The decisions concerning the authorization of signing contracts are usually made by the board of directors. Also, the organization’s bylaws can address the problems related to the process of signing a contract. One of the essential issues inherent in this procedure is the fact that the bylaws can be changed to approve new authorizations. In this case, quite a few amendments should be made to the existing bylaws so as to adhere to the organizational guidelines regarding the process of signing a contract (Goldberg 99). One of the specific ways to mitigate the influence of bylaws on the organizational procedures is the delegation of authority to the board of directors (by means of another set of bylaws). A typical statement designed as a bylaw can authorize any officer or agent to enter any contract. This particular stage also allows the person that signs the contract to execute certain instruments on behalf of the organization.
The peculiarity of this decision is associated with the level of authority that is given to that particular person. The authority that is virtually obtained by that one individual can be either general or specific depending on the type of the contract being signed. Regardless of the level of authority, no officer or employee that acts on behalf of the organization has the right to pledge the company’s credit (Dees 39). In addition to that, there is no possibility to bind the organization in any way or leave the latter liable for any resolution unless the level of authority granted to that individual was validated by the board of directors and the bylaws that were designed to find a solution in the most complex cases associated with the process of signing contracts. These permissions will be considered unauthorized unless ratified by the organization.
The authorization is usually documented at the earliest stages of the organizational agreements by either the CEO (the President of the organization) or the CFO (the Treasurer) of the company. These two individuals are responsible for signing the majority of the general, administrative, and financial documents. The Secretary, in turn, commonly signs various types of certificates and corporate papers (Frey 102). The authorization, nonetheless, leaves all of them signing all the documents on behalf of the organization (meaning that they do not have to do anything with the contract personally). One of the drawbacks of documenting these authorizations is the fact that if the organization is sued or in debt, the other party will pursue the person who signed the contract. Also, it may happen that the other party may go after the individual who is believed to cause the problem or someone who is able to do something to improve the situation.
Most commonly, the process of signing contracts triggers the issues related to unpaid payroll taxes (the majority of troubles associated with taxes are taken on by the IRS). One of the ways to perform the authorization correctly is to ask for a personal pledge from the other parties involved in the process of signing the contract (Charman 73). By doing this, one may require these parties to sign the documentation on their own behalf as well. On a bigger scale, having the other party include a pledge in the agreement is naturally the only way to validate the other party’s authority to bind the organization to the ultimate agreement.
Charman, Mary. Contract Law. Willan Publishing, 2016.
Dees, Stanley. The Development of Modern Government Contract Law: A Personal Perspective. Wolters Kluwer, 2016.
Frey, Martin. Essentials of Contract Law. Cengage Learning, 2016.
Goldberg, Victor. Rethinking Contract Law and Contract Design. Edward Elgar Publishing, 2016.