Key Takeaways

  • Authorized Signers: Only individuals with actual or apparent authority can legally sign contracts on behalf of a company.
  • Types of Authority: Actual authority is explicitly granted, while apparent authority arises from reasonable assumptions based on company conduct.
  • Business Structures: Sole proprietors can sign contracts themselves, while corporations and LLCs must designate authorized representatives.
  • Common Issues: Unauthorized signers can lead to legal disputes, making clear internal policies crucial.
  • Best Practices: Ensuring clarity in signing policies, maintaining contract records, and using proper legal designations help avoid disputes.

Contract Signing Authority Overview

Parties who can sign a contract for a company are those who have been given the authority to represent their company in contract negotiations. These can either be parties who have the actual authority to sign contracts on behalf of their company, or parties who have been given the apparent authority to do so. Establishing who has the proper authority to sign contracts on behalf of a company is an important issue to resolve, as confusion related to this issue can contribute to many contract disputes.

Who Has Signing Authority?

Once a business is incorporated, the business is considered its own legal entity, meaning the owner can no longer sign their name on business contracts on behalf of the company. Rather, this task falls to authorized representatives such as managers, although, there are also instances where other employees may act as agents for their company.

The authority to sign a contract varies depending on the type of company involved. The following are common arrangements for each business type:

  1. Sole proprietorship. Signing authority lies with the owner, since a sole proprietorship is not considered to be a legal entity separate from the owner. This situation is unique among business types.
  2. Partnership. Signing authority should lie with a general partner who can sign on the partnership’s behalf. Limited partners do not have the authority to bind the partnership, so they should not be allowed to sign for the partnership.
  3. Corporation. Signing authority often lies with the company’s chief executive officer (CEO) or president. If an individual signs on behalf of a corporation and they have not been given the authority to do so, the corporation will not be bound to the contract.
  4. Limited liability company (LLC). Signing authority usually lies among managers or members, and ideally, the parties who have such authority should be indicated in the operating agreement.

Common Mistakes When Granting Signing Authority

Many businesses unknowingly create signing authority issues due to:

  • Failing to define authority in writing: Verbal agreements can lead to ambiguity and disputes.
  • Allowing implied authority to expand too far: Employees given unchecked authority can bind the company to unintended obligations.
  • Not revoking authority in a timely manner: Departing employees or changing roles require immediate updates to signing permissions.
  • Ignoring industry-specific regulations: Certain industries require specific formalities for contract signers.

To mitigate these risks, businesses should have a clear, documented signing policy and ensure employees understand their limits.

Actual Authority and Apparent Authority

Actual authority and apparent authority are the two types of authority one may have in signing. Actual authority is when an agent has been given explicit authorization to sign for a party; apparent authority is when an agent has been given implicit authority. Actual authority is often given in writing, thereby to provide documentation for an agent’s actions, while implicit authority is implied through various actions of those whom the agent represents.

Generally, managers who often sign for their company will have been given explicit authority, while others who sign will have been acting on implicit authority, and it is from the latter that disputes relating to proper signing authority often arise. An agent may reasonably believe, due to various affirmative statements or actions of their company, that they have been given the authority to sign a contract, when this may in fact not have been the intention. If this occurs, the company may then be bound to the contract or it may not, depending on the facts of the case.

Signing authority disputes can be highly fact intensive, with the outcome dependent on various factors, including but not limited to:

  1. The agent’s past conduct.
  2. The agent’s job duties and title.
  3. Whether the contract is a consumer or business-to-business contract.

In order to avoid such disputes, drawing up clear corporate policies on signing authority may be the best course of action. If an employee is only meant to sign on behalf of their company in a specific instance and their belief in implied authority to sign in all instances is to be curbed, drafting a power of attorney to authorize signing is recommended, although this may not be appropriate for all occasions.

Personal Liability Risks for Unauthorized Signers

When someone signs a contract without actual or apparent authority, they may face personal liability. The consequences include:

  • Being personally sued for the contract’s obligations.
  • Company refusal to honor the agreement, leading to potential fraud claims.
  • Reputational damage and employment repercussions.

To avoid this, companies should issue clear delegations of authority and require signers to specify their official capacity in contracts.

Signing for a Company

Properly signing a contract may seem like a simple procedure, but there are some details an authorized agent should keep in mind, such as:

  1. Dating. Make sure you date your signature and the other party does so as well, since contracts do not have to be signed on the same day and dates should not be assumed.
  2. Last-minute changes. If last-minute changes are necessary before signing, the best practice is to print out a new, revised contract and sign it. However, changes that are handwritten into the document or included as addendum are also acceptable.
  3. Retain copies. Each party to an agreement should retain copies for their records. If a contract is to be signed in ink, a copy should be signed for each party. Electronic contracts featuring electronic signatures should be printed out to maintain a physical record.

How to Properly Sign on Behalf of a Company

Signing a contract correctly can prevent legal disputes. When signing, follow these best practices:

  1. Signing a contract correctly can prevent legal disputes. When signing, follow these best practices:
  2. Use the official company name: Avoid abbreviations or personal names that could blur the distinction between personal and corporate liability.
  3. Include your title: This ensures clarity that you are signing as a representative, not personally.
  4. Avoid personal liability wording: Phrases like "individually" or "personally" should not appear next to your name.
  5. Follow state-specific rules: Some states have unique business contract requirements.
  6. Having a legally reviewed contract template with signature fields pre-defined can ensure consistency in execution.

Having a legally reviewed contract template with signature fields pre-defined can ensure consistency in execution.

Frequently Asked Questions

  1. What happens if someone without authority signs a contract?
    The company may not be legally bound, and the unauthorized signer could be held personally liable.
  2. How can I confirm if I have the authority to sign?
    Check the company’s bylaws, operating agreement, or board resolutions for authorization details.
  3. Can an employee sign contracts for a company?
    Only if they have been explicitly granted signing authority or if the company’s conduct has created apparent authority.
  4. What should I do if I accidentally sign a contract without authority?
    Notify your company immediately. The contract may need ratification by an authorized representative or legal counsel intervention.
  5. Do electronic signatures have the same authority as handwritten ones?
    Yes, as long as they comply with federal and state electronic signature laws, such as the ESIGN Act.

If you need help understanding who can sign a contract for a company, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.