Is your business expanding rapidly? Do you need to delegate more functions while still maintaining control? When considering delegating signing authority, it’s important to strike a balance between empowerment and control.

Directors need to make decisions collectively

Under common law, a person’s authority to sign must be conferred by the company’s articles of association. Articles of association are the internal rules that govern the relationships between the company, its shareholders and its directors.

The majority of UK companies use model articles of association as the basis for their own. These model articles state that directors may exercise all the company’s powers. However, any decision to use those powers must be made collectively, either by a majority decision at a meeting or as a unanimous decision. This is because directors have shared responsibilities towards the company and therefore must all take part in decision making.

Company law enables those dealing with a company to assume that, if a director signs, they are doing so in accordance with internal procedures. After all, external parties are not expected to know a director’s specific authority. However, directors themselves need to be aware of their authority and follow proper procedures. Failure to do so means they risk breaching their duties and facing personal liability.

Effective delegation of authority is key to board governance

While directors must make decisions collectively, this does not mean the board has to handle every task themselves. Effective delegation allows the board to focus on strategic matters and empowers executives to make day-to-day decisions. For example, the board will typically decide on capital expenditure, but delegate its implementation to management. Similarly, managing staff, securing premises, operating bank accounts and entering contracts with customers and suppliers are all examples of important matters that need a signature, but are commonly delegated.

Authority can be implied if a director holds an executive office. However, clear documentation is crucial to protecting directors and other authorised persons from acting outside of their authority. These documents should explicitly state the scope of authority, specifying which actions fall within or outside of it.

Asking yourself the following questions can help you avoid the most common mistakes when delegating signing authority

1. Delegation ultimately needs to originate from the directors and comply with the articles of association. If authority will be granted at a directors’ meeting, will all the requirements regarding notice, quorum and interests be met? If granted outside a meeting, is a unanimous decision necessary? How will this decision be documented?

2. While employee turnover is a normal part of business, it can disrupt established delegation practices. Is it clear within your organisation who is ultimately responsible for maintaining delegated authority? Do you have processes in place to update delegated authority whenever personnel changes occur? Are new staff members clearly briefed on existing delegations upon joining?

3. Do you have clear policies on how long any given authority will remain in force and/or when it will be reviewed? Do you have procedures in place to ensure there are not multiple contradictory authorities in force at any given time?

4. The board needs to monitor and supervise anything that is delegated. Does the board have access to management information to enable them to do this? Is it clear what matters are reserved for board approval? Should value limits be included for clarity in defining these boundaries?

5. If authority is granted to certain roles and/or job titles, are they accurately defined?

6. Will any authorised persons need to sub-delegate their authority to others? If so, does the wording of their authority specifically permit this?

7. Authorisation by more than one person can ensure well-considered decisions and mitigate risk. Should the delegated task require joint authorisation?

8. Does the delegated task require a power of attorney?

Buzzacott can help you implement effective delegation

As your business expands, your once tightly focused team may encounter friction and distractions as it coordinates additional resources and specialised roles. Effective delegation is crucial to streamline decision making, but it must be executed correctly. Inadequate delegation can harm the business and increase the risk of directors breaching their duties—either by exceeding their authority or failing to provide proper oversight. Cumbersome signing authorities can hinder decision making, causing missed opportunities in the market.

Buzzacott can help you to strike the right balance. From design to implementation, our team of specialists can ensure your delegation practices are robust, resulting in better governance, empowered employees, and streamlined operations.