Signature Authority: Who Can Sign Contracts on Behalf of a Company

Photo by Romain Dancre on Unsplash

Author: Ty Leitow

Last Updated: January 9, 2024

Contracts are an essential part of business. Most people understand that to make a contract effective, it must be signed. When you sign contracts for yourself, like a cell phone contract or apartment lease, your name is on the contract, and your name is in the signature block. However, when it comes to business contract, the company name is on the contract, and it’s the company name in the signature block. This article will cover how to properly sign a contract on behalf of a company, binding the company and the other party to a legally enforceable agreement. This power to sign on behalf of a company is generally referred to a “Signature Authority”. This article will describe how Signature Authority works and why it is important.

What is Signature Authority.  

In most cases, a company is a separate legal entity from the individuals who own and/or work for the company. Generally, a company has its own legal name and its own tax identification number, separate from the names and social security numbers of the individuals who own and/or work for the company. As a separate legal entity, only certain individuals may legally bind the company to a contract by signing on behalf of the company. This power to enter into contracts on behalf of a company is referred to as “Signature Authority.”

A person with Signature Authority has the authority to sign a contract on behalf of a company, creating a legally enforceable agreement between the company and the other party. Said differently, if a person signs a contract who does not have proper Signature Authority, the contract may not be legally enforceable. This could deprive your company of the benefits of the contract, and could release the other party from their obligations under the contract.

It should be noted that there are certain business types that are not separate entities from the owners. For example, in a sole proprietorship business, the business and the owner are the same legal entity, and the individual who owns the business has Signature Authority to sign contracts on behalf of the sole-proprietorship business.

Signing Authority and Different Types of Businesses.

In the US, there are several different types of business structures a company can have. Some of the most common of these are the (1) C-Corporation, (2) S-Corporation, and (3) Limited Liability Company. Generally, each of these different business types provides different ownership structure, tax implications, and different default rules regarding Signature Authority.

C-Corporations. 

In a C-Corporation, the owners are the company’s shareholders. Shareholders exercise their control over the company by voting at shareholder meetings and for a Board of Directors. A Board of Directors is vested with the authority to manage and operate the company. Usually, the Board appoints Executive Officers such as a Chief Executive Officer, President, Chief Financial Officer, Corporate Secretary, etc., and the Board delegates it’s management authority to these officers.  

Generally, the Board of Directors and Executive Officers of the company have Signature Authority. Shareholders generally do not have Signature Authority for companies that they own stock of. To determine exactly who has Signature Authority to sign contracts, you would want to review the company’s bylaws and the Signature Authority policy (but many companies do have a written Signature Authority policy).

The bylaws should describe the general structure of the company, including how corporate decisions are made, and who may sign contracts and bind the company to legally enforceable agreements. A Signature Authority policy would also describe who may sign on behalf of the company. Often these policies will have different rules for signing, depending on the type of contract, the value of the contract, and who the contract is with. Unfortunately, many companies, even medium-sized and larger companies, do not have a written Signature Authority policy, but they absolutely should.  

In larger companies, the Executive Officers may delegate Signature Authority to lower-level employees, like vice presidents and senior managers. This delegation of Signature Authority would be provided for in the by-laws and/or the Signature Authority policy.

Of Note, a Signature Authority policy may be called different names, and you may hear or see document names such as a Delegation of Authority policy or Signature Matrix. Regardless of what it’s called, the purpose is the same, to clearly describe which employees can sign what kind of contract.

Who can Sign and What type of Contract.

Up to this point, we’ve focused on who can sign a contract. A related, and sometimes just as important question is what kind of contract is being signed. Contracts can be classified in a variety of ways, and depending on what the purpose of the contract is, how important it is to the company and the potential risk the contract poses to the company, the authorized signers may be very different.

Some contracts may be worth a significant amount of money. Others may ask your company to assume a high level of risk. Generally, as the importance, dollar value, and potential risk of a contract increases, so does the required seniority of the individuals who have Signature Authority to sign such contracts.

For example, low-level managers may be authorized to sign non-disclosure agreements (“NDAs”) and non-binding letters of intent (“LOIs”). Generally, NDAs and LOIs have no immediate dollar value and pose little risk to the company (when properly reviewed by an attorney), which is why a lower-level employee may have Signature Authority to sign them. On the other hand, only high-ranking Vice Presidents, or even the CEO or President of the company may have Signature Authority to sign high value contracts or especially risky contracts.

Secretary’s Certificate and Incumbency Certificates.

Now, you may be wondering how you can ensure the person signing for the other party has Signature Authority. For major transactions (such as financial instruments, mergers and acquisitions, real estate transactions, equity transactions, etc.), it’s a best practice to ask for a Secretary’s Certificate and/or Incumbency Certificate.

A Secretary’s Certificate is a document signed by the Secretary[1] of a company and is delivered at the closing of a transaction. The Secretary’s Certificate usually contains: (i) certified copies of the organizational documents of the company, (ii) certified copies of the resolutions of the company approving the transaction, and (iii) statements regarding the name(s), title(s) and signature authority of the individuals who will be signing the contract and any other documents related to the contract.

An Incumbency Certificate is often included with a Secretary’s Certificate, but can exist as a stand-alone document. Incumbency Certificates are usually signed by the company’s Secretary, and certify the name(s), title(s) and sample signature(s) of the individuals who will be signing the contracts and related documents on behalf of the company.

A Secretary’s Certificate, together with an Incumbency Certificate, prove that the listed individuals have Signature Authority to enter into legally binding contracts on behalf of the company.

S-Corporations.

For the purposes of Signature Authority, guidelines for S-Corporations[2] will generally be the same as C-Corporations. S-Corporations also have shareholders, elect a Board of Directors, and appoint Executive Officers. Accordingly, subject to the company’s bylaws and Signature Authority policy (if the company has one), the Board of Directors and Executive Officers presumably would have Signature Authority for the company.

Limited Liability Companies.

Owners of limited liability companies are called “Members”. Members may directly manage the company, or “Managers” may be elected or appointed to manage the company. The Members or Managers may also appoint Executive Officers to manage the company as well.

All limited liability companies have an operating agreement, which is similar to a corporation’s bylaws. The operating agreement, among other things, describes who the Members are, who the Managers are, if any, and who has Signature Authority for the company.

The general guidelines mentioned above for Secretary Certificates and Incumbency Certificates also apply to limited liability companies.

Delegation of Signature Authority. 

It’s important to understand that most Boards of Directors, Managers for LLCs, as well as Executive Officers usually have the power to delegate their respective Signature Authority. The power to delegate Signature Authority, if it exists, would be found in a corporation’s bylaws or a limited liability company’s operating agreement. While it’s a best practice for companies to have clear policies outlining when Signature Authority delegation is proper, many companies do not have such policies.  

Looking at Signature Authority through the eyes of an employee who either wants to sign a contract themselves or wants to find the proper person to sign a contract, having a paper trail of authorization from an executive officer is important. When a company doesn’t have a Signature Authority or Delegation of Authority policy, sometimes a simple email from the CEO authorizing someone else to sign a contract will be sufficient from a legal perspective.

From an external perspective, as a party to a contract who wants to ensure the other party has the proper person signing the contract, a Secretary’s Certificate and/or Incumbency Certificate should be sufficient to prove the signer has Signature Authority for their company. However, in the real world of contract management, it’s rare to ask for or receive a Secretary’s Certificate or Incumbency Certificate for contracts of low or even moderate importance. Practically speaking, whenever there’s uncertainty about Signature Authority, a statement, letter or email from a high-ranking employee of a company (from someone other than the proposed signer), confirming or authorizing a signer’s Signature Authority is often sufficient.

Other Tips.

Here are a few other general tips to remember when trying to ensure the other party’s signer has Signature Authority:

• Check the proposed signer’s title. While not definitive, titles such as Vice President, Senior Manager, Department Head, etc., suggest the person has the proper Signature Authority. Additionally, you can ask for a copy of the signer’s business card to verify his/her title. On the other hand, if the proposed signer’s title is something like Receptionist, Intern, Analyst, Clerk, or something similar, it’s reasonable to assume the person may not have Signature Authority.

• If you have any doubts, questions, or believe the contract is particularly important, you can always simply ask the other party for verification of their company’s approval to enter into the contract and ask for verification showing that the proposed signer is authorized.

  For example, let’s say the other party wants an Assistant Vice President to sign and you want some verification for Signature Authority. You could simply ask the Assistant Vice President to obtain an email from his/her manager that states (i) the company approves the contract, and (ii) the Assistant Vice President has signature authority. This type of paper trail can be very helpful if the issue of Signature Authority ever arises after the fact.

• In many contracts, there is often a boilerplate term that generally states that the signers represent and warrant that they have the authority to sign on behalf of their company and legally bind their respective company to the contract. From a legal perspective, it’s a good practice to include such a statement in all of your contract templates.

[1] A Corporate Secretary is an officer of the company at the executive level, and in this case, the term “Secretary” is not referring to an individual who performs assistant and/or secretarial type job duties.

[2] While the differences between C-Corporations and S-Corporations are not the subject of this article, it is important to know that (1) only individuals, certain trusts, estates and certain organizations may be shareholders of a S-Corp, (2) the total number of shareholders may not exceed 100, (3) S-Corps may only have one class of stock, and (4) S-Corps are pass through entities, meaning that profits and losses pass through to the shareholders, and the shareholders are responsible for paying taxes on corporate profits. The pass-through taxation is a primary consideration for S-Corps, and allows shareholders to avoid the double-taxation of C-Corporations. Click here for more detailed information about the differences between S Corps and C Corps.