Elite Lawyers
Lawyers of Distinction
Avvo Rating 10.0
Santa Clara County Bar Association
Association of American Trial Lawyers
Elite Lawyers Business James Cai 2017
Best Litigation Attorneys in San Jose
Expertise - Best Employment Lawyers in Santa Clara

You Should Make it Clear Who Can Bind Your Business

Your business may have a lot of shareholders, officers, or people who act as managers or contractors. These agents are on the street or on the phone every day, trying to generate customers, jobs, or services for your business. However, you may only give permission to a select few to actually sign contracts on your business’ behalf, and to bind your business to agreements.

But how does the outside world know to whom you have given that authority? What happens if an agent of your company who does not have authority to bind your company (such as a fired employee or former shareholder), actually signs a contract or makes a promise that ends up binding your company to an agreement that you did not want signed?

Apparent Authority

The quick answer seems like it would be that the contract or agreement is automatically void, as the employee or agent did not have permission to bind your company to any such contract.

However, the law makes this a much tougher question, and your business could end up bound to agreements that are signed or ratified by those without authority. In fact, your business could be obligated to pay damages to someone who is defrauded by the person who acted as if they had authority to act on behalf of your business.

That is due to something known as apparent authority. Apparent authority asks whether it is reasonable under the circumstances for the other party to believe that the (purported) agent of your company actually had permission and authority to bind your company.

For example, if you were selling goods to a grocery store, you would likely know that a cashier does not have authority to bind the store. You may know, but not be certain whether the produce manager has authority. You would be pretty certain that the head manager has that authority.

Your Actions Matter

Remember that when determining whether a third party was reasonable in relying upon the signature or approval of someone who is not authorized to bind your business, your actions will be heavily scrutinized. You may be excited to announce and brag about your new district manager. However, if you do not want them binding the company to agreements, you should make that very clear.

How do you protect your business from a former employee, former shareholder, or current employee from getting your business involved with business agreements without your permission? One way is to make sure that your public filings and your bylaws specifically say who does and does not have authority. The Articles of Organization for LLCs can also spell out who has authority to bind your business. A corporate resolution detailing who has authority to bind the company will also help.

If you anticipate an ongoing relationship with a company, a simple email detailing your procedures for approvals of agreements can also provide notice to the third party.

Contact the Silicon Valley Business Lawyers at SAC Attorneys

The California business and corporate attorneys at SAC Attorneys LLP Law can review your business practices, forms, and corporate filings, to keep your business out of legal trouble. We serve clients throughout Silicon Valley. Call today to schedule a comprehensive consultation.

Client Reviews
★★★★★
Mr. Cai Is a Diligent Attorney. My sister and I were defendants in a civil litigation case. We hired James Cai and his law firm, SAC Attorneys LLP. Mr. Cai is a diligent attorney and responded to our questions in a timely fashion. He and his staff were very helpful in keeping us informed of the proceedings of the case and in explaining each step. Mr. Cai is also very conscientious of fees and costs, and avoided unnecessary charges. The results of the Summary Adjudication sided with us. The Court Trial resulted in the “Final Statement of Decision” and “Judgment after Court Trial” overwhelmingly siding with us. Cynthia F.
★★★★★
I Am Truly Impressed. After spending a significant amount of time, money and efforts with my previous counsel at a larger law firm without getting meaningful results, I transferred my employment matter to SAC Attorneys LLP. The attorneys there were able to understand the complex situations of my case and put together an aggressive litigation strategy. We were able to file a compelling complaint within a week and forced the opposing party, which was represented by one of the largest law firms in California, to make a substantial settlement offer shortly thereafter. I am truly impressed by the no nonsense and results oriented approach by SAC Attorneys LLP attorneys. A job well done! X. Gao
★★★★★
They Took Time to Understand Our Technology. I am the founder of a bioinformatics start-up in the Silicon Valley and chose SAC Attorneys LLP as our corporate counsels. Their attorneys have great experience with high tech start-ups and were able to offer a highly competitive service plan while not sacrificing a bit of their quality of services. They took time to understand our technology and provided value added services by introducing investors and job candidates to us. We regard our attorneys at SAC Attorneys LLP not only as our legal advisors but also our venture partners. Dr. Pete S.