Definition
A mandate refers to a written authority granted by one party, known as the mandator, to another party, referred to as the mandatory, to act on the mandator’s behalf. This delegation of authority allows the mandatory to perform specific actions or make decisions for the mandator.
Types of Mandates:
- Banking Mandate: This comprises instructions to a bank for opening an account, managing the account, and providing specimen signatures of authorized signatories.
- Legal Mandate: In legal terms, this could involve giving power of attorney or other legal powers to an individual to act in legal capacities on behalf of the mandator.
Examples
Example 1:
An individual provides a written mandate to their financial advisor, authorizing them to manage their investment portfolio. This mandate includes specific instructions on asset allocation and investment strategies.
Example 2:
A company provides a banking mandate when opening a new corporate account. The mandate includes detailed instructions on how the account should be operated and lists the authorized signatories who can process transactions on behalf of the company.
FAQs
What is the main purpose of a mandate?
A mandate’s primary purpose is to allow one party (the mandatory) to act on behalf of another (the mandator) in various situations such as financial, legal, or administrative activities, ensuring that decisions and actions are taken as per the mandator’s wishes.
Can a mandate be revoked?
Yes, a mandate is typically revocable until acted upon. It may be withdrawn by the mandator at any time before the mandatory acts upon it. Additionally, a mandate generally ends upon the death, mental illness, or bankruptcy of the mandator.
Yes, mandates usually need to be documented formally to clearly define the authority being delegated and to avoid any misunderstandings. This documentation is essential for legal and practical purposes, especially when dealing with financial institutions or legal matters.
What happens if the mandator dies or becomes bankrupt?
A mandate usually ends upon the death or bankruptcy of the mandator. This ensures that the authority granted does not extend beyond the lawful capacity of the mandator.
Can a mandate be specific or general?
Yes, mandates can be both specific and general. A specific mandate covers particular tasks or decisions, whereas a general mandate provides broader authority across various activities or decisions.
Power of Attorney
A legal document authorizing one person to act on behalf of another in legal or financial matters.
Proxy
An authority to act on behalf of another, especially for voting purposes in meetings.
Delegation
The assignment of responsibility or authority to another person to carry out specific activities.
Fiduciary Duty
A legal obligation to act in the best interest of another party. For example, a trustee or an agent must act in the best interest of the beneficiary or principal.
Online Resources
- Investopedia: Understanding Power of Attorney
- Nolo: What Is a Proxy?
- American Bar Association: Fiduciary Duties
Suggested Books for Further Studies
- Power of Attorney and Other Agency Instruments by Deborah Scroggin Garrett
- The Law of Agency by Howard Bennett
- Financial Regulation and Supervision: A Post-Crisis Analysis by Eddy Wymeersch, Klaus J. Hopt, and Guido Ferrarini
Accounting Basics: “Mandate” Fundamentals Quiz
### What is the primary difference between a mandator and a mandatory?
- [ ] The mandator acts on behalf of the mandatory.
- [x] The mandatory acts on behalf of the mandator.
- [ ] Both terms refer to the same person in different contexts.
- [ ] The mandator oversees the actions, while the mandatory executes them.
> **Explanation:** The mandatory acts on behalf of the mandator, following the specific instructions or authority given to them.
### Can a banking mandate include more than one authorized signatory?
- [x] Yes
- [ ] No
> **Explanation:** A banking mandate can include multiple authorized signatories who are provided specimen signatures to act on behalf of the mandator when operating the account.
### When does a mandate typically come to an end?
- [ ] When the mandate is revoked unilaterally.
- [ ] When the mandate is acted upon by the mandatory.
- [x] At the death, mental illness, or bankruptcy of the mandator.
- [ ] At a predetermined date only.
> **Explanation:** A mandate usually ends upon the death, mental illness, or bankruptcy of the mandator, ensuring the authority does not extend beyond the lawful capacity of the mandator.
### Which document allows an individual to act legally on behalf of another?
- [x] Power of Attorney
- [ ] Bank Statement
- [ ] Share Certificate
- [ ] Contractual Agreement
> **Explanation:** A Power of Attorney is a legal document that enables an individual to act on behalf of another in legal or financial matters.
### What must a mandate include when opening a new bank account?
- [ ] A list of intended account transactions.
- [ ] Previous bank statements.
- [x] Instructions on account operation and authorized signatories.
- [ ] Business registration documents.
> **Explanation:** When opening a new bank account, a mandate must include clear instructions on how the account is to be operated and details of authorized signatories.
### Can a mandate be legally binding without a formal document?
- [ ] Often
- [ ] Rarely
- [x] No, it must be formally documented.
- [ ] Sometimes
> **Explanation:** Mandates usually need to be formally documented to ensure clarity and legal validity, particularly for purposes involving financial institutions or legal transactions.
### What is an example of a mandate in a financial context?
- [x] Instructions to a financial advisor to manage investments.
- [ ] A mortgage application.
- [ ] An insurance claim.
- [ ] A job offer letter.
> **Explanation:** A mandate in a financial context, such as instructions to a financial advisor to manage investments, grants authority and provides guidance on asset management.
### Who is liable if a mandatory acts beyond their authority under a mandate?
- [x] The mandatory.
- [ ] The mandator.
- [ ] Both in equal measure.
- [ ] Neither, the action is void.
> **Explanation:** If a mandatory acts beyond their authority, they are liable for those actions, as they would be acting outside the bounds of the instructions given in the mandate.
### In which situation can a mandate not function effectively?
- [ ] When clear instructions are given.
- [x] When the mandator is deceased.
- [ ] When multiple tasks are delegated.
- [ ] When the mandatory has financial expertise.
> **Explanation:** A mandate cannot function effectively if the mandator is deceased, as the mandate typically ends upon the death of the mandator.
### What fundamental attribute must a mandatory have to act for a mandator?
- [x] Authority granted by a formal mandate.
- [ ] Academic credentials in a relevant field.
- [ ] Experience in similar roles.
- [ ] Endorsement by a professional body.
> **Explanation:** The fundamental attribute a mandatory must have is the authority granted by a formal mandate, which explicitly details the scope and limits of their power to act on behalf of the mandator.
Thank you for embarking on this journey through our comprehensive accounting lexicon and tackling our challenging sample exam quiz questions. Keep striving for excellence in your financial knowledge!
