In a small startup, whoever is closest to a deal usually signs it, and that works well enough when there are two founders and a handful of customers. As the team grows, the same habit becomes risky, because a sales lead can end up signing a three‑year contract with unlimited liability that nobody with authority to approve it has ever seen.
Two questions help keep this under control, namely who can approve a commitment and who can sign it. The answers have to fit the company's articles and any consent rights its investors hold, and they apply to a variation or renewal just as much as to the original contract.
Start with the company's own rules
The articles and CAMA give the board its powers, and the board can delegate some of those powers to others, while the shareholders' agreement may require investor consent for certain decisions. A simple approval matrix can turn all of this into something the team can use day to day, by setting out who can approve which types of commitment and up to what amount.
The limits should reflect the company's total exposure under a contract, so the full contract value should be counted, including minimum spending commitments and renewals. Related orders should be treated as a single purchase, so that nobody can split a contract into smaller parts to stay within their own limit.
Some commitments should always go to the board or the founders, whatever their value, such as an exclusive arrangement or a transfer of core intellectual property. These exceptions should be listed, and there should be cover for an approver who is away. Where someone is allowed to delegate their authority further, the scope and end date of that delegation should be recorded.
Deal with conflicts and consents before signing
A director with a personal interest in a contract must declare it under CAMA, and the articles decide whether that director can vote on it. The board minutes should record both the declaration and how the vote was handled.
Loan agreements and investor protective provisions can also require consent to new borrowing or related‑party transactions, in addition to board approval, and that consent should be obtained at the approval stage. I work through an example where the lender is also a director in when a founder lends money to the company.
The approval should identify the deal and the version of the document that was approved. If a material term changes afterwards, the matter should go back to the person who approved it, because a higher liability cap, for example, is a different risk from the one they agreed to.
Use the right method of signing
An ordinary contract and a deed are signed in different ways. Under CAMA's execution provisions, a company can execute a deed without a seal by having it signed by a director and the secretary, or by two directors, or by one director in the presence of a witness who attests the signature. A deed also has to be delivered, so the correct method should be confirmed before completion, along with any requirement specific to the transaction.
A power of attorney must be validly signed and wide enough to cover what the attorney is being asked to do. If it will be used abroad, the company should find out early whether it needs to be notarised or apostilled, since that can take time, and a copy should be kept with the transaction documents.
Electronic signatures are acceptable for most commercial contracts in Nigeria, and the Evidence Act recognises electronic records and signatures. Some documents, including many deeds and documents that require a witness, need more than a simple electronic signature, so the company should use a process that records who signed and that they intended to sign, and arrange proper witnessing where the law requires it.
Make the final document clear
The contract should use the company's full registered name and RC number and state the capacity in which each person signs. In a group transaction, each company should be named separately and authority obtained for each one, and where one person signs for several companies, each signature should show which company it is given for.
The signatures should be linked to the final agreed version of the document, including its schedules. If signatures are being held until a condition is met, that condition should be confirmed before they are released, and the signed version should be stored as one complete record.
For a bank mandate, the board resolution should be sent through the bank's own process, and the company should obtain written confirmation that the change has been made, so that the finance team knows who can now sign and what limits the bank has applied.
When someone signs without authority
Where authority is disputed, the company needs to look at what the person was actually permitted to do and at the protection CAMA gives outsiders who deal with the company in good faith, as well as at how the company itself has behaved. Those factors decide whether the company is bound to the other party, while the way the company deals internally with someone who exceeded their authority is a separate question.
If the company wants to adopt the contract, it can usually ratify it through the proper decision. The correspondence should be kept and the decision recorded on advice, and the limits of their authority should be explained to the person involved, with the approval matrix updated if necessary.
Remove authority when roles change
When someone leaves the company or changes role, the approval matrix and bank mandate should be updated and their system access changed. Customers and suppliers who have relied on that person as an authorised contact should be told, and given details of the new contact.
The approval matrix should be kept current and shared with everyone who approves or signs contracts. The contract process I describe in keeping track of contracts as the business grows should refer back to it for every variation and renewal, and revocations and temporary cover arrangements should be recorded with their dates.
This article is general information and not legal advice. For guidance on your specific circumstances, speak with us directly.