Authorization of agreement: Overview, definition, and example
What is the authorization of agreement?
The authorization of agreement refers to the formal approval or permission granted by the appropriate party or parties for a contract or agreement to be executed. In the context of a business, this typically means that the company’s officers, directors, or authorized representatives have approved and authorized the signing of the contract on behalf of the organization. It ensures that the party entering into the agreement has the necessary legal authority to do so and that the agreement is valid and enforceable.
This authorization can be granted through various means, such as board resolutions, shareholder approval, or through specific provisions outlined in the company’s articles of incorporation or governance documents. In simpler terms, it confirms that the person signing the contract has the legal right and approval to bind the organization to the agreement.
Why is the authorization of agreement important?
The authorization of agreement is crucial because it ensures that the contract is legally binding and that the person who signs the contract on behalf of a company, organization, or government entity has the appropriate authority to do so. Without proper authorization, the agreement may be invalid, and the organization may not be legally bound by its terms.
For businesses, confirming the authorization helps prevent the risk of entering into unauthorized or invalid contracts, which could lead to disputes, financial liabilities, or the contract being unenforceable. It also provides assurance to other parties involved in the agreement that the entity they are contracting with has the proper approval and authorization to enter into the contract.
Understanding authorization of agreement through an example
Imagine a company’s CEO is negotiating a supply agreement with a vendor. Before the agreement can be signed, the company’s board of directors must formally approve the terms of the contract. The CEO cannot sign the contract until they have received the board’s authorization. Once the board approves, the CEO is legally authorized to sign the agreement on behalf of the company, ensuring that the contract is valid and binding.
In another example, a nonprofit organization is entering into a grant agreement with a government agency. The agreement requires the authorization of the nonprofit’s executive director and board of trustees. Once the board approves the terms of the agreement, the executive director is authorized to sign, making the contract official and enforceable.
An example of an authorization of agreement clause
Here’s how an authorization of agreement clause might look in a contract:
“The Parties represent and warrant that this Agreement has been duly authorized by the appropriate governing bodies of each Party, including the board of directors of [Company Name] and the approval of any necessary shareholders. The individuals executing this Agreement on behalf of the Parties have full authority to bind their respective organizations to the terms and conditions herein.”
Conclusion
The authorization of agreement ensures that the parties entering into a contract have the proper legal authority to do so. It is an essential element in validating the agreement and preventing any challenges to its enforceability. For businesses, confirming that the right individuals or governing bodies have authorized the agreement provides legal protection and confidence in the integrity of the contract. Proper authorization is fundamental for ensuring that a contract is legitimate, binding, and in compliance with the organization's internal governance.
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.