Your company’s successful operation depends on the deals it makes, but WHO can sign those contracts? The answer depends on how your business is formed and the founding documents your company has in place.
Who can sign on behalf of sole proprietorships and partnerships?
- Because the owner or partners in these companies is not necessarily a separate entity from the company itself, sole proprietors and general partners are generally able to sign on behalf of their company.
- In many cases, only one partner, even a minor partner, can sign on behalf of the company if the entity is a general partnership.
- Depending on the company’s founding documents, limited partners in limited partnerships should not have the authority to sign on behalf of the company.
- General partners should remember that one partner may be able to commit the business to a contract without the other partners’ agreement or even knowledge. Because of this, your partnership agreement should address this issue and document how decisions will be made BEFORE going into business with a partner.
Who can sign contracts on behalf of Limited Liability Companies (LLC) and corporations?
- Because LLCs and corporations are separate entities from their founders and stakeholders, the owners are not automatically able to sign on behalf of the business.
- Generally, an LLC’s operating agreement should designate the members, managers or employees who are able to sign on behalf of the company.
- Officers of corporations are presumed to have signing authority, while the company must specifically grant others the authority either in its bylaws, stockholders or operating agreement, or in other documentation.
- If someone signs on behalf of the company without express authority—whether signing a major contract or signing something as everyday as a paycheck—then the company is not bound by that contract because the signature was created by someone who didn’t have authority to sign it!
Because your company depends on accurate, enforceable contracts, it is important to review the agreements currently in place and seek legal guidance to ensure that the right people have the authority to sign on your business’s behalf.