Corporate power: Overview, definitions and example
What is corporate power?
Corporate power refers to the authority a corporation has to act, make decisions, and enter into agreements or transactions. This power is typically granted by the corporation's governing documents, such as its articles of incorporation and bylaws, as well as by the laws and regulations that govern corporate activity. Corporate power is necessary for a corporation to function legally and effectively, allowing it to carry out business operations, sign contracts, and engage in other activities.
In practical terms, corporate power defines the scope of what a corporation can do, who has the authority to act on its behalf, and what kinds of decisions can be made by its officers and directors.
Why is corporate power important?
Corporate power is important because it establishes the legal framework for a corporation's actions. Without clear corporate power, there would be confusion about who can make decisions, enter contracts, or take other actions that bind the corporation. This clarity helps avoid unauthorized actions that could result in legal consequences or financial risks for the business.
For businesses, understanding corporate power ensures that decisions are made within the scope of what is legally allowed and ensures that the company’s actions align with its purpose and goals.
Understanding corporate power through an example
Imagine a corporation that is authorized to engage in retail sales, as outlined in its articles of incorporation. If the corporation’s board of directors decides to enter into a contract to purchase office supplies, this is within the company’s corporate power because it falls within the scope of the corporation's activities.
However, if the same corporation’s board tries to purchase real estate for a new hotel project without amending its corporate documents to reflect this new purpose, it could be exceeding its corporate power. This would leave the transaction potentially invalid and expose the corporation to legal challenges.
An example of a corporate power clause
Here’s how a corporate power clause might look in a contract:
“The Corporation hereby affirms that the signing of this agreement is within the scope of its corporate power, as defined by its articles of incorporation and bylaws. Any actions taken by the Corporation in accordance with this agreement shall be deemed valid and binding.”
Conclusion
Corporate power is essential for defining the legal authority of a corporation to act within its designated purpose. By understanding corporate power, businesses can ensure that their actions are within their legal rights, protect themselves from potential risks, and avoid decisions that could lead to financial or legal issues. It’s a critical concept for ensuring that a corporation operates within the boundaries of its legal capacity.
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.