Business Organization and Authority

¶ … authorized to enter into contracts on behalf of a business organization? Corporations and Limited liability Companies (LLCs) are recognized as legal entities in their own right, this means they have their legal identity, and can enter intro contracts in their own right. However, while the corporation has its own identity, it is still reliant on officers or agents of the company make agreements on its behalf.

This paper examines how may be determined who can enter into contracts on behalf of a business organisation, why those people can undertake that task, and how it should be documented. In general terms, an individual should be authorised by a company before signing contracts on behalf of the company. The authorisation regarding who this will cover should be addressed within the bylaws of the company, the resolutions of the board of directors (Schultz, 2010).

Where authorisations are laid down in the bylaws, altering those authorisations can be problematic as it requires an amendment to those bylaws (Schultz, 2010). It is easier, and simpler if the authorisation signed contract is established by members of the board (Schultz, 2010). However, in order to establish this, it is necessary for the bylaws to grant these powers to the board of directors. (Schultz, 2010). In this way, a board can pass a resolution authorising, or removing the authorisation, from specific offices of the company.

However, in general terms it is accepted that unless there is an operating agreement to the contrary, in most states it is possible for executive managers, or in the case of member managed LLCs, each member, will have the authority to enter into an agreement with a third party (AZ Central, 2015).

In the early stages of the business, the normal convention is that the president or CEO will sign most of the contract, although the chief financial officer, treasurer, or the secretary may also sign corporate documents or certificates, although no cases are signed on behalf of the company and not themselves. Therefore, it becomes apparent that individuals who are expected to sign contracts on behalf of the company should be authorised to act in that manner.

Furthermore, the company should have some assurances regarding the ability of the individual to act as a responsible agent. Ideally, there should be a hierarchy to determine who can sign contracts on behalf of the company, which would be supported by documentation. If this is in the bylaws, then the bylaws will suffice, likewise authorisation may be granted by resolutions of the board (Chirelstein, 2013) However, lack of documentation does not necessarily mean an individual is not authorised.

This is seen with the concept of apparent authority, which is also known as ostensible authority (Hillman, 2013). Ostensible authority can be examined under the doctrines associated with the law of agency, dealing with when it is reasonable for a third party to believe that an individual is authorised unable to act as an agent for their company (Raja, Johns and Ntalianis, 2004). This is not unique to United States law, it is also found in many other areas such as the UK, Canada, and South Africa.

The application of apparent authority means that even if an individual has not been granted authority by the company to act signing contracts on behalf of their organisation, the company, also referred to as the principal, may be bound by the actions of the individual, referred to as the agent (Chirelstein, 2013).

This concept draws on the concept of estoppel, whereby a principle is unable to deny the existence of an individual's agency whether or not it has been granted, if it is reasonable for the third party to rely on that authority, and believe that it was present.

Importantly, the source of reliance placed on whether or not an individual may be reasonably seen as acting as an authorised agent may be in terms of the words or the actions of the individual presenting themselves as an agent rather than explicit declarations. In order to determine whether an individual is accepted as an agent course will consider several things.

Firstly, the court may look at the title and behaviour of the individual, for example an individual calling themselves the finance director is more likely to be seen as reasonably assumed to have authority competitor someone who is simply machine operator. Secondly there is e the behaviour in the past (Hillman, 2013). Where an individual has undertaken the role of agent and the company has accepted the signature in the past, ratifying actions retrospectively, the individual is more likely to be deemed an agent of the company.

Past behaviour is deemed to be an indicator of the perceptions of the individual. However, it is also notable that where the third party is aware that there are some.