Kezia Farnham

Senior Manager

Corporate resolution for signing authority

Let’s imagine for a moment that you are a vendor, and you’ve been working to secure a big contract with a corporation, which, for this example, we’ll call BUYCOM. How do you know BUYCOM’s representative has the authority to make this deal? The answer is a corporate resolution of signing authority.

On the other hand, let’s say you’re the corporate secretary at BUYCOM, and you receive notice that your corporation has just entered into a contract with a vendor. As you review the document, you check the name at the bottom. It belongs to an employee but not one with signing authority. So, the question remains: Will BUYCOM have to honor this agreement?

At the crux of this question lies the idea of signing authority. Who has the power to enter a corporation into a legally binding agreement? How does a corporation empower such a person to do so? The answer is a corporate resolution for signing authority. But designating authority isn’t as easy as creating a document. Below, we’ll review:

• What a corporate resolution for signing authority is
• What authorized signers are responsible for
• How to give someone signing authority
• How to ensure that your corporate resolution meets all the standard requirements to be legally binding
• Best practices for managing authorized signers

What is a corporate resolution for signing authority?

Corporate resolutions are formal declarations of particularly consequential decisions made by a corporate entity. These resolutions formally record any major corporate decision so that they can then be filed with the company’s official records. Corporate resolutions for signing are particular resolutions that clarify and define which corporate officers have the legal standing to sign contracts on behalf of the corporation. Such resolutions also grant individuals the power to make transfers or assignments, sell or lease real estate, and make other important decisions that may affect the corporation.

Typically, the authority to enter the corporation into a contract or other legal agreement is limited to a select few of the corporate officers. The details of this arrangement are defined by the corporation’s by-laws. On occasion, however, a corporation may want to grant limited aligning authority to someone not originally listed in the corporation’s by-laws. In such instances, the corporation must complete a corporate resolution.

Roles and responsibilities of authorized signers

First and foremost, authorized signers are responsible for signing documents on the corporation’s behalf. This could be vendor agreements, employment contracts or even real estate leases. However, in signing documents, a signatory is taking on responsibility for a broad range of impactful financial and administrative issues, including:

1. Financial transactions: Many signers oversee and approve financial transactions ranging from payment approvals and check signing to wire transfers and managing corporate credit accounts. This unfettered access makes due diligence essential.
2. Legal compliance: The contracts and transactions authorized parties sign for must comply with relevant laws, regulations and corporate policies, so it’s important to choose signers aware of and prepared to record and report transactions according to accounting standards.
3. Risk management: Signers can’t just approve transactions with abandon. Instead, authorized signers should consider financial risks and take steps to mitigate liabilities — both for the corporation and themselves.
4. Internal controls: Processes like access controls, separation of duties, and more reduce fraud, protect assets and validate financial reporting, all of which are especially important when only a few people are responsible for many impactful transactions.
5. Corporate governance: After receiving a corporate resolution for signing authority, the signer will likely continue participating in critical governance activities, like attending board meetings and providing financial reports, to ensure anything they authorize aligns with the corporate strategy.
6. Legal counsel: Many corporations appoint signers who are also legal representatives of the company. In this case, authorized signers should be prepared to represent the corporation should issues with contracts or agreements arise.

How to give someone signing authority

To give someone signing authority, the board must pass a corporate resolution for signing authority. The resolution declares who has signing authority and what they’re entitled to because of that authority.

In general, all signing authority resolutions follow a similar formula, which includes the following elements:

• The governing body of the corporation (usually its board of directors)
• Must meet on a specified date
• At which time, officers decide to specifically authorize (the “resolution”)
• A specific person by name and title
• To sign a specific contract
• Then, a different office of the corporation (not the person authorized to sign the contract)
• Certifies that the resolution occurred on the specific date and
• That the resolution is still in effect as of the date of certification

How to write a board resolution for an authorized signatory

To be valid, a resolution must include specific information. The stipulations surrounding the documentation of a corporate resolution for signing are as follows:

1. Officer’s signature: The certification must bear the original signature of an officer of the corporation, preferably the Corporate Secretary. This signature cannot be of the person the certificate authorizes.
2. Name of the authorized signer: The resolution must name the person the authorization pertains to by full name and title. If the Resolution contains only a title, then a separate corporate officer must provide a certificate that verifies that the named person did, in fact, hold the title at the time the resolution was written.
3. Statement of authority: The actual statement of the Resolution must contain the exact wording from the resolution the Board reviewed, voted on and adopted. Any variation from the official wording may invalidate the Resolution.
4. Signer’s signature: The contract must be signed exactly as the name is stated on the Resolution. The name and title should match precisely. Failure to do so may invalidate the signing authority and may negate the contract.
5. Date: The date on which the resolution was adopted can precede the date on which the contract was signed, but the date on which the resolution was certified cannot precede the date on which the contract was signed.
6. Corporate seal: If the corporation has a seal, that seal must be affixed to the resolution in the appropriate place. If the corporation does not have a seal, the notation “LS” may be written inside the circle next to the secretary’s signature.

Understanding the types of signing authority

Now that we know how to authorize an employee for signing, let’s return to our original scenario about the BUYCOM contract. Would BUYCOM be responsible for the terms of the contract if someone other than an authorized person approved it? The answer, unfortunately, is maybe.

If the employee has no authority to represent the corporation in a contract, then that contract is null and void. But, while the whole point of corporate resolutions for signing authority is to allow corporations to control who has the power to enter them into contracts, the law recognizes three different forms of authority. These include actual authority, apparent authority and ostensible authority.

1. Actual authority is granted through the procedure detailed above or in the case of a power of attorney.
2. Apparent authority exists when the nature of the employee’s position or role would imply certain powers. This is the common situation with contracts whose signatories are financial, managerial or administrative employees.
3. Ostensible authority means an employee may have actual or implied authority from their company to sign a specific contract. Subsequently, the employee signs further contracts with that same counterparty. It may be that the company gave the employee authority to enter into the first contract but not any further contracts. The law would say that the lack of authority to sign the second contract does not matter: The party on the other side has the right to assume that the employee had the authority to enter into the second contract because he or she had the authority to enter into the first contract.

Common challenges with a corporate resolution for signing authority

Authorized signers must navigate several challenges, many of which come down to the importance of the issues they’re signing for. These often include:

1. Complexity: It’s easy to forget that resolutions are legal documents. Like any legal form, it can be complex, so boards need to ensure the forms are accurate, give the signer proper and specific authority, and that it is legally binding.
2. Legal compliance: The resolution itself must comply with certain laws and regulations, as do most of the documents an authorized signer will approve. Seek regular counsel to ensure all documents meet legal standards and are properly executed.
3. Liability: Authorized signers often take on liability for the corporation because they’re personally giving the go-ahead. Consider offering liability insurance for any authorized signers so they feel protected in their new role.
4. Approval processes: Though an authorized signer has the power to sign documents, corporations can also appoint other individuals to approve activities before they are signed. This ensures no one person has total authority over critical decisions with far-reaching impacts.
5. Lack of understanding: Authorized signers may not fully understand their responsibilities and liabilities. They may also lack proper training about rules, standards and regulations, exposing the company to risk. Ensure signers have deep knowledge about the landscape and that they’re trained on any changes.

Best practices for managing corporate resolution authorized signers

Risk is inevitable when you designate an authorized signatory. When managed well, though, that risk is outweighed by the opportunity of appointing a knowledgeable, trustworthy officer to take swift and decisive action on the corporation’s behalf. Some key practices to effectively manage authorized signers include:

1. Create clear policies and procedures: Document a clear process for appointing authorized signers and approving any changes in authorization. You should also create clear guidelines for how the authorized signer can conduct business. This helps hold the authorized signer accountable and ensures there’s a clear process that adheres to regulatory requirements.
2. Carefully manage documents: Whether it’s the corporate resolution itself or documents the signatory signs, centralize all corporate documents in a single platform. Doing so will ensure you have an accurate record of all signings, that they’re stored securely, and that authorized personnel can access them when needed.
3. Offer comprehensive training: Ensure authorized signers thoroughly understand corporate governance practices, internal controls, regulatory requirements and more. The more aware they are of laws and regulations, the better they can use their authority without introducing unnecessary risk.
4. Implement an approval process: Authorized signers must move quickly, but they shouldn’t take action unilaterally. Institute clear approval processes, and include different thresholds for the type of transactions that need additional approval. Purchasing a new computer may not need multiple approvals, but purchasing a building does.
5. Regularly review and update: A corporate resolution for signing authority that aligns with your objectives now may be unaligned two years from now. Regularly review the resolutions and update them as needed to align with the corporate structure and strategy.
6. Open lines of communication: Communicate openly and often with authorized signers. The more transparent their activities are with key stakeholders, the better you can hold them accountable and ensure they fully understand their responsibilities.
7. Integrate technology: Electronic signature platforms and document management systems can streamline managing corporate resolution forms for signing authority. These systems should also comply with data security and privacy regulations.
8. Communicate with relevant stakeholders: Notify financial institutions, vendors, regulatory authorities and more any time you appoint a new authorized signer. This will get ahead of any delays or misunderstandings if a new signature appears on key documents.

Simplify corporate resolution for signing authority

Entering into contracts is a serious responsibility, one best reserved for qualified corporate officers. For those instances when an officer cannot attend to a contract, the most trusted procedure is the use of a legally binding corporate resolution for signing authority.

However, no matter how effective your authorized signer is, managing documents and signatures can become burdensome and fast — especially for larger corporations. Diligent’s Board Portal, part of the Diligent One Platform, creates and stores documents in a secure cloud environment so the board and authorized signers alike can collaborate with ease.

Learn more about how a board portal can help you manage signing authorities and corporate resolutions.