Contracts are one of the most important tools your business uses every day – they define your obligations, protect your rights, and shape your commercial relationships. Yet many small and medium-sized businesses operate without a clear process for deciding who can approve a contract before it is signed. That gap can lead to costly mistakes.

This article sets out a practical framework to help you get it right.

Start With Your Governing Documents

Before setting any internal approval policy, check your company’s articles of association and any shareholders’ agreement in place. These documents may already include specific requirements that restrict who can approve or execute certain types of contract – for example:

1. a requirement for board approval before entering into contracts above a specified value;

2. restrictions on the company incurring liabilities beyond a certain threshold without shareholder consent;

3. reserved matters provisions requiring unanimous or supermajority approval for key commercial commitments; or

4. limits on a director’s authority to bind the company without co-signature.

These are legal obligations, not just internal guidelines. Any approval framework you create must operate within the boundaries your governing documents set – not in place of them.

A Tiered Approval Framework

Beyond any constitutional requirements, a practical delegation of authority (DOA) matrix is the most effective way to manage contract approvals. The idea is simple: the higher the value or risk, the more senior the approval required.

A typical structure for an SME might look like this:

Thresholds will vary depending on the size and risk appetite of your business. The key is that the thresholds are documented, understood, and applied consistently.

Approval by Contract Type

Value is not the only variable. The nature of a contract also determines who should be involved in its approval:

1. Commercial and vendor agreements – Procurement or Finance, with Legal sign-off on terms above a set risk threshold.

2. Employment contracts – HR Director, with Legal review for senior hires or those containing restrictive covenants.

3. IP, licensing, or data agreements – Legal, often alongside the CTO or Chief Product Officer given the technical and regulatory complexity.

4. Joint ventures, partnerships, or M&A-related agreements – Board-level approval, usually with in-house and/or external legal counsel.

5. Regulatory or compliance-driven contracts – Legal and Compliance together.

The Standard Approval Chain

Most well-run organisations involve three key roles in the approval process:

1. The business owner – the person managing the relationship or project the contract relates to. They initiate the process and understand the commercial rationale.

2. Finance – responsible for confirming that budget exists and that the financial obligations are understood and acceptable.

3. Legal – responsible for reviewing contractual risk, ensuring regulatory compliance, and flagging any unusual or onerous terms.

Above defined thresholds, senior management or the board provides final sign-off.

Signing Authority Is Not the Same as Approval Authority

One of the most common governance gaps in SMEs is the confusion between who can sign a contract and who can approve it. These are two distinct things.

Signing authority refers to the legal power to execute a document on behalf of the company –  that is, to bind the company as a matter of contract law. Under English law, a company can generally be bound by the signature of a person acting with actual or apparent authority, which may include a director, an authorised signatory, or a person holding a specific delegation of power of attorney.

Approval authority is an internal governance concept. It refers to the right – under your company’s internal policies, DOA matrix, articles of association, or shareholders’ agreement – to sanction entry into a contract in the first place.

The two do not automatically coincide. A sales director, for example, may have actual authority to sign commercial agreements on behalf of the company. But if your DOA matrix or shareholders’ agreement requires board approval before entering into contracts above a certain value, that director’s signature on a £500,000 agreement – without board sign-off – may bind the company externally while constituting an internal governance breach.

This distinction has practical consequences:

1. A contract signed without the required internal approval may still be legally enforceable against your company by the counterparty, if that counterparty had no notice of the internal restriction.

2. Internally, however, the signatory may have exceeded their authority – which can give rise to personal liability or disciplinary consequences.

3. In investor-backed companies, signing a contract without the approvals required by a shareholders’ agreement can constitute a breach of that agreement, with serious consequences for the company and its directors.

The practical takeaway is straightforward: your approval process must be completed before a contract is presented for signature, not after. Signing should be the final step in a completed process – not a shortcut around it.

Practical Points to Remember

1. No single person should both negotiate and approve a contract alone – a second pair of eyes reduces risk significantly.

2. Even where the financial value falls below your thresholds, Legal should review contracts that carry unusual risk, such as unlimited liability provisions, long lock-in periods, or data sharing obligations.

3. Consider using a contract register or management system to track approvals, renewal dates, and counterparties – this is particularly important as your business grows.

4. Your DOA matrix should be a living document, reviewed periodically and updated as your business changes.

For the Smallest Businesses

If you are a sole director or have only a handful of staff, a formal matrix may feel disproportionate. Even so, it is good practice to set a personal rule about which contracts require external input – for example, any contract above a set monetary value, or any contract involving IP, data, or long-term commitments.

This article is provided for general informational purposes only and does not constitute legal advice. If you need advice specific to your circumstances – including a review of your articles of association, shareholders’ agreement, or internal governance framework – please get in touch with MR&T Advisory.

© MR&T Advisory, 14 April 2026