What is Contract Signatory
Who is a contract signatory
A contract signatory is a person authorized to sign a contract, either on behalf of an organization or as an individual party. By signing, they make the contract legally binding, affirming that they have the authority to enter into the agreement and obligate the entity they represent. The role of a signatory is crucial for ensuring contracts are valid and enforceable.
For instance, the CEO might be the contract signatory for all high-value contracts on behalf of a company. For rental agreements, the signatures of the tenant and landlord signify their agreement to the terms.
Contract signatories are crucial for making agreements legally binding and ensuring proper authorization. They must meet criteria such as being over 18, sober, and mentally competent to sign. Their role ensures:
Legal binding: An authorized signature makes the contract enforceable, obligating both parties to honor its terms.
Authorization verification: Signatories confirm that the individual signing has the authority to act on behalf of their organization, reducing risks of unauthorized agreements.
Compliance: Signatories uphold internal compliance policies by ensuring only approved individuals sign, protecting the organization from potential financial or legal risks.
Unauthorized contract signing can lead to serious consequences like personal liability for the unauthorized signer, reputational harm to the organization, and potential financial losses. By ensuring only authorized individuals sign contracts, organizations can minimize risks and uphold legally sound agreements.
Roles of a contract signatory
1. Negotiation and advocacy
A contract signatory advocates for the mutual interests of all parties, ensuring the contract terms are balanced and equitable.
2. Authority and accountability
The signatory holds the authority to legally bind the entity to the contract, often granted through mechanisms like power of attorney or corporate resolutions. This role also involves taking responsibility for the contract’s commitments and outcomes.
3. Communication and dispute resolution
The signatory facilitates open communication, addressing questions, unforeseen issues, or disputes as they arise. In cases of disagreement, they engage in mediation or renegotiation to reach mutually agreeable solutions.
4. Risk assessment and due diligence
The signatory must assess risks and liabilities tied to the contract, taking measures to mitigate potential issues. This includes thorough due diligence to ensure the contract’s fairness, alignment with the entity’s objectives, and adherence to all relevant laws, regulations, and internal policies.
Types of contract signatories
1. Individual Signatory
An individual with the authority to sign on behalf of an entity, such as a sole proprietor or designated representative.
2. Corporate Signatory
A corporate entity, like a company or organization, holds the legal authority to enter into contracts in its name.
3. Authorized Representative
An authorized representative is a person empowered to sign on behalf of a legal entity, such as a CEO, CFO, or other executive, providing binding authority on the entity’s behalf.
4. Co-Signatory
Co-signatories provide shared accountability and help mitigate risks. This is often applicable in scenarios like joint ventures, loan agreements where both subsidiaries and parent companies are involved, or contracts needing dual approval, such as from legal and finance departments. Each co-signatory shares responsibility for upholding the contract’s obligations, adding a layer of security and oversight.
5. Bank Account Signatory
A bank account signatory is someone authorized to manage an account on behalf of the primary holder. They typically hold equal rights to the account, including signing checks, checking balances, accessing transaction histories, canceling payments, and closing the account.
How CLM manages contract signatories
CLMs simplify the management of contract signatories by providing robust tools for tracking and verification:
1. Authorized signatory tracking
CLMs simplify electronic contract signing with role-based access to contracts and contract data. This ensures that only those with the necessary permissions can execute contracts, reducing the risk of unauthorized agreements and enhancing compliance.
2. Automated verification
Automated workflows allow you to pre-determine the signatory’s permissions before a contract is executed, minimizing manual errors and ensuring only approved individuals sign contracts. This streamlines contract approvals and helps avoid delays.
3. Notifications for role changes
HyperStart alerts relevant stakeholders when there are changes in signatory roles, allowing for timely updates to the authorized signatory list. This feature helps prevent bottlenecks or invalid signings due to outdated authorization information.
Wrapping up
Contract signatories are essential for making agreements legally binding and ensuring that contracts are executed with the correct authority. By verifying each signatory’s authorization, organizations protect themselves from unauthorized commitments and legal risks.
HyperStart contract signing software enhances signatory management by tracking authorized personnel, automating verification, and providing real-time notifications of role changes. Book a demo today.
