A contract signatory has a significant influence on the contract execution process. Their signature represents a binding legal commitment between the parties, signifying the culmination of negotiations and due diligence.
But if you think a contract signatory's role is confined to the signing process, you can't be further from the truth!
Here, we've detailed everything you need to know about being a contract signatory, covering its various responsibilities in real-life scenarios.
What is a contract signatory?
A contract signatory is an individual or entity authorized to sign and approve a legal agreement. Their signature serves as evidence of consent to the terms and conditions stipulated in the contract.
Depending on the nature of the agreement, a contract can have multiple signatories. By signing on the dotted line, a signatory not only creates a legally binding document but also becomes responsible for fulfilling the contract’s obligations.
For instance, if a company approaches you for consultation services, you must sign a contract with the company to establish the terms of the engagement. In this case, the contract has two signatories: the company and yourself.
Countries can also be signatories to agreements. For example, two or more countries can sign trade agreements to reduce tariffs, establish trade rules, and create preferential trading arrangements.
Also read: Contract Signing Unveiled: A Step-By-Step Guide
The roles of a contract signatory
A contract signatory’s inputs during contractual agreements go beyond putting pen to paper. They bring a variety of contributions that are crucial to the successful execution of legal agreements.
#1 Negotiation and advocacy
Before the ink dries, signatories often play a key role in shaping the contract itself. They advocate for their organization's interest, propose modifications to terms, and strive to reach mutually beneficial agreements with the other parties involved.
#2 Ownership and accountability
By signing the contract, the signatory becomes the owner of the agreement on their side. This translates to taking responsibility for overseeing internal operations, implementing any necessary changes to ensure compliance, and addressing any issues that may emerge throughout the contract's lifecycle.
#3 Communication
Signatories often become the main point of contact for their respective organization or entity related to the contract. They handle communications, facilitate information flow, and address questions as they emerge.
#4 Risk assessment and mitigation
Before signing, signatories carefully analyze potential risks within the contract. This enables proactive planning to mitigate issues and protect their organization's interests. They may also monitor the contract's execution to identify potential risks as they emerge.
#5 Dispute resolution
When unforeseen issues or disagreements arise, signatories may be involved in resolving them. This could include participating in mediation, renegotiations, or other dispute settlement processes. Their deep understanding of the contract and their relationship with the other parties may be crucial in finding mutually agreeable solutions.
Signatory vs signature: the key difference
While connected, there's a crucial distinction between "signatory" and "signature":
A signatory is a person or entity who signs (and effectively approves) a contract. On the other hand, a signature refers to the physical or electronic markings representing a signatory's agreement to the contract. It signifies consent and makes the contract legally binding.
In short, the signatory is the "who," while the signature is the "how."
Types of contract signatories
As you close more contracts in your professional career, there are two main types of contract signatories you’ll encounter. Each of them has unique roles and carries different weights.
#1 Authorized signatory
Authorized signatories are the individuals or entities empowered explicitly by an organization to sign contracts on their behalf. These representatives hold the authority to bind the entire organization (company, institution, country, etc.) to the terms of the contracts they sign.
Authorized signatories are often CEOs, directors, or individuals with a specific power of attorney.
#2 Co-signatory
Co-signatories are frequently used to ensure shared accountability and mitigate risk. This can be relevant in various scenarios, such as joint ventures where multiple companies come together for a project, loan agreements where subsidiaries co-sign with the parent company, or specific contracts requiring approval from both legal and finance departments.
By having co-signatories, each party shares responsibility for fulfilling the contract's obligations, providing an extra layer of security and oversight.
Becoming a signatory
The role of a contract signatory isn’t for everyone, especially when the agreement is between organizations. This is because a signatory doesn’t just draw strokes on dotted lines but carries the responsibility and legal weight of an organization’s commitments.
There are different ways to become a signatory in an organization, but in general, the following criteria are important:
#1 Have a position of authority
To be an authorized signatory, you usually need to hold a formal position of power within the organization. Titles like CEO, CFO, President, or other high-level executives frequently have the inherent authority to sign contracts. This ensures the signatory has the decision-making capacity to bind the organization to the contract's terms.
Additionally, specific roles might have explicit signatory power granted to them within their job description. For instance, within a company's sales department, a regional sales manager might be authorized to sign off on standard client contracts up to a certain amount.
“There is a stratification based on the contract value [at my organization]. We have set monetary thresholds. When the contract value exceeds that number, the contract goes through a strict review and approval process, and only certain authorized signatories can approve that contract."
~Nadia Louis Hermez, Legal Ops Manager, Next Insurance, Inc.
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#2 Have a strong grasp of the organization’s goals and risk tolerance
A signatory can't operate in a vacuum. They must deeply understand the organization's objectives, what it's striving for, and, importantly, the level of risk it's willing to accept. This knowledge ensures the contracts they sign align with the bigger picture and don't expose the organization to undue risk.
#3 Prepared to be held accountable
Signatories become responsible for ensuring their organization fulfills its side of the bargain. This means monitoring compliance, addressing issues, and potentially handling disputes. They must be willing to own the outcomes connected to the contracts they sign.
#4 Must be trusted to make decisions
Organizations place an exceptionally high degree of trust in their signatories. A signatory must consistently demonstrate ethical conduct, sound judgment, and an unwavering commitment to prioritizing the organization's best interests in all contract-related decisions.
How a contract signatory works with real-life examples
Here, we've detailed how a contract signatory typically works in real life. More or fewer processes could be involved, depending on the nature of the contract.
#1 Establishing authority
In most companies, specific individuals are designated as authorized signatories. This designation can be formally documented in the company's founding documents, such as its articles of incorporation or bylaws.
Alternatively, a board resolution can be passed to explicitly grant signatory authority to specific individuals. This formal process ensures clarity within the organization and externally with business partners on who has the legal authority to bind the company to agreements.
#2 Negotiation and review
The signatory often reviews and contributes to the shaping of the contract. They advocate for the organization's interests and may negotiate terms to benefit their side. For instance, a procurement manager negotiating a supply contract might push for better pricing, more favorable delivery terms, or guaranteed quality standards.
#3 Signing
After sufficient review and negotiations, the signatory proceeds to sign the contract. This can be physical, using a pen or a stamp, or electronic, using tools like SpotDraft’s eSignature solution.
By signing the contract, the signatory formalizes the agreement, binding their organization to the terms and obligations outlined in the contract.
#4 Execution
The signatory oversees the implementation of the contract, ensuring that their organization fulfills its obligations. This may involve coordinating with internal teams, managing external partners, or monitoring progress.
Also read: Contract Execution Process: The Ultimate Guide
Real-world examples:
- Business partnerships: When two or more businesses decide to form a partnership, they often create a partnership agreement. This legal document outlines the terms of the partnership, including ownership percentages, profit/loss distribution, decision-making processes, and dispute resolution.
The signatories to this agreement are authorized representatives of each business, such as CEOs, presidents, or other executives with the legal authority to bind the company to the agreement.
- Employment contracts: Employment contracts or offer letters lay out the terms and conditions of the employment relationship. These frequently cover compensation, benefits, job responsibilities, and termination procedures.
The employee and a representative of the company (often someone from Human Resources) act as signatories. Their signatures indicate mutual acceptance of the contract's terms.
- Supply chain agreements: In complex supply chains, businesses rely on signatories to formalize agreements between suppliers, manufacturers, distributors, and retailers. These contracts cover matters like product specifications, quantity, pricing, delivery timelines, and quality standards.
The signatures of authorized representatives on these agreements create a binding commitment ensuring the smooth flow of goods and services throughout the chain.
- International treaties: Imagine two countries aiming to collaborate on scientific research efforts to combat climate change. Their authorized signatories, such as science ministers or environmental ambassadors, would sign an agreement outlining specific commitments, like sharing research data, coordinating joint projects, and providing resources for collaborative studies.
The signing process: physical vs. electronic signatures
A contract signatory executes legal agreements through signatures. Traditionally, contract signing processes involved printing paper documents, manually signing with a pen, and potentially sending copies via mail or courier.
While this method is still in use, electronic signatures, also known as eSignatures, are rapidly transforming contract execution processes.
Compared to physical signatures, electronic signatures come with several advantages:
#1 Speed and convenience
Printing, signing, and sending physical documents create delays, especially when parties are in different locations. This can slow down important business processes.
However, electronic signatures allow you to sign contracts from anywhere, anytime, and on various devices. This streamlines business processes and accelerates deal closures.
Also read: A Quick Introduction to eSignatures
#2 Cost savings
eSignatures eliminate the need for paper, printing, ink, and physical mail, significantly reducing the costs associated with traditional contract signing processes.
“Now is the perfect time for in-house counsel to focus on how best to use electronic signatures at your company. If you are already using them, that’s even better, but just make sure you are truly up-to-speed on the laws in your jurisdiction and that you have the right systems and procedures in place.”
~Sterling Miller CEO and Senior Counsel for Hilgers Graben PLLC
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#3 Security and authentication
Reputable eSignature platforms incorporate robust security measures to ensure the authenticity and integrity of electronic signatures. These measures often include advanced encryption technologies to safeguard documents from unauthorized access or tampering.
Additionally, eSignature platforms employ methods to verify the identity of the signatories, such as knowledge-based authentication or multi-factor verification. This multi-layered approach provides a strong foundation for secure and trustworthy electronic transactions.
Also read: How to Prevent Forgery via AI-Based Signature
#4 Better tracking, management, and storage
Traditional paper contracts can be cumbersome to track and manage, especially when the organization is handling contracts at scale. With robust eSignature platforms, tracking contracts is easier as you get access to a centralized repository, automated reminders, version control features, and more.
With this, you can easily access contracts, track changes, and accelerate signing processes.
Also read: Powering Contract Efficiency Through eSigning
Sign contracts better with SpotDraft
“I have seen a demo of SpotDraft's CLM technology and they should be on your short list of vendors to talk to about a contract management system.”
~Sterling Miller CEO and Senior Counsel for Hilgers Graben PLLC
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SpotDraft offers a robust eSignature tool that empowers you to simplify contract signing processes for your organization.
The tool allows you to sign contracts in multiple ways (textbox, hand-drawn, and others) and collect signatures in MS Word, PDF, or even URL. You can add as many signatories as you like and even set up automated workflows to collect signatures from different signatories at the right time.
Also, thanks to its compliance with ESIGN (USA), eIDAS (Europe), and ECA (UK), SpotDraft’s eSignature tool is suitable for businesses in most jurisdictions.
There’s so much you can benefit from SpotDraft. If you’d like to learn more and even get a personalized demo, click here to proceed!
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