalf of the company. For example:

This letter hereby authorizes [Name] to sign and execute all contracts, legal documents, and agreements on behalf of [Company Name] in relation to [specific matters/transactions] effective from [date].

Transaction-Specific Authority: 

This is used when an individual is only granted authority to sign for a specific transaction, agreement, or project. Below is an example.

This letter authorizes [Name] to sign all documents related to the [Project Name] agreement with [Partner Company] effective from [date] to [end date].

Power of Attorney (PoA)

For large corporations, a formal power of attorney might be needed to grant legal authority to an executive to act on behalf of the company. This is because in the case of a large corporation, the authorized individual usually has to make major decisions and act as a representative for the company. For example:

This Power of Attorney grants [Name] the full authority to represent and act on behalf of [Company Name] in relation to all legal and financial matters effective from [date].

The above templates are just examples of how an authorization letters can differ under various scenarios. If you want, you can get UpCounsel’s free, downloadable authorization letter templates here.

 

Revoking Authorization

Just as authorizing someone to sign on behalf of the company requires you to follow certain steps, revoking the authorization also requires some formal procedures. You may want to revoke authorization if there is a change in role, if the job or project has been completed, or for other reasons. Below are the steps you have to take to revoke authorization.

Step 1: Provide Notice of Revocation

First, you need to notify the authorized individual that their signing authority has been revoked by sending a formal letter. The letter must include the reasons for revocation and the date from which the revocation is effective.

Step 2: Informing Stakeholders

Next, communicate to all relevant stakeholders involved about the revocation. Once again, doing this will help you avoid unauthorized signatures and legal complications.

Step 3: Update Corporate Documents

Update all documents such as board resolutions or corporate bylaws to reflect the revocation.

Step 4: Retrieve Authorization Materials

If the previously authorized person was in possession of any documentation, access tools, or materials (such as company seals, signature stamps, or digital signature keys), make sure those items are returned to the company.

Common Mistakes to Avoid

When delegating signing authority, there are several common mistakes that companies should avoid:

  • Lack of Clarity in Scope: Always clearly define what the authorized individual can and cannot sign. Otherwise, there may be unintended legal consequences.

  • Failure to Document Authorization: The authorization must always be properly documented through formal letters or corporate resolutions to avoid agreements from being voided.

  • Outdated Authority: All authorizations must be kept up-to-date, especially when roles change, or individuals leave the company. An expired or outdated authorization can cause confusion and legal complications.

  • Neglecting Stakeholder Communication: Not informing stakeholders about who can sign or not sign can result in unauthorized signatures and invalid contracts.

As you can see, granting authority to sign on behalf of the company is a very significant responsibility with serious legal implications. To make sure you are following the right steps and minimizing liabilities, consider speaking to an attorney for legal counsel.

 

FAQ:

  • Who is authorized to sign on behalf of a company?

Typically, directors, officers, or other designated executives are authorized. However, this can vary based on company structure and board decisions.

  • How do you write an authorization letter to sign documents on behalf of a company?

Start with a formal letterhead, clearly state the person’s name, role, and specific transactions they are authorized to sign. Include an effective date and any limitations.

  • What is proof of authority to sign on behalf of a company?

Common forms of proof include a board resolution, corporate bylaws, or a signed authorization letter from a company officer.

  • How do I sign a document on behalf of a company?

When signing on behalf of the company, include your name, title, and the phrase “for and on behalf of [Company Name].” This ensures the company, not the individual, is liable.