Who May Sign and Approve Contracts

Corporate documents, powers of attorney, internal policies and management orders can define which officers or employees are authorised to enter into transactions. The company may also create approval thresholds based on value, type of transaction or commercial risk.

For example, management can require contracts above a specified amount to be approved by the chief accountant, finance director or another responsible officer before signature. Smaller routine agreements may follow a simplified procedure.

Building the Approval Process

An effective process should identify who prepares the contract, who checks commercial terms, who performs legal review, who confirms budget or tax implications and who has final signing authority.

Approval records should be retained so the company can later show that the transaction followed the authorised process. This is particularly useful where responsibility, payment approval or validity of the transaction is later disputed.

Legal and Commercial Review

Contract review should focus on essential obligations, payment, liability, termination, dispute resolution and any unusual commitments. The level of review can be proportionate to the value and risk of the transaction.

Internal rules can allocate different approval levels. Management may require all contracts, or only contracts above a stated value, to be approved by finance, accounting or another responsible function. The rule should be documented in an internal order or policy so employees can verify the required approvals before signature.

Transaction control is also useful after signing. A central register of contracts, payment milestones and responsible employees can help the company monitor performance and identify obligations that require renewal, termination or escalation.

A change of director does not normally require existing company contracts to be signed again merely because authority passed from the former director to the new one. The source material nevertheless recommends notifying counterparties so that later amendments, protocols and operational correspondence are signed by the correct authorised person.

A chief accountant's signature is also described as an internal control rather than an automatic condition for validity of every contract. Requiring that signature can confirm that the finance function reviewed the agreement and did not identify objections to its financial terms.

Corporate transaction approval procedure should be simple enough to operate in daily business while clearly allocating authority and preventing material contracts from being signed without the required internal checks.