Authorized to do business: Overview, definition, and example
What does authorized to do business mean?
Authorized to do business refers to a company’s legal approval to operate within a specific jurisdiction. This typically means the company has registered with the appropriate government agencies, obtained necessary licenses or permits, and complied with regulatory requirements. A business must be authorized to operate legally and enter into contracts within a particular state, country, or industry.
For example, if a Delaware-based company wants to open an office in California, it must register with the California Secretary of State and obtain authorization to do business there.
Why is being authorized to do business important?
Being authorized to do business is essential for legal and financial compliance. Companies that operate without proper authorization risk fines, legal penalties, contract disputes, or even being banned from conducting business in certain locations.
For businesses expanding across states or countries, proper registration ensures they can legally hire employees, sign contracts, pay taxes, and protect intellectual property. Many contracts require companies to confirm that they are duly authorized to do business to ensure their agreements are enforceable.
Understanding authorized to do business through an example
Imagine a software company incorporated in New York wants to sell its services in Texas. Before signing contracts with Texas-based clients, it must register as a foreign entity with the Texas Secretary of State to become authorized to do business in that state. Without this authorization, contracts signed in Texas might be unenforceable.
In another example, a construction company bidding on government projects in Florida must obtain state contractor licenses and register with the state before being legally allowed to work there. If it operates without authorization, it could face legal action and disqualification from future projects.
An example of an authorized to do business clause
Here’s how an authorized to do business clause might appear in a contract:
“Each Party represents and warrants that it is duly organized, validly existing, and authorized to do business in all jurisdictions where such authorization is required for the performance of this Agreement.”
Conclusion
Being authorized to do business ensures a company has met legal and regulatory requirements to operate in a particular jurisdiction. Proper authorization protects businesses from fines, contract disputes, and legal risks. Companies expanding across different locations should verify and maintain compliance with local business registration and licensing laws to avoid operational disruptions.
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.