17 December 2018
Let’s imagine for a moment that you are a vendor, and you’ve been working to secure a big contract with a corporation, which, for this example, we’ll call BUYCOM. You’ve entertained and explained, wined and dined, led plant tours and pored over spreadsheets. BUYCOM has agreed to an incredible deal, and this is the final push, the moment when BUYCOM’s representative signs the contract. A few quick strokes of the pen, and it’s done, right? Maybe so. But how do you know that this rep actually has the authority to make this deal?
Let’s turn the tables, then, and look at this from another point of view. Imagine, this time, that you are the corporate secretary at BUYCOM and you receive notice that your corporation has just entered into a contract with a vendor. The terms of the contract are ridiculous, one that the board would never agree to under normal circumstances. As you review the document, you check the name at the bottom. It belongs to an employee, but not one with signing authority. So, the question remains: Will BUYCOM have to honor this agreement?
At the crux of this question lies the idea of signing authority. Who has the power to enter a corporation into a legally binding agreement? How does a corporation empower such a person to do so? And what legal steps must be taken for such authorization to be recognized? It turns out that all of this must be settled through a corporate resolution for signing authority. Below, we’ll review the details of corporate resolutions, including what they are, why your corporation may need to use them, and how to ensure that your corporate resolution meets all the standard requirements to be legally binding.
What Is a Corporate Resolution for Signing Authority?
Corporate resolutions are formal declarations of particularly consequential decisions made by a corporate entity. These resolutions formally record any major corporate decision so that they can then be filed with the company’s official records. Corporate resolutions for signing are particular resolutions that clarify and define which corporate officers have the legal standing to sign contracts on behalf of the corporation. Such resolutions also grant individuals the power to make transfers or assignments, sell or lease real estate, and make other important decisions that may affect the corporation.
Typically, the authority to enter the corporation into a contract or other legal agreement is limited to a select few of the corporate officers. The details of this arrangement are defined by the corporation’s by-laws. On occasion, however, a corporation may want to grant limited aligning authority to someone not originally listed in the corporation’s by-laws. In such instances, the corporation must complete a corporate resolution.
Guidelines for Creating a Valid Corporate Resolution for Signing
In general, all signing authority resolutions follow a similar formula, which includes the following elements:
- The governing body of the corporation (usually its Board of Directors)
- Must meet on a specified date
- At which time, officers decide to specifically authorize (the “Resolution”)
- A specific person by name and title
- To sign a specific contract
- Then a different office of the corporation (not the person authorized to sign the contract)
- Certifies that the Resolution occurred on the specific date and
- That the Resolution is still in effect as of the date of certification
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More specifically, the stipulations surrounding the documentation of a corporate resolution for signing are as follows:
- The certification must bear the original signature of an officer of the corporation, preferably the Corporate Secretary. This signature cannot be of the person the certificate authorizes.
- The Resolution must name the person the authorization pertains to by full name and title. If the Resolution contains only a title, then a separate corporate officer must provide a certificate that verifies that the named person did, in fact, hold the title at the time the resolution was written.
- The actual statement of the Resolution must contain the exact wording from the resolution the Board reviewed, voted on and adopted. Any variation from the official wording may invalidate the Resolution.
- The contract must be signed exactly as the name is stated on the Resolution. The name and title should match precisely. Failure to do so may invalidate the signing authority and may negate the contract.
- The date on which the resolution was adopted can precede the date on which the contract was signed, but the date on which the resolution was certified cannot precede the date on which the contract was signed.
- If the corporation has a seal, that seal must be affixed to the resolution in the appropriate place. If the corporation does not have a seal, the notation “LS” may be written inside the circle next to the secretary’s signature.
Authorized or Not Authorized?
Now that we know how to authorize an employee for signing, let’s return to our original scenario, about the BUYCOM contract. Would BUYCOM be responsible for the terms of the contract. The answer, unfortunately, is maybe.
If the employee has no authority to represent the corporation in a contract, then that contract is null and void. But, while the whole point of corporate resolutions for authorization are to allow corporations to control who has the power to enter them into contracts, the law recognizes three different forms of authority. These include actual authority, apparent authority and ostensible authority.
Actual authority is granted through the procedure detailed above, or in the case of a power of attorney.
Apparent authority exists when the nature of the employee’s position or role would imply certain powers. This is the common situation with contracts whose signatories are financial, managerial or administrative employees.
The final form of authority is ostensible authority. An employee may have actual or implied authority from their company to sign a specific contract. Subsequently, the employee signs further contracts with that same counter-party. It may be that the company gave the employee authority to enter into the first contract, but not any further contracts. The law would say that the lack of authority to sign the second contract does not matter: The party on the other side has the right to assume that the employee had the authority to enter into the second contract because he or she had the authority to enter into the first contract.
A Final Word on Corporate Resolution for Signing Authority
Entering into contracts is a serious responsibility, one best reserved for qualified corporate officers. For those instances when an officer cannot attend to a contract, the most trusted procedure is the use of a legally binding corporate resolution for signing authority. If you have further questions about how signing authority might affect your corporation, please contact a Blueprint representative.