A company can be represented by an authorized individual signing on its behalf. This individual, often a director, officer, or other designated representative, holds the power to legally bind the company and make decisions on its behalf.
In the world of business, contracts are a fundamental aspect of operations. But who has the authority to sign these contracts on behalf of a company, and what are the implications of signing without proper authorization?
Under California corporate law, contracts on behalf of a company are typically signed by individuals who have actual authority, which can be either express or implied. Express authority is given explicitly (verbally or in writing) by the company's principals, such as through corporate bylaws, board resolutions, or operating agreements in the case of LLCs. For example, corporate officers such as the president or other designated officers usually have express authority to bind the corporation by signing contracts.
However, an individual with no explicit authorization can still bind the company under the doctrine of "apparent authority." Apparent authority arises when a third party reasonably believes, based on the company's conduct or prior dealings, that the individual has authority to act on the company's behalf, even if the individual lacks actual authority. This can occur if the company has previously allowed the person to act in certain contractual capacities or has failed to notify creditors or other third parties that the individual’s authority has been revoked. Thus, the company may be held liable on contracts entered into by such an individual when third parties are not aware of limitations on that individual's authority.
It is essential to note that when signing on behalf of a company, the company is liable, not the individual. However, failing to include the company name and title might lead to personal liability for almost everything the individual owns. To avoid personal liability for contracts, always include your title and the company name when signing.
In cases where no authority is specified, the Board or all members can adopt a resolution authorizing certain person(s) to sign. Furthermore, a resolution might authorize the CEO, for example, to enter into, execute, and deliver contracts on behalf of the company. When President and Secretary (or two other officers described in Sec 313) sign a contract, it will be enforced against the company regardless of authorization.
This principle is a key part of contract law designed to protect third parties who deal in good faith. The concept is detailed in Corporations Code Section 208(b) and Section 313.
In conclusion, authority to sign contracts generally stems from explicit company authorization (express authority), but individuals without such authorization may bind the company if their actions create a reasonable belief of authority (apparent authority) in the eyes of third parties. This understanding is crucial for both businesses and individuals to navigate the complexities of contract law in California.
[1] Source: California Corporations Code Section 208(b) and Section 313.
- In California, individuals with no explicit authorization can still bind a company under the doctrine of "apparent authority," which arises when a third party reasonably believes, based on the company's conduct or prior dealings, that the individual has authority to act on the company's behalf.
- When President and Secretary (or two other officers described in Sec 313) sign a contract, it will be enforced against the company regardless of authorization, demonstrating the importance of understanding whether an individual has express or apparent authority to bind a company in contract law.
