Who can legally bind your company? Who can sign contracts on behalf of your company? These are questions that business owners all too often fail to consider, and in so doing, create unexpected or unwanted liabilities.
Generally speaking, the owners, officers, directors and/or managers of a company have authority to bind a company. Some companies choose to limit such authority by placing restrictions on the authority of these individuals within the company’s internal documentation (e.g. bylaws/operating agreement). While such restrictions are enforceable within the company itself, meaning when disputes among owners/officers/directors/managers arise, they may have little to no impact on claims made by third parties against a company.
Even if an owner, officer, director, and/or manager’s ability to contractually bind the company is somehow restricted within a company’s internal documentation, this does not mean such an individual cannot bind the company by signing agreements or contracts with third parties. Perhaps more importantly, individuals who generally don’t have such authority, such as normal, everyday employees, can create liability for a company by entering into agreements or signing contracts which they do not have the internal authority to approve.
This type of liability is based on the legal concept of “authority.” When a company representative, regardless of their role in the company, acts within the scope of his/her “actual” or “apparent” authority, he/she creates a legally binding obligation on behalf of the company. Such authority can be established through direct evidence or can be implied through the actions of others at the company. For example, if a company repeatedly ignores or tolerates an employee acting beyond the scope of his/her authority, then later objects to that employee using the very same authority again, the company will very likely be responsible for all liabilities created by that employee.
With the above in mind, all companies should take the time to asses who has authority to bind them, and more importantly, all companies should assess whether they have taken actions in the past which could create unexpected or unwanted liabilities in the future.
If you have questions or concerns regarding who has authority to bind your company, or believe you may already be exposed to unwanted/unexpected liability, an experienced business attorney can help. Steps can be taken to: (1) clearly establish who has authority to bind your company, (2) place the public on notice of who has such authority, and (3) limit your company’s exposure moving forward.
ABOUT JON GARNER
Jon’s caseload often includes matters pertaining to business, family law, civil litigation, criminal matters and mediation. Regardless of the type of case, he believes in helping clients find common ground as they work toward resolution. You can read more about him or get in touch here.
