You hired a VP of Sales six months ago. She’s closing deals, moving fast, and doing exactly what you hired her to do.
What you may not have thought about: every agreement she signs legally binds your company. Whether that signature actually creates enforceable obligations depends on whether she has the legal authority to bind the company – a question that turns on corporate governance documents, course of dealing, and principles of agency law that vary by state.
This is one of the most common gaps I see with companies at the $1.5M-$3M stage. The founder handled every contract in the early days, so signing authority was never a real question. Then the team grew. Roles expanded. And suddenly, multiple people are committing the company to agreements – NDAs, vendor contracts, software licenses, letters of intent – without anyone having clearly defined who’s authorized to do what. The legal exposure compounds quietly. Until it doesn’t.
What Signing Authority Actually Means
When someone signs a contract on behalf of your company, they’re representing that they have the legal power to create binding obligations.
If they don’t actually have that authority, you have a problem – but the problem isn’t always what you’d expect. Courts can still hold your company to a contract signed by someone who lacked formal authority, depending on whether the other party reasonably believed that person could bind the company. This is called apparent authority, and it’s a doctrine that regularly surprises founders. The specific application of apparent authority principles varies by state law and depends heavily on the particular facts and circumstances of each case.
In plain terms: your operations manager signing a vendor agreement without authorization may still result in your company being legally bound to it – even if you never approved it. The outcome will depend on factors such as the manager’s title and role, past dealings with the vendor, representations made, and the applicable state law governing agency relationships.
How Authority Gets Established (Or Doesn’t)
For LLCs, signing authority is typically defined in your operating agreement. It should specify which members or managers can execute contracts, and under what circumstances. Many operating agreements drafted at formation are thin on this detail, especially if you used a template. The specific requirements and default rules for LLCs vary significantly by state.
For corporations, authority flows from the bylaws and board resolutions. Officers are typically granted signing authority by title – the CEO, CFO, or Secretary can bind the company within defined limits. Anything outside those limits should require board approval. State corporate law governs the scope of officer authority, and the specific rules vary by jurisdiction.
The gap I see regularly: companies that have grown well past their original structure but never updated these documents to reflect who actually runs what today. The operating agreement still names the founder as the sole authorized signatory, while in practice, three other people are signing agreements every week.
The Agreement Types That Create the Most Risk
Not all unauthorized signatures carry equal weight. These are the categories where I see the most exposure:
NDAs. An NDA signed without review can inadvertently obligate your company around confidential IP – including what you can and can’t share with future investors, partners, or acquirers. Some NDAs contain IP ownership provisions buried in the confidentiality language. Your sales rep isn’t looking for that clause.
Vendor agreements. These often include IP ownership provisions that assign work product to the vendor rather than your company. When signed without legal review, you may not own what you paid for. The enforceability and interpretation of these provisions may vary by jurisdiction.
Software licenses. Enterprise software agreements can include data rights, audit clauses, and liability provisions that create ongoing exposure. A procurement manager signing one of these without review is a common source of problems I see at this stage.
Letters of intent. LOIs are frequently treated as non-binding, but many contain provisions – exclusivity periods, confidentiality obligations, cost-sharing terms – that are fully enforceable. Signing one without counsel review before an acquisition conversation is a meaningful risk. Whether particular LOI provisions are binding depends on the specific language used and applicable contract law principles, which vary by state. Employment offers. An offer letter signed by the wrong person, or with terms that haven’t been vetted, can create compensation, equity, or classification obligations that are difficult to unwind. Employment law requirements vary significantly by state, and offer letters must comply with applicable state law where the employee will work.
What a Basic Signing Authority Policy Looks Like
You don’t need a complicated system. A one-page policy that answers these questions is enough to close most of the gap:
- Who can sign agreements under $5,000 without approval?
- Who can sign agreements between $5,000 and $25,000?
- What categories of agreement – NDAs, IP-related contracts, employment offers, LOIs – require legal review regardless of dollar amount?
- Who is the designated signatory for agreements above a defined threshold?
The dollar thresholds matter less than the category rules. A $500 NDA with a problematic IP clause is more dangerous than a $50,000 equipment lease with clean terms. Once you have the policy, it needs to live somewhere accessible – not just in a Google Doc that no one reads. Incorporate it into onboarding for any role that touches vendor or customer agreements.
A Simple First Step
If you don’t have a signing authority policy in place, start by pulling your last 90 days of executed agreements. Look at who signed them. Then ask whether your operating agreement or bylaws actually authorize those people to bind the company.
What you find might surprise you.
If you want to walk through your current signing protocols and figure out where the gaps are, we’re at garcia-zamor.com.
The Garcia-Zamor Law Firm provides outsourced in-house counsel combining business law and intellectual property expertise. Led by Ruy Garcia-Zamor (founder and business strategy expert), Elliott Alderman (IP specialist with 40+ years experience), and Claudia Castillo (employment law specialist), our team serves growing companies with strategic legal leadership. Learn more at garcia-zamor.com or call (410) 531-9853.
