Signatory authority: Overview, definition, and example
What is signatory authority?
Signatory authority refers to the legal right of an individual to sign contracts, agreements, or financial documents on behalf of a business or organization. This authority can be granted to executives, managers, or designated employees, ensuring that only authorized personnel can bind the company to legal and financial commitments.
For example, a company’s CEO may have full signatory authority to enter into major contracts, while a department manager may only have limited authority to approve smaller purchases.
Why is signatory authority important?
Signatory authority ensures that only authorized individuals can legally bind a business, preventing unauthorized transactions or agreements. It protects companies from fraud, mismanagement, and financial risks.
For SMBs, clearly defining who has signatory authority is essential for managing contracts, financial accounts, and legal obligations. Without proper controls, a business may face disputes, unauthorized commitments, or liability for agreements made by unauthorized employees.
Understanding signatory authority through an example
A small business owner grants their CFO signatory authority to approve company expenses up to $50,000, while requiring board approval for anything above that limit. This ensures financial oversight while allowing routine expenses to be handled efficiently.
In another example, a real estate company allows its branch managers to sign rental agreements on behalf of the company but requires senior executives to sign property purchase agreements. This distinction helps streamline operations while maintaining control over major decisions.
An example of a signatory authority clause
Here’s how a signatory authority clause might appear in a contract or corporate policy:
“Only individuals expressly authorized by the Company’s Board of Directors or Executive Leadership shall have signatory authority to enter into contracts, approve financial transactions, or bind the Company in any legal capacity. Any agreement signed without proper authorization shall be considered invalid.”
Conclusion
Signatory authority ensures that businesses control who can legally commit the company to financial and contractual obligations. Clear policies help prevent unauthorized agreements and financial mismanagement.
For SMBs, defining and documenting signatory authority in contracts, company policies, and financial processes is essential for protecting business interests and ensuring compliance with legal requirements.
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.