Can a Manager Sign a Contract on Behalf of the Company?
When you incorporate a business, the business becomes a separate legal entity. This means you can no longer sign contracts in your personal capacity. Instead, signing contracts on behalf of a company requires an authorized representative - someone that is authorized to legally bind the corporation in an agreement. Just who qualifies as someone who has authorization to sign on behalf of a corporation?
Generally, a company director, president or managing member of an LLC is considered to be an authorized representative unless the company has specifically adopted a bylaw or other rule to the contrary.
Beyond that, however, lies a gray area. Can a lower-level executive or a manager bind the company with a signature? How about someone who isn't even a manager?
A business can designate specific managers as corporate officers who have the authorization to sign on behalf of the company. Doing so is a good idea because it makes it clear that anyone who is not on the list does not have the required approval to sign on behalf of the company.
Occasionally you might want to allow an employee to sign a specific contract or a type of contract, but not all contracts. This might be true if the employee is in a different geographic area or has responsibility for one specific part of the business. An excellent way to do this is with a power of attorney document that carefully delineates the kinds of documents the employee can sign.
Managers who are signing contracts on behalf of a company should indicate that they are signing in their official capacity. This can be done by adding their title or writing out the company name and adding “by its representative."
This is especially important for individuals who operate single-member LLCs. Failure to indicate that you are signing on behalf of the legal entity could mean that you are personally liable for fulfilling the terms of the contract if anything goes wrong.
A legal problem can arise if someone signs on behalf of a company and isn't an authorized representative. In some cases, the company can get out of the contract on this basis.
If you're entering into a contract and you have any doubts about whether the person signing for the other side has full authority to do so – or if it's a large or important contract and you want to take no chances – request proof that the person signing has the appropriate authority. Keep a copy of the authorization for your records.
If you enter into a contract and the other party later tries to back out of it by claiming that the person who signed didn't have the authorization to sign on behalf of the company, consult an attorney. In some cases, the contract may still be enforceable.
This is especially true if the person who signed it had what is known as “apparent authority,” meaning he or she appeared to be an appropriate signatory. A receptionist, for example, is unlikely to have apparent authority, but an upper-level manager might.
Another point of interest is what happened after the contract was signed. If the other company did anything in furtherance of the contract, such as mailing a check or taking some other action in accordance with the agreement, this could amount to ratification of the contract. The contract could then be considered valid.
Also, if you took any action based on the contract that you wouldn't have otherwise and that put you at a disadvantage, this is called “detrimental reliance.” It can strengthen your case that the contract should be enforced.