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Faizan
Obtaining a contract to expand your small business is great -- provided the person signing the contract is authorized to do so. Not everyone has the legal authority to enter into contracts on behalf of themselves or for a company, and contracts signed by unauthorized parties do not typically have to be honored.
Sole Proprietors
Sole proprietors have the ability to enter their companies into legally-binding agreements with other businesses at will. As the sole owner of a company, you are liable for meeting the contractual terms and conditions of the contract and will typically be held personally responsible if your company fails to live up to the agreement.
Partnerships
General Partnerships typically allow any one of the partners to sign contracts with other companies unless the GP has come to an agreement that prohibits any single partner from acting alone in establishing business relationships. Limited Partnership agreements allow a general manager or designated partner to sign contracts on behalf of the partnership. The other partners in a LP typically lack the authority to act on behalf of the partnership and cannot legally bind the group to contract.
LLCs
The ability to commit a limited liability corporation to a contractual arrangement is usually defined in the Operating Agreement or in the Articles of Organization that were established between members when the LLC was formed. LLCs usually allow a managing partner to sign contracts under conditions spelled out in the Operating Agreement. In some cases, a contract may have to be voted on by the membership prior to the managing partner committing the LLC to a contractual agreement.
Corporations
Corporations are usually managed by a Board of Directors that will allocate the responsibility to sign contracts as detailed in the corporation’s by-laws. The owners, or shareholders, typically lack the authority to sign contracts on behalf of the corporation for any reason. The exception to this rule is when the managing principles are also shareholders. In this case, the shareholder(s) are typically allowed to act as signatories on contracts in their capacity as company leaders.
Sole Proprietors
Sole proprietors have the ability to enter their companies into legally-binding agreements with other businesses at will. As the sole owner of a company, you are liable for meeting the contractual terms and conditions of the contract and will typically be held personally responsible if your company fails to live up to the agreement.
Partnerships
General Partnerships typically allow any one of the partners to sign contracts with other companies unless the GP has come to an agreement that prohibits any single partner from acting alone in establishing business relationships. Limited Partnership agreements allow a general manager or designated partner to sign contracts on behalf of the partnership. The other partners in a LP typically lack the authority to act on behalf of the partnership and cannot legally bind the group to contract.
LLCs
The ability to commit a limited liability corporation to a contractual arrangement is usually defined in the Operating Agreement or in the Articles of Organization that were established between members when the LLC was formed. LLCs usually allow a managing partner to sign contracts under conditions spelled out in the Operating Agreement. In some cases, a contract may have to be voted on by the membership prior to the managing partner committing the LLC to a contractual agreement.
Corporations
Corporations are usually managed by a Board of Directors that will allocate the responsibility to sign contracts as detailed in the corporation’s by-laws. The owners, or shareholders, typically lack the authority to sign contracts on behalf of the corporation for any reason. The exception to this rule is when the managing principles are also shareholders. In this case, the shareholder(s) are typically allowed to act as signatories on contracts in their capacity as company leaders.
Posted in: Business Laws
