A corporation is a business created under state law that is a separate legal entity from the individuals who own or run it, so it must rely upon human beings to sign legal documents on its behalf. A corporation is managed by a board of directors, which generally appoints officers to run the company's day-to-day operations. Just because an individual has an impressive title does not automatically mean his signature has the authority to legally bind the corporation.
Express Actual Authority
A corporation is able to engage in business in its own name, entering into contracts, deeds and other legal documents, just like an individual. The board of directors can name the officers with authority to sign those documents in its bylaws or corporate resolutions. These officers named have the express, actual authority to legally bind the corporation to the documents they sign. That is, any document they sign is considered to be signed by the corporation itself.
Implied Actual Authority
In some situations, the signature of a corporate officer may legally bind the corporation even if the officer is not named in the corporate bylaws or resolutions as someone who can sign contracts on behalf of the corporation. For example, it is a common business practice for the president of a corporation to have the authority to sign contracts for supplies needed in the ordinary course of business. As a result, the president may be considered to have the implied authority to do so, even if he is not explicitly authorized in the corporation's bylaws or resolutions. Consequently, his signature may still bind the corporation to the contract.
Sometimes, a corporation may be bound to a contract as a result of the actions or statements of officers who appear to be acting on the corporation's behalf. If those actions or statements cause a person doing business with the corporation to have a reasonable belief the officer has the authority to sign a contract, the officer may be considered to have the apparent authority to bind the corporation. Even if the board of directors has instructed the officer not to enter into a particular contract, the officer might legally bind the corporation with his signature if the corporation failed to inform the third party of the officer's lack of authority and the other party reasonably relied upon the officer's statements or conduct, both past and present, which indicated he possessed the authority to bind the corporation.
The party doing business with the corporation has the responsibility to exercise due diligence -- that is, take reasonable steps -- to find out who can sign contracts on behalf of the corporation. If a contract is especially important or involves a large sum of money, it is prudent to examine the corporation's bylaws and other relevant paperwork to verify the authority of the corporate officer who is to sign the document or require the corporation pass a resolution specifically approving the contract.
Avoid Personal Liability
When a corporate officer signs a legal document, it is important for the signature block to clearly show that the corporation, not the corporate officer, is the party to be bound by the document. If the contract does not clearly show that the officer has signed the document on behalf of the corporation, he may be subject to personal liability. For example, a contract may be signed: "Acme Corporation, by John Smith, President." This indicates that the corporation, not Smith, is liable for fulfilling the contract.
- Citizen Media Law Project: Corporation
- Emanuel Law Outlines: Corporations; Steven Emanuel, Lazar Emanuel
- Cengage Learning: Revised Model Business Corporation Act (Excerpts)
- High Touch Legal Services Blog for Startup Companies: Who Can Sign a Contract for a Corporation?
- The Free Dictionary: Corporations
- Stephen Bainbridge's Journal of Law, Politics, and Culture: Agency Authority at the Corporate Apex
- The Contracts Guy: How to Sign a Contract
Sarah Barton has been writing professionally since 1992. Specializing in business law, she authored hundreds of legal briefs and memoranda during her years as a research attorney. Barton graduated from the North Carolina School of Law, where her work was published in the "North Carolina Law Review."