Board approval of commercial contracts

Board approval should identify the contract actually being authorised and the people allowed to complete it. A general statement that the company supports a deal may be insufficient where material terms remain unsettled. Separate the commercial decision, internal authority and signature formalities.

Identify the contracting entity and commitment

Confirm the company's registered name and number, the counterparty and the scope of the obligation. Review price, duration, termination, liability, payment terms and any guarantee or security. A group company should not be substituted casually because it uses the same brand.

Consider the whole commitment rather than only the first invoice. Renewal provisions, minimum volumes and termination charges can create exposure beyond the headline price.

Check who can approve the contract

Review the articles, delegated authority and reserved matters. The model articles provide for board management and delegation subject to the constitution, but the company's actual arrangements determine the internal process. ^[1]

Some transactions may also require shareholder, lender or regulatory consent. Identify those dependencies before the board treats its own approval as sufficient to complete the deal.

Give directors a decision-ready summary

Explain the commercial purpose, principal risks, alternatives and unresolved points. Include the proposed document or a clearly identified version. Directors should have enough information to exercise independent judgement and address relevant interests. ^[2]

If a director has a connection with the counterparty, apply the appropriate conflicts process. Record whether that affects participation, quorum or voting.

Make the resolution specific

• Identify the contract and the approved version.
• State any conditions that must be satisfied.
• Name the authorised signatories or permitted signing route.
• Define the scope of any authority to negotiate final changes.
• Assign responsibility for consents and completion evidence.
• Record the owner of post-signing obligations.

Check the final document before execution

Compare the signing copy with the approved version. Escalate changes outside the authority granted, especially to price, liability, security or duration. An approval subject to removing a guarantee does not authorise signing a copy that still contains it.

Signature formalities also need separate attention, particularly for deeds and documents governed by different UK jurisdictions. The existence of a board resolution alone does not answer every execution question.

After signing, retain the contract, approvals and consents together. Record renewal and notice dates so the company manages the agreement after completion.

Summarise the whole commitment for the board

Explain the contracting entity, total expected cost, duration and obligations that continue after termination. Include guarantees, indemnities, exclusivity and material data or IP provisions where relevant. A summary limited to the monthly fee may omit the very terms that make the decision significant for the company.

Ask the operational owner to explain dependencies and delivery risk. Finance should assess affordability and the payment timetable. Legal advice should identify material contractual questions within its scope. The board can then see which assumptions are supported and which risks it is being asked to accept, rather than treating professional involvement as a general assurance.

Identify the exact version and permitted changes

Reference the draft by date or a controlled document identifier. If negotiations continue, state who may agree changes and within what limits. A resolution can distinguish minor drafting adjustments from material commercial changes requiring another decision. Avoid authorising any director to sign any agreement connected with a broad project without considering the scope.

For an illustrative supply arrangement, the board approves a fixed volume and price but the final draft adds a minimum purchase obligation for another year. That is a potentially different commitment. The signatory should compare the final terms with the approval and obtain further authority where required, rather than relying on the unchanged contract title.

Check conditions and external consents

A board approval may depend on lender consent, shareholder consent or satisfactory completion of another step. Assign responsibility for obtaining each item and retain the evidence. An internal approval does not bind a third party to release security or waive a contractual restriction.

Conflicts should be identified before the vote. If a director has a connection with the counterparty, establish the participation and approval position under the company's rules. Record the interest and process accurately. A commercially attractive contract still needs a valid company decision and appropriate handling of the conflict.

Hand the approved deal to the delivery team

After signing, provide the operational team with the obligations they must perform, including notice dates, reporting, service levels and renewal arrangements. Keep the final signed agreement and approval together. A carefully reviewed contract can still cause problems if the team responsible for delivery never receives its actual requirements.

Read Company authority to sign documents for execution formalities and Board governance support for support with board papers, approval limits and the records connecting the decision to the final agreement.

For example, a supply agreement with a short termination window should create a calendar task immediately. A valid signature is only the start of the company's operational responsibility under the contract.