Authority to execute: Overview, definition, and example
What is authority to execute?
Authority to execute refers to the legal power of an individual to sign contracts or agreements on behalf of a business or organization. This ensures that the person signing has the proper authorization to bind the company to legal commitments. Businesses often specify who has signing authority to prevent unauthorized agreements that could create legal or financial risks.
For example, a corporation may require that only executives, such as the CEO or CFO, have the authority to execute high-value contracts, ensuring proper oversight.
Why is authority to execute important?
Ensuring that only authorized individuals can sign contracts protects businesses from unauthorized commitments, fraud, and legal disputes. If someone without proper authority signs an agreement, the contract may be invalid or unenforceable.
Clearly defining signing authority also improves accountability and internal controls, helping organizations manage risk and maintain compliance with corporate policies. Many companies formalize signing authority in corporate bylaws, resolutions, or internal policies.
Understanding authority to execute through an example
Imagine a company’s sales manager signs a major contract with a supplier without approval. Later, the company’s executives argue that the contract is not valid because the manager did not have the authority to execute agreements on the company’s behalf. Without a clear delegation of signing authority, this situation could lead to legal disputes.
In another example, a business owner grants power of attorney to a trusted executive, allowing them to sign contracts while the owner is unavailable. This ensures that important agreements can still be executed without delays, but only by someone explicitly authorized to do so.
Example of an authority to execute clause
Here’s how an authority to execute clause might appear in a contract:
“Each Party represents and warrants that the individual signing this Agreement has full authority to execute this Agreement and bind the respective Party to its terms.”
Conclusion
Authority to execute ensures that only authorized individuals can legally bind a business to a contract. Clearly defining who has signing authority helps prevent unauthorized agreements, reduces legal risks, and maintains internal control. Businesses should establish clear policies to ensure contracts are executed by the right individuals.
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.