Meaning
Legal relationships where one party is authorized to act on behalf of another entity define the boundaries of authority within a business structure. This corporate agency allows directors and officers to enter into contracts and make commitments that bind the company. It ensures that the organization can function as a single legal person in its dealings with outsiders.
Authority Delegation
Defining who has the power to sign documents is a part of governance. When corporate agency is exercised, it must be supported by a board resolution or a formal appointment. These records prove that the individual had the right to commit the company’s resources at the time of the transaction.
Principal Liability
The actions of an agent can create obligations for the organization, even if the board did not directly approve a specific deal. Because corporate agency carries the weight of the company, any misuse of this power leads to a dispute over who is responsible for the resulting costs. Clear limits on authority help to prevent unauthorized commitments and ensure that the financial exposure of the entity is managed by its true owners.
When a founder leaves, the revocation of this power must be documented immediately to stop any further actions being taken in the company’s name.
Agency Evidence
Documentation of the relationship between the company and its representatives protects both parties from future claims. This corporate agency is evidenced by the articles of incorporation, bylaws and specific delegations of power.
