Authorization: Overview, definition and example
What is authorization?
Authorization refers to the formal approval or consent given by one party to another to carry out specific actions or decisions under a contract. This can include granting the right to access resources, make binding commitments, or execute tasks on behalf of the authorizing party.
For example, a contract may include a clause authorizing an employee to sign documents or enter into agreements on behalf of the company.
Why is authorization important?
Authorization is important because it defines who has the legal authority to act in specific capacities within the scope of an agreement. It ensures that actions taken are valid and binding while protecting the interests of all parties by clarifying roles and limitations.
For businesses, clear authorization terms reduce the risk of unauthorized actions, disputes, or liabilities arising from misunderstandings. They also help ensure compliance with internal policies and legal requirements.
Understanding authorization through an example
A company signs a lease agreement for office space. The agreement specifies that only the CEO is authorized to sign contracts exceeding $100,000 on behalf of the company. This authorization ensures that the company’s leadership is involved in high-value decisions and prevents unauthorized commitments.
An example of an authorization clause
Here’s how an authorization clause might appear in a contract:
“Each Party represents and warrants that it has obtained all necessary authorizations and approvals required to enter into and perform its obligations under this Agreement. Any actions taken on behalf of a Party must be duly authorized in writing by an authorized representative of that Party.”
Conclusion
Authorization is a crucial aspect of contracts, ensuring that actions and commitments are valid and legally binding. By clearly defining who has authority and under what circumstances, contracts provide structure, reduce risks, and foster trust between parties. Including clear authorization provisions helps prevent unauthorized actions and ensures smooth execution of agreements.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.