The Legal Issues Involved in Authorization to Sign Contracts
Authorization to sign contracts on behalf of a company means an individual has legal permission to sign official documents for separate legal entities. Once you decide to form a company for conducting your business, the company transforms into a separate legal entity. If you are not an authorized signatory then you don’t have the right to sign contracts between your business and other parties. You can sign contracts only if you have the authority to sign on behalf of your company. Legal issues may erupt if an unauthorized employee signs a contract on a company’s behalf.
Who Can Sign Contracts?
All employees in a company are not authorized business representatives. A company should have an internal procedure to decide who can sign a contract on their behalf. In most cases, a company may authorize a staff member like a manager, who functions as a corporate officer, to sign contracts for the firm. Such a responsible manager may sign business contracts for his firm. Furthermore, the other party involved in the contract may even ask for proof of the manager’s authority to sign contracts.
The Role of a Secretary in Contracts
In several corporate firms, the business owners provide only corporate officers or secretaries with the authority to sign legal documents on their behalf. These officers are familiar with the business matters of the firm and also take part in decision making.
Different Types of Contracts
Contracts play a significant role in a company’s success. As a business grows in size, it keeps acquiring more contracts.
These are some of the contracts a firm enters into:
- Partnership contracts to include more members or investors
- Rental/Lease contracts for renting office space
- Joint venture contracts for merging with other firms
- A company will also need employment contracts to hire more staff members
Important Points to Remember About Legal Contracts
The following points will help to prevent legal issues related to contracts:
- While finalizing a business contract with a firm or individual in a foreign country, ensure that the person who signs the contract has the authority to do so. By verifying the authority of the person signing the contract and being aware of the laws governing such contracts, you can minimize the risks.
- If you want to authorize someone in your firm to sign contracts on your behalf, you must do it according to certain legal procedures. This process ensures that the signing authority is made through a legal process. Moreover, it helps make sure there will be no disparity in the future. This also adds to a sense of responsibility on the signatory so that he reads the papers carefully before signing them.
- When signing a contract for your company, you need to clearly mention that you represent your business. It is also essential to clarify the signature is not in a personal capacity. It would be better to state your professional title beneath the signature along with a date is essential. Many contracts even provide a separate line to mention your designation in the company
- Your firm’s business documents should be written in a clear language to prevent unauthorized persons from signing. For instance, the articles of incorporation should mention the corporate officers who have the authority to sign legal contracts.
- The clause ‘representation on the authority of parties/signatories’ implies that parties signing the contract are bound by the terms outlined.
All firms need to be careful while entering into contracts with other businesses. They should verify that the person signing the contract has the proper authorization to sign contracts. 3E Accounting has helped several of its corporate clients by providing efficient secretarial services. We are reputed to be the best Corporate Secretarial Service Provider and can guide you in all legal matters concerned with authorization to sign contracts. You can contact us directly through our website.