Individuals serving as board members can sign contracts outside of a meeting if they are granted the authority to do so. Authorization is addressed in the corporation’s bylaws or in a resolution by the board of directors. How a contract is approved and who signs the document are important factors in executing the agreement.
Bylaws -- a documented set of rules and regulations that provide a framework for operation and management -- incorporate a clear definition of responsibilities for each officer and state the rights and powers of the board of directors. Who has the authority to sign contracts as well as write checks, access the bank account, speak to the media and terminate an employee contract are clearly defined in a thorough bylaw document. Well-structured bylaws also outline approval guidelines, such as the need for executive board or general member vote before executing a contract. If bylaws don’t clearly define authority, the board of directors can pass a resolution stating the authority of the officer or chairman relating to contract negotiation and execution for a specific project or for all contracts.
Board meetings are held so members of a board of directors can make decisions about the direction of a company. Some organizations require a contract be approved by a vote at a board meeting. A quorum requirement -- the number of board members who must be present at a meeting to vote on a motion -- needs to be satisfied for contract authorization to be granted. After approval, the contract can be signed at the meeting or outside the meeting.
Officers of the board of directors -- such as the chairwoman, president, treasurer, executive director, or chief operating officer -- are commonly designated as signors. Committee chairmen can be granted authority to sign some contracts on behalf of the organization. For example, the fundraising chairwoman might be allowed to sign contracts to secure a venue or caterer for an event. In some instances, a general board member is given authority to contact vendors, collect bids, negotiate prices and enter into a contract with a vendor but is not given the authority to sign. The signature and official execution of the contract are reserved for an officer of the board, with the research and negotiation being completed by the board member. This type of review process provides a system of checks and balances.
Boards protect themselves by having a clearly defined procedure for executing contracts. Communicating the process by mailing a letter to vendors explaining how the contracting process works and who has the authority to sign enlists the supplier’s help in implementing the process correctly. Passing a resolution stating an individual's contract-signing authority alerts board members to the hierarchy of authority relating to contracts. By ensuring that all board members know who can sign and expressly stating the roles and scope of work for each members, boards can prevent members from erroneously acting as agents of authority and entering into contracts on behalf of the organization.