What are corporate authorities all about?
Corporate authorities give approval for companies to enter into transactions (such as financings or acquisitions), and authorise people (“company representatives”) to sign the transaction documents on behalf of the company. They typically take the form of minutes of a meeting of a company’s board of directors and, if necessary, its resolutions of its shareholders.
Corporate authorities are important to everyone involved in a transaction:
- For the company itself, following the correct legal and internal procedures ensures the transaction has been properly considered and approved.
- Company representatives will also want corporate authorities prepared, so that they know they are acting with the company’s approval and authority when signing transaction documents.
- Those entering into a transaction with the company (“counterparties”) will often want to satisfy themselves that the transaction documents will be binding on the company.
- In a finance transaction, counterparties, such as banks, will often require that a law firm issue a legal opinion – a formal confirmation from a law firm – that the company is authorised to enter into the transaction, and that the company representative is authorised to sign the transaction documents. Corporate authorities form a core part of the basis on which such a legal opinion is issued.
In what practice areas would you expect to find them?
You’ll come across corporate authorities frequently in a transactional seat, such as banking and finance or corporate M&A.
What are the key aspects?
Board minutes will cover a number of points, including:
- whether any director has an interest in the proposed transaction (if so, you will need to consider whether they can vote), and that a quorum of directors is present;
- confirmation that the directors believe that the transaction would promote the success of the company and resolutions that the company will proceed with the transaction and enter into the associated documents;
- the list of transaction documents which company representatives are authorised to negotiate and sign on behalf of the company; and
- the identity of the company representative(s) authorised to sign the transaction documents.
Shareholder resolutions may also be required where, for example, the benefit to the company of entering into the transaction isn’t clear cut.
What are the main subtleties?
Corporate authorities tend to be quite short documents, so it’s easy to underestimate them. However, to get them right you need to really understand the transaction and the parties involved, and make sure that the corporate authorities comply with the company’s constitutional documents.
Corporate authorities need to cover all transaction documents that the company is entering into, and in finance in particular there can be a lot of these! You will want the key transaction documents to be expressly listed, and to include an effective catch-all provision, authorising entry into any other documents (not expressly listed) relating to the transaction.
Where a group of companies is involved in the transaction, you will likely need to prepare separate corporate authorities for each company, and these will need to reflect the (often different) transaction documents being entered into by each company in the group.
In international work, companies incorporated in other jurisdictions may be part of the transaction and, as these companies would be subject to their local law, you would need input from lawyers located in the jurisdiction of the company’s incorporation.
Behind the scenes it may be necessary to present and explain documents to directors and shareholders who aren’t involved in the transaction, and to liaise with the company in relation to holding board meetings and any shareholder meetings, often at short notice.
What involvement would a trainee expect get on these?
Trainees are very involved in preparing corporate authorities, and having these agreed with the relevant stakeholders. Trainees can also expect client contact through organising board and shareholder meetings, and involvement in instructing lawyers overseas.
How fiendishly complex are they?
Preparing corporate authorities requires good organisation and attention to detail, and preparing them can be particularly challenging in certain circumstances:
- Directors might not be individuals – they can be companies. If so, additional corporate authorities might be required to authorise the corporate director to vote.
- So far, we’ve been discussing English companies. However, other entities may be involved, such as partnerships, limited partnerships and LLPs, and the laws and procedures governing these entities can be very different.
- Finally, things don’t always go to plan and there can be disagreements between directors and shareholders in relation to a transaction. If a director or shareholder votes against the transaction or abstains from voting you may need to advise on, for example, whether the resolution was validly passed and the risk of challenge.
As a result, although corporate authorities can be relatively straightforward in a smaller transaction, in large scale international financings they can be quite fiendish!
Ed Wallis is an associate in the banking team at Hogan Lovells.