Designating Authorities within a Corporation
In the world of business, the authority to bind a company in contract is a crucial aspect of corporate governance. This power is often outlined in the Bylaws for corporations or the Operating Agreement for LLCs.
For instance, in a corporation, the President, CEO, or other executives typically hold the power to sign contracts. However, this authority is not automatic and must be explicitly granted or delegated in the corporate bylaws, a board resolution, or other formal documentation. A COO, for example, may not have the authority to sign contracts unless the bylaws or board resolution explicitly empower them.
On the other hand, in an LLC, the Operating Agreement outlines who has the authority to act on behalf of the LLC and bind it contractually. In a single-member LLC, the sole member usually holds this authority by default. For multi-member LLCs, the Operating Agreement typically specifies whether the LLC is member-managed or manager-managed and details which members or managers can enter contracts.
The determination of who can bind a company in contracts is thus controlled by the corporation's bylaws or the LLC's operating agreement, supplemented by board or member resolutions. Without such explicit authority, contracts signed may be challenged as unauthorized, which underscores the importance of clear internal governance documents that define and limit signing powers to prevent legal disputes and ensure corporate governance compliance.
It's also worth noting that in California, this law is spelled out in Corporations Code Section 208(b). Furthermore, to avoid personal liability for contracts signed, it's essential to always include your title within the company and the name of the company when signing.
In some cases, the question of who has signing authority is left to the Board of Directors to resolve. If the Bylaws or Operating Agreement are silent on signing authority, the Board (or all members) can adopt a resolution authorizing certain person(s) to sign on behalf of the company. At other times, specific officers like President, Secretary, CEO, etc., are enumerated in the Bylaws or Operating Agreement to have signing authority.
The legal concept of "apparent authority" also protects innocent third parties against a representative who signed without technical authority but acted as if they had the power to do so. Section 313 of the Corporations Code states that when President and Secretary (or two other officers described in Sec 313) sign a contract, it will be enforced against the company regardless of whether those officers had company authorization to sign.
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In the realm of business, the authority to sign contracts is usually outlined in a corporation's bylaws or an LLC's Operating Agreement, and it's essential to have this explicit authority to avoid legal disputes and ensure corporate governance compliance. For instance, in a corporation, the President, CEO, or other executives may hold the power to sign contracts, but only if the bylaws or board resolution explicitly grants them this authority. Similarly, in an LLC, the Operating Agreement specifies who can enter contracts on behalf of the LLC.
