Signing Authority within Corporations: Who Holds the Power?
In the world of business, it's essential to understand who has the authority to bind a company in contractual obligations. This article provides a comprehensive overview of the signatory authority for corporations and Limited Liability Companies (LLCs), focusing on the importance of corporate bylaws and LLC Operating Agreements.
For a corporation, the officers and directors typically hold the power to bind the company in contracts. However, this authority is usually granted through corporate bylaws, board resolutions, or other formal delegations. For instance, a Chief Operating Officer (COO) or other officers may only have signing authority if it is expressly delegated. Contracts signed without such authority may be unenforceable or voidable due to lack of proper delegation.
On the other hand, the signatory authority for an LLC depends on whether the LLC is member-managed or manager-managed. In a member-managed LLC, any member usually has the power to bind the LLC to contracts, unless the Operating Agreement states otherwise. However, often only one member needs to sign on behalf of all members for contracts to be valid. In a manager-managed LLC, the designated manager(s) have the authority to manage daily operations and bind the LLC in contracts. The Operating Agreement must specify who the manager is and their signing authority.
The corporate bylaws or LLC Operating Agreement serve as the legal documents that define and limit who has authority to enter contracts on behalf of the company. Upholding these documents helps avoid unauthorized signings that might lead to legal disputes or voidable contracts.
In addition, an Affidavit Verifying Corporate Signing Authority can be used to legally confirm and prove the signer’s authority to bind the company in transactions, which is especially useful for external parties like banks or government agencies.
To determine who can bind a corporation or LLC, refer first to the corporate bylaws or Operating Agreement, then verify any specific authorizations or delegations reflecting the company’s governance structure and intended authority limits.
In summary:
| Entity Type | Who Can Bind the Company | Governing Document | Notes | |----------------------|---------------------------------------------|---------------------------------|------------------------------------------| | Corporation | Officers/directors with delegated authority | Corporate Bylaws, Board Resolutions | Authority must be explicitly granted; unauthorized signings risk unenforceability[1][3]. | | Member-managed LLC | Any member (unless otherwise stated) | LLC Operating Agreement | Usually one member’s signature binds LLC[4]. | | Manager-managed LLC | Designated manager(s) | LLC Operating Agreement | Manager(s) have sole authority to bind LLC[4]. |
Remember, to avoid personal liability for the contracts you sign, always include your title within the company and the name of the company when you sign a contract on behalf of a company.
For more in-depth information, a video titled "Bylaws 101: What Every Business Owner Should Know" is available, and an AI Lawyer-paralegal offers insights and drafting tips in a video titled "Bylaws and Operating Agreements Explained."
[1] Tokmakov, S. (2021). Understanding Corporate Bylaws: A Comprehensive Guide. Retrieved from https://youtu.be/FYoKEu-_bz8 [2] Tokmakov, S. (2021). Drafting LLC Operating Agreements: Tips and Best Practices. Retrieved from https://youtu.be/FYoKEu-_bz8 [3] California Corporations Code Section 208(b) and Section 313. [4] In some cases, all members or shareholders can sign on behalf of the company without further resolutions or approvals. [5] There is a legal concept called "apparent authority," which means that a document will be enforced against a company even if the representative who signed did not technically have the right to do so, if they acted like they had the power to sign. [6] If the Bylaws or the Operating Agreement are silent on who has the authority to sign, the Board (or all members) can adopt a resolution authorizing certain person(s) to sign on behalf of the company. [7] If the other party tries to sue you personally for almost everything you own, there is a possibility that the contract was not signed correctly.
Sergei Tokmakov can be reached at [email protected] and through his website.
In the realm of corporations, officers or directors with delegated authority can bind the company in contracts, but their power is usually granted through corporate bylaws, board resolutions, or formal delegations. Meanwhile, in a member-managed LLC, any member typically has the power to bind the LLC to contracts (unless mentioned otherwise in the Operating Agreement), whereas in a manager-managed LLC, it's the designated manager(s) who hold the authority to manage daily operations and bind the LLC in contracts. It's crucial to review corporate bylaws or LLC Operating Agreements to determine who can bind a company as unauthorized signings might lead to legal disputes or voidable contracts.
