Powers: Overview, definition, and example
What are powers?
Powers refer to the legal authority, rights, or capacities granted to an individual, entity, or governing body to perform specific acts, make decisions, or enforce rules under a contract, law, or governing document. These powers can be expressly defined in agreements, such as corporate bylaws, or implied by legal or contractual obligations.
For example, the board of directors of a corporation typically has the power to approve mergers, declare dividends, or authorize significant financial transactions on behalf of the company.
Why are powers important?
Powers are important because they establish clear boundaries and responsibilities for decision-making and enforcement in contractual and legal relationships. They ensure accountability by defining who has the authority to act and in what capacity.
For businesses, clearly defined powers in agreements prevent disputes, facilitate governance, and promote efficient operations. They also help safeguard against unauthorized actions or overreach by individuals or entities.
Understanding powers through an example
Imagine a partnership agreement that grants each partner the power to enter into contracts on behalf of the partnership up to a specific dollar limit. Beyond that limit, contracts require approval from all partners. This clear allocation of powers prevents unauthorized transactions that could expose the partnership to financial risk.
In another example, the bylaws of a nonprofit organization grant its executive director the power to hire staff, manage day-to-day operations, and sign contracts under a specified value, while reserving major financial decisions for the board of directors.
An example of a powers clause
Here’s how a powers clause might look in an agreement:
“The Board of Directors shall have the power to make decisions regarding the issuance of shares, approval of mergers and acquisitions, and declaration of dividends, subject to the limitations set forth in applicable laws and the Company’s Articles of Incorporation.”
Conclusion
Powers define the legal authority and responsibilities of individuals or entities, ensuring clarity and accountability in decision-making and enforcement. They create a structured framework for governance and prevent unauthorized actions that could disrupt operations or lead to disputes.
By including clear powers provisions in agreements and governing documents, businesses and organizations can ensure proper delegation of authority, promote efficient operations, and protect the interests of all stakeholders.
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.