Wednesday, April 28, 2010

authority to bind

No, this is not borrowed from an S&M Encyclopedia. Someone with “authority to bind” has the power to sign agreements on behalf of another person or entity. Under state laws, an officer of a corporation, a managing member of a limited liability company, or a general partner in a partnership all have the authority to bind their respective entities. The individual owner of a sole proprietorship can always bind that business although in community property states, the signature of a spouse is sometimes also advised, just to make sure all parties are on board.

Status of authority. The status of the signing parties should be reflected in the signature block of the document, which should indicate whether that person is an officer, a general partner, etc. In addition, many legal documents contain a statement such as “Each party has signed this Agreement through its authorized representative,” or similar language.

Avoiding fraud. As a preventative measure—to avoid being improperly bound to contracts—businesses often take the following actions:

  • Notice. Companies often provide written notice to customers, vendors, and others as to who in the company has authority.
  • Contract notice. Companies often include a notice on all contracts indicating the names of those persons who can bind the business.
  • Establish limitations. Companies establish limitations on authority to bind in their agency and contractor agreements.

See: agent, signatures

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