October 30th, 2012 / Insight posted in

Right way to hand over authority

RV writes: I would like to appoint an employee as an authorised signatory who can sign contracts for my company. We have a full board and so I have no desire to make this person a director. Can he act and represent the company in his individual capacity, and how should we document this?

Yes he can, but you need to be mindful that if this person will have the same authority as the other directors, then the law will regard him as a “de facto director”, writes Jon Sutcliffe, partner at Kingston Smith LLP. A de facto director is a person who performs the functions of a director but who has not been formally appointed to such a position. A de facto director owes the same duties to the company as a formally appointed one.

The key is whether your employee will be able to act in his own capacity, or whether he will act only with prior approval of the directors. You will have to decide how the system will work.

If the directors will see and authorise the contracts or agreements, and are those making the decision on whether the company will be a party to them, and the new person is simply signing because the directors are not in the same location, then he is acting as an authorised signatory, and will not be considered to be a de facto director. If he has the power to authorise contracts or agreements that are binding on the company without recourse to the directors, then he is, in effect, a director — in which case you may as well appoint him as a director to avoid doubt.

If he is just an authorised signatory, then the board must decide exactly what he is authorised to sign (for example, company cheques) and there should be a document in place setting out the extent of his authority.