What is signatory authority?

What is signatory authority, and who has authority to sign a contract on behalf of a company? Let's find out.

What is signature authority?

Signatory authority is the legal right to enter into a contract. If you’re an individual human adult, signing a contract for yourself (like an insurance contract, employment offer letter or tenancy agreement), then you’re all good – sign away.

But if you’re signing a contract on behalf of the company you work for, you must have signature authority. This means you have the legal right to enter into contracts or agreements, both written and oral, that bind your employer to their terms and conditions. But who has it, and how do you get it?

Signatory authority: how it works 

In theory, any employee can sign a contract on behalf of their employer as long as they have ‘express, implied or apparent authority’. They don’t have to be a director, or have any specific job title.

For example, if your office manager often negotiates supplier contracts, they might be considered to have ‘implied or apparent authority’ to sign those contracts on behalf of the company. Even if they’ve never actually been given explicit permission to do this by the directors or owners.

However, this is imprecise - and the last thing you want is to have to test the procedures around signatory authority after the fact - for example, after a breach of contract that results in legal action.

For that reason it’s a good idea to have an internal policy in place that spells out exactly who can sign contracts for your company, and how much for.

Think carefully about who you want to be able to do this. For example, you might want to limit it so that only directors or board members can sign contracts.

Or, if that’s not practical, you could decide that all employees above a certain level in the organization chart can sign contracts, but only up to a particular amount of money. Anything above that threshold will need to go through the board, or through a named senior individual, like the finance director or COO.

Whatever you decide, make sure you put it in writing. Your policy should also include a list of things your authorised signatories should do before they sign on the dotted line – i.e. how they should review contracts or agreements, and whether there's a defined approval workflow in place.

For most companies, signatory authority - meaning, who is an authorized signatory - defaults to the board of directors, and by passing a resolution they can delegate it to other employees.

How many people should have signature authority? 

Obviously, it depends on the size of your business. You don’t want every Tom, Dick and Harriet to be able to sign contracts though, as that could put you at significant risk, with the company exposed to legal obligations without visibility at appropriate levels. You also don’t want to limit it too much, either – otherwise you could end up with one or two people spending all day long signing contracts with no time to do their actual jobs.

If your business still requires one individual to sign each contract individually, then it might be time to consider mass-signing through a contract automation platform that allows dozens of contracts to be signed with one click.

Read more about bulk actions in contracts, or hit the button below to talk to a Juro specialist about mass-signing.

In any case, you’ll need to find a balance based on how many employees you have, and the amount of contracts you have to sign as a business, in order to assign signatory authority to the right people.

What if someone signs a contract without the right authority?

You’d think this would make the contract null and void. But it actually isn’t as black and white as that. That’s because of the principle of ‘apparent authority’ that we mentioned above. 

Let’s go back to that office manager. Imagine they signed a contract to install a new office kitchen which involved a lot more money than the contracts they usually sign. You then refuse to pay the bill on the basis that the office manager didn’t have signature authority for such a large amount. The kitchen supplier could argue that they had ‘apparent authority’ to sign a contract of this sort, as it’s similar to other contracts they’ve previously signed. So your company should be bound by it.

This could still apply even if you have a written policy in place about signing contracts – it’s not up to the kitchen supplier to check that the person signing the contract has the authority to do that.

It’s not all bad news though. ‘Apparent authority’ should only apply if you knew the office manager was entering into the contract and didn’t do anything to challenge it until much later (i.e. when you got the bill for that new shiny new kitchen). If it all happened behind your back then you should be able to argue that your company shouldn’t be bound by the contract. Although whether or not a court will agree with you is something else entirely.

Need to speed up your contract workflow?

If getting contracts signed quickly is a pain point for your business - particularly as it grows - then get in touch through the form below to find out more about all-in-one contract automation.