Key Takeaways

  • A statement of authority defines who in a business has legal authority to act on behalf of the entity, particularly in partnerships or trusts.
  • This document can be especially helpful in avoiding unauthorized actions and clearly delegating responsibility for key decisions and transactions.
  • While optional in many states, a statement of authority can provide significant protection against fraud or disputes.
  • It may be required for real estate transactions, or when registering a foreign LLC to do business in another state.
  • Filing processes, fees, and legal nuances vary by jurisdiction, with some states like Colorado and Texas providing detailed statutory requirements.

A statement of authority definition is an optional declaration of the owners and partners responsible for a business. It is also often called a statement of partnership authority. This document clearly states who the decision-makers are and who has the authority to carry out plans and sign documents. It also lays down who has the authority to make decisions that could affect other business partners.

Many businesses make statements of authority for legal reasons. It's highly recommended that anyone starting a partnership enters into a statement of authority, even if it is never filed. Statements of authority are extremely valuable because they create clear guidelines as to who takes responsibility for the business. In certain states, a statement of authority only needs to be filed if it is for an out-of-state business.

Information contained in a Statement of Authority

A statement of authority can include lots of information, such as:

  • The name of the business.
  • The names of the business partners.
  • Areas in which a particular partner's authority is limited or ways his or her authority differs from that of other partners.
  • At least two partners' signatures to certify the document.

In Colorado, statements of authority are governed by a specific section of the Revised Statutes (2015). Under this legislation, a trust is allowed to convey, acquire, lease, or encumber property in that trust's name. In cases like this, a statement of authority related to the conveyancing of interest in that property must be recorded. Someone authorized to hold the title deed on the trust's behalf must execute the statement of authority. Under these circumstances, this includes the trustees.

The statement of authority not only states the name and type of the trust and identifies who is authorized to make property decisions on the trust's behalf, but also specifies:

  • The state, country, or authority it was formed under.
  • The mailing address to which tax statements must be sent.

Also known as a partnership, a general partnership is a business that has two partners who are the business's co-owners. These partners will pay tax on the business's income as individuals. A simple verbal agreement between the partners can lead to the formation of a general partnership.

When a Statement of Authority Is Needed

A statement of authority is particularly useful in scenarios where ambiguity around decision-making power could lead to legal or financial risk. This includes:

  • Real estate transactions: When a partnership or trust wants to buy, sell, or encumber property, a recorded statement of authority is often required to confirm that the named individual is empowered to execute the transaction.
  • New or complex partnerships: When partners have varying levels of involvement or differing authority, the statement helps establish internal clarity and external credibility.
  • Disputes or prior incidents: If the business has experienced a disagreement over unauthorized actions in the past, this document serves as a preventive legal tool.
  • Operating across multiple states: Some states, including Texas and Colorado, recommend or require a statement of authority for out-of-state entities registering as foreign LLCs or partnerships. This helps affirm who is legally permitted to act for the entity within that jurisdiction.

Benefits of General Partnerships

There are many benefits to this type of business, including that individuals, and not the business, pay income tax. There is less paperwork involved in starting a partnership than in starting a corporation.

Disadvantages of General Partnerships

The main disadvantage of partnerships is that the partners as individuals must take responsibility for the business's liability. Another factor to think about is that arguments can easily take place between partners about matters such as paybacks, investments, and important business-related decisions.

Filing a Statement of Authority

Companies must file a statement of authority in the state in which they operate. You can find these documents online, print them out, and file them with the secretary of state. You simply need to fill them in and mail them off to be filed. The standard filing fee is at least $70. While most states don't require general partnerships to file these statements, you will need to make sure of this. You can determine your case's specific requirements by calling the state department.

Any limitations that exist in terms of the ways a trustee can bind the entity can also be specified in a statement of authority. If there are no such limitations in this agreement, then no limitations exist. The statement can also stipulate how the entity handles its interests in real property.

After the relevant trustees sign a statement of authority, it must receive the seal of a notary public before being recorded in the county where the subject's real property is located. It must include the real property's commonly known address, as well as a legal description that distinguishes the property.

How to File a Statement of Authority

The filing process for a statement of authority varies by state but typically includes the following steps:

  1. Obtain the official form from your Secretary of State’s website or business filing office. Some states may provide downloadable templates, while others may require online submission.
  2. Complete the required information, which may include:
    • The full legal name of the business or trust.
    • The names and roles of individuals granted authority.
    • The scope and limits of their authority.
    • The entity's principal address and formation jurisdiction.
  3. Include signatures, often from multiple partners or trustees. Some jurisdictions mandate notarization.
  4. Submit the form to the relevant state or county office. If the statement pertains to real estate, it typically must be recorded at the county clerk or recorder’s office where the property is located.
  5. Pay the filing fee, which varies by state (e.g., Colorado charges around $70). Some states may also charge extra for certified copies or expedited processing.

Once filed, the statement becomes part of the public record and can be referenced by title companies, financial institutions, and business partners to verify authority.

Legal Considerations and Limitations

A statement of authority offers clarity, but it must be kept up to date to remain effective. Key points to consider:

  • Expiration and amendments: In some jurisdictions, statements of authority expire after a fixed number of years (e.g., five years in Colorado) and must be renewed or amended if the authorized individuals change.
  • Superseding agreements: Other legal documents, such as operating agreements or partnership agreements, can override or supplement the statement of authority. These internal agreements should align to avoid contradictions.
  • Fraud protection: By clearly stating who has legal capacity to bind the business, the document can shield the company from liabilities arising from unauthorized contracts, such as forged signatures or misrepresentations by former employees.

Frequently Asked Questions

1. What is the purpose of a statement of authority?It identifies which individuals within a business have the power to make binding decisions, sign legal documents, or manage property on behalf of the entity.

2. Is a statement of authority legally required?Not always. Many states do not mandate it unless the business engages in certain activities (like real estate transactions) or registers as a foreign entity.

3. Who signs a statement of authority?Generally, it must be signed by at least two partners or authorized representatives. In the case of trusts, trustees must sign, and notarization is usually required.

4. How long is a statement of authority valid?This depends on the state. Some states assign an expiration term (e.g., five years) unless renewed or amended.

5. Can I update a statement of authority?Yes. You can file an amendment if authority changes within the business, such as when a new managing partner is appointed or an old one departs.

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