Authorisations: Overview, definition, and example
What are authorisations?
Authorisations refer to the formal approvals, permissions, or legal consents required for a party to take specific actions under a contract. These can include regulatory approvals, corporate resolutions, licenses, or third-party consents necessary for compliance and contractual performance.
For example, in a business acquisition, the buyer may need authorisation from regulatory authorities before the transaction can proceed. Similarly, in a commercial lease, the tenant may require written authorisation from the landlord before making structural modifications to the property.
Why are authorisations important?
Ensuring that proper authorisations are obtained prevents legal violations, contract breaches, and operational delays. If a party acts without necessary approvals, it may face penalties or the contract may become unenforceable.
For businesses, defining authorisation requirements in a contract helps clarify responsibilities, ensure compliance with laws, and protect against liability. These clauses also establish a process for obtaining approvals and confirm that all necessary permissions are in place before an agreement is executed.
Understanding authorisations through an example
Imagine a pharmaceutical company developing a new drug. Before selling the drug, it must obtain authorisation from the relevant regulatory body, such as the FDA. A contract with distributors would include a clause stating that the company must secure these approvals before launching the product.
In another scenario, a corporate loan agreement may require the borrower to obtain board approval before taking on additional debt. This ensures that major financial decisions are properly reviewed and authorised.
Example of an authorisations clause
Here’s how an authorisations clause might appear in a contract:
“Each Party represents and warrants that it has obtained all necessary authorisations, approvals, and consents required to enter into and perform its obligations under this Agreement. Failure to secure any required authorisation shall constitute a material breach of this Agreement.”
Conclusion
Authorisations clauses ensure that all necessary approvals and legal permissions are obtained before actions are taken under a contract. They protect businesses from regulatory risks, ensure compliance, and prevent unauthorised actions that could lead to disputes or legal consequences.
By including an authorisations clause in contracts, businesses can establish clear approval requirements, mitigate risks, and confirm that all parties have the necessary legal capacity to fulfill their obligations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.