Binding Authority

"Who may sign on the line which is dotted?"

What is Binding Authority?

Binding Authority refers to the legal power or capacity of individuals within a corporation (or LLC, or  sole proprietorship, or partnership) to enter into binding agreements on behalf of the company.  This authority ensures that actions taken by certain representatives—such as signing contracts, making decisions, or committing resources—are legally enforceable and recognized as acts of the corporation itself.

Who Has Binding Authority?

▪ Typically granted to directors, officers (CEO or 

  CFO), and other authorized agents or employees.

▪ Authority can be express (clearly stated in bylaws,

  resolutions, or contracts) or implied (based on role

  or customary practices).

▪ Parties relying on representations of binding

  authority should obtain appropriate documenta-

  tion confirming the authority of individuals to act

  on behalf of an entity.

Where is Binding Authority Documented?

Corporation:  corporate bylaws, board resolutions, powers of attorney, or agency agreements typically outline who has binding authority and under what circumstances.

LLC:  typically stated in the Operating Agreement.

Partnership:  Partnership Agreement (can vary by partnership type).

(see example clauses for each entity type below)

Note:  Limitations may be present in organizational documents to avoid unauthorized commitments, especially for large financial transactions.

Related Topic
See: Incumbency Certificate …
…a formal corporate document used to confirm the identity and authority of individuals

- Binding Authority Example Clauses -

Corporate Bylaws

Article X – Authority to Bind the Corporation

1 – General Authority

Except as otherwise provided in these Bylaws or by resolution of the Board of Directors, any officer of the Corporation duly elected or appointed pursuant to Article IV shall have the authority to enter into contracts, execute and deliver documents, and otherwise bind the Corporation in matters relating to the ordinary course of its business.

2 – Specific Authorizations

The President (or Chief Executive Officer), Vice President(s), Secretary, and Treasurer shall each have authority to sign documents on behalf of the Corporation, including but not limited to: contracts, checks, notes, deeds, and other instruments of obligation, provided that:

  • Transactions exceeding [$X threshold] shall require prior approval by the Board of Directors;
  • Any conveyance or encumbrance of real property shall be subject to Board resolution.

3 – Delegation of Authority

The Board of Directors may, by resolution, delegate specific binding authority to other officers, agents, or employees of the Corporation, either generally or under limited circumstances.

4 – Limitations

No person shall have authority to bind the Corporation by any contract or engagement, or to pledge its credit, or to render it liable for any purpose or for any amount, unless such authority is expressly granted under these Bylaws, a resolution of the Board, or a written delegation.

LLC Operating Agreement

Section X – Authority to Bind the Company

  1. Manager-Managed LLC
    The Manager(s) of the Company shall have full authority to bind the Company in all matters within the ordinary course of business. This includes, but is not limited to, signing contracts, managing bank accounts, hiring employees, and incurring obligations.
  2. Member Authority
    Unless otherwise provided in this Agreement, individual Members shall not have the authority to bind the Company solely by virtue of their status as Members.
  3. Extraordinary Actions
    The following actions require the approval of a Majority (or Supermajority, as defined) of the Members:
  4. Borrowing money above [$X threshold];
  5. Sale or transfer of substantially all Company assets;
  6. Entering into mergers or acquisitions;
  7. Amending this Agreement.
  8. Delegation
    The Manager(s) may delegate binding authority to officers, employees, or agents of the Company by written authorization, subject to any restrictions imposed by this Agreement.

Partnership Agreement

Section X – Authority of Partners

  1. General Authority
    Each General Partner shall have full authority to act for and bind the Partnership in all matters in the ordinary course of business. This includes, but is not limited to, entering into contracts, incurring obligations, and managing the Partnership’s affairs.
  2. Limitations
    No Partner may, without the prior written consent of all other Partners:
    • Borrow money or incur debt in excess of [$X threshold];
    • Dispose of or encumber any significant Partnership asset;
    • Admit new partners;
    • Enter into contracts outside the ordinary course of business.
  3. Notice to Third Parties
    Third parties may rely on the authority of any General Partner to bind the Partnership unless and until they receive written notice of a limitation on that authority.
  4. Limited Partners
    Limited Partners shall not participate in the management or operation of the Partnership and shall not have authority to bind the Partnership.

* For advice tailored to your specific situation, please consult with qualified legal counsel *

Related Topic
See: Incumbency Certificate …
…a formal corporate document used to confirm the identity and authority of individuals