It's not the flashiest legal question. It won't trend on LinkedIn. But in my experience, it's one of the most important questions a growing business can ask — and one of the least often answered clearly.
Who is actually authorized to make decisions for your company?
Not who does make decisions. Not who assumes they can. Who is legally authorized to act on behalf of the business — to sign contracts, hire vendors, take on debt, commit to partnerships, or bind the company to an obligation?
If you had to answer that question right now, confidently and in writing, could you?
For many businesses — including ones that are otherwise well-run — the honest answer is: not really.
The business landscape has shifted in ways that make decision-making authority more consequential than it used to be.
Remote and distributed teams mean more people are operating with autonomy, signing up for software, entering vendor agreements, and making commitments on behalf of the business without a clear chain of authority behind them.
Multi-member LLCs and partnerships are more common than ever, and with them comes the question of what one partner can do without the other's sign-off. The answer, if it's not spelled out in your operating agreement, may surprise you.
AI tools and automated workflows are increasingly being used to execute business functions - but a workflow doesn't have legal authority. A human with proper authorization does.
And for businesses that are growing, taking on outside investment, or preparing for a sale, undefined authority structures are a serious red flag. Investors and acquirers want to know that the company's decisions have been made by people who were actually empowered to make them.
In business law, authority to act on behalf of a company generally comes from one of three places.
For an LLC, this is your operating agreement. For a corporation, it's your bylaws and any board resolutions. These documents define who manages the company, what decisions require a vote or unanimous consent, and what actions any single member or officer can take unilaterally.
If your operating agreement says the company is "member-managed," that means the members collectively run the business. If it says "manager-managed," only the designated manager has authority to act — members don't, unless specifically granted that power.
Many businesses have operating agreements that are silent on key questions — or that were set up with a simple structure that no longer matches how the business actually operates. That silence can create real problems.
Even if someone isn't formally authorized to act, they may create binding obligations for your company through what's called "apparent authority." If you've allowed someone to hold themselves out as having authority — signing contracts, negotiating deals, representing the company — a third party who reasonably relied on that representation may be able to hold the company to those commitments.
This is one of the reasons it matters to get authority documented, not just assumed. What you've communicated externally about someone's role can have legal consequences regardless of what your internal documents say.
As businesses grow, decision-making gets delegated. An operations manager handles vendor relationships. A CFO signs off on financial commitments. A project lead enters into agreements with subcontractors. Each of those delegations should be intentional, documented, and bounded — meaning there should be a clear limit on what they can and can't commit to on the company's behalf.
Without that documentation, you may have employees or contractors making legally binding commitments that the business owners didn't authorize and didn't know about.
When a new partner comes on board, everything about the authority structure potentially changes. Who can sign contracts now? Does the new partner need to approve major decisions? What's the threshold for a decision that requires unanimous consent vs. majority vote?
If the operating agreement hasn't been updated to reflect the new ownership structure, those questions don't have clear answers — and unclear answers create disputes.
"VP of Operations" or "Director of Business Development" are titles that imply authority. But a title alone doesn't create legal authority to bind the company. If those roles aren't defined in your governing documents or in a clearly documented delegation of authority, the title is just words.
A business that started with one owner often develops a more complex stakeholder picture over time — a spouse involved in operations, a key employee with equity, a silent investor, an advisory board. The original operating agreement may reflect none of that. And yet, decisions are being made every day based on an assumed authority structure that has never been formalized.
"We decided between ourselves that she handles all the vendor stuff and he handles client contracts." That may be the practical reality of how the business runs. But if it's not documented, it's not authoritative — and it won't protect you in a dispute, a transaction, or an audit.
Getting decision-making authority documented doesn't have to be complex. Here's where to start.
Pull out your governing documents and ask: Do these reflect how our business actually makes decisions today? Who does it say is authorized to act? Are there categories of decisions that require a higher threshold of approval? If the document doesn't match reality, it needs to be updated.
Not every decision needs the same level of authorization. A practical framework might look like this: operational decisions under a certain dollar threshold can be made by any authorized manager; decisions above that threshold require sign-off from a managing member; major transactions — taking on debt, entering long-term contracts, adding partners — require unanimous consent.
Put those thresholds in writing.
If you've given someone authority to act on the company's behalf in a particular area, document it. A simple written delegation — specifying what they're authorized to do, up to what limit, and for what period — creates clarity internally and protection externally.
A new partner, a new investor, a key hire with equity, a departure — any of these should trigger a review of your authority structure. Who can act changes when ownership and management change. The documents should follow.
"Who is allowed to make this decision for the company?" is a question that sounds administrative. But the answer sits at the center of your business's legal health.
Undefined authority creates disputes between partners. It creates liability when someone acts outside their lane. It creates friction in transactions when an acquirer or investor can't verify that your company's decisions were properly authorized.
And it's entirely fixable — with the right documents in place.
If you're not sure whether your operating agreement clearly defines who can act on behalf of your business, that's worth a conversation. The time to get it right is before you need it.
I work with Colorado business owners to make sure their governing documents reflect how their business actually operates — and protect them when it matters most. Schedule a free 30-minute consultation and let's take a look.
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Poorvi Parkhie is a Colorado-based transactional business attorney who serves as outside general counsel for growth-minded small and midsize businesses. She helps clients build legal foundations that are built to last.
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