Due authorization: Overview, definition, and example
What is due authorization?
Due authorization refers to the formal approval or consent granted by the appropriate person or entity to carry out a particular action, decision, or transaction. It ensures that the individual or party taking an action has the legal power or approval to do so, whether it’s within an organization, a governmental body, or under legal frameworks.
For example, a company’s CEO might provide due authorization for a department to make a major purchase or sign a contract, ensuring the action aligns with company policies and governance.
Why is due authorization important?
Due authorization is important because it protects the integrity of the decision-making process, ensuring that actions are taken within legal and organizational boundaries. It helps prevent unauthorized actions, reducing risks of breaches or invalid agreements. For businesses, due authorization ensures that all parties involved in a transaction or decision-making process have the necessary authority to commit to the terms.
For legal compliance, verifying due authorization ensures that contracts, decisions, and actions are legitimate and enforceable.
Understanding due authorization through an example
Imagine a company is entering into a contract for the purchase of new software. The contract requires due authorization from the company’s board of directors, as the purchase exceeds a certain financial threshold. The contract is not valid until the board formally approves the decision, ensuring that the action is within company policy.
In another example, a loan agreement requires the due authorization of the company’s CFO, who signs off on behalf of the company, confirming that the decision has been approved by the necessary parties in the organization.
An example of a due authorization clause
Here’s how a due authorization clause might look in a contract:
“Each Party represents and warrants that it has obtained all necessary approvals, consents, and due authorization from its board of directors or governing body to enter into and perform its obligations under this Agreement. The execution and delivery of this Agreement have been duly authorized by all requisite corporate actions and are binding upon the Party.”
Conclusion
Due authorization ensures that all parties involved in a business transaction or legal agreement have the legal power and approval to act on behalf of their respective organizations. It prevents unauthorized actions and upholds the validity of decisions and contracts.
By including a due authorization clause in agreements, businesses can ensure that actions are legally binding, compliant with internal governance, and properly executed.
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.