Jigsaw piece puzzle

Authority: Definition, Example and Related Terms

What is Authority ?

Authority refers to the legal power or right granted to an individual or entity to make decisions, issue orders, and enforce compliance. In the context of contracts and business agreements, authority denotes who has the capability to act on behalf of a party, such as executing agreements, making binding decisions, or representing the party in various matters.

For example, in a corporate setting, the CEO often has the authority to sign contracts on behalf of the company, while a project manager might have authority over specific project-related decisions.

Understanding who holds the authority in a contract or agreement is crucial because it determines who can legally bind the parties, authorize actions, and ensure compliance with contractual obligations. Without clarified authority, you risk unauthorized actions or invalid agreements, which can lead to disputes.

Roles that typically come with authority include directors, officers, managers, and other designated representatives who are specified either in the contract itself or within corporate governance documents like bylaws or resolutions. Therefore, it's important to clearly define and document the scope of authority to prevent any ambiguity.

Example(s)

  • Scenario Description
    A CEO signs a partnership agreement on behalf of the company. The CEO has the authority to bind the company to the agreement, making it legally enforceable.
    A project manager approves expenditures for a specific project. Within the scope of their role, the project manager has the authority to make spending decisions up to a predefined limit.