There are a number of ways that a document can be signed by a company and it is important that all directors are familiar with the formalities that need to be adhered to when executing documents.
It is essential that all documents signed by a company are executed properly to create legally binding agreements that are enforceable.
The formal legal requirement that a company execute documents by fixing its common seal witnessed by a director and secretary or by two directors no longer applies.
In fact there is no longer a requirement that a company use a common seal at all.
When executing documents a company must either execute them in accordance with the:
- Corporations Act 2001 (the Act); or
- Provisions for executing documents contained in its own Constitution.
Signing documents under the Act
Section 127 of the Act sets out the ways in which a document may be executed by a company. If a company executes a document in this way, people will be able to rely on the protection in other sections of the Act for dealings in relation to the company.
Under s 127 a company may execute documents under seal or choose not to have a company seal and therefore execute documents without using a seal.
If a company has a seal it is not obliged to use it for the execution of documents.
Execution with a common seal
A company may execute a document by fixing its common seal where the fixing of the seal is witnessed by:
- two directors of the company; or
- a director and a company secretary of the company; or
- for a proprietary company that has a sole director who is also the sole secretary – that sole director/sole secretary.
Execution without a common Seal
A company may execute a document without using a common seal if the document is signed by:
- two directors of the company; or
- a director and a company secretary of the company; or
- for a proprietary company that has a sole director who is also the sole secretary – that sole director/ sole secretary.
What if I am a Director and Secretary?
When executing documents on behalf of a company one person cannot sign the document or attest the fixing of the common seal in two different capacities (ie as director and company secretary), unless that person is the sole director and also the sole secretary of the company.
Execution in accordance with a company’s constitution
A company’s constitution sets out the basis on which the company is to be managed.
The constitution will normally include a provision setting the manner in which the company should execute documents.
A company may execute documents in accordance with the provisions in the company’s constitution, which may vary the mode of execution on behalf of the company from the requirements under the Act.
A company could also authorise execution of documents by an alternate means by resolution of the board of directors.
Making assumptions when dealing with companies
Under the Act individuals and other organisations dealing with companies are entitled to assume that a document has been duly executed by the company if the document appears to have been signed in accordance with s 127 of the Act.
For the purposes of making the assumptions a person may also assume that anyone who signs the document and states next to their signature that they are the sole director and sole secretary of the company occupies both offices.
Agent exercising a company’s power to make contracts
Section 126 of the Act states that a company’s power to make, vary, ratify or discharge a contract may be exercised by an individual acting with the company’s express or implied authority and on behalf of the company.
This power may be exercised without using the common seal, so a company could authorise a director or other agent to sign on its behalf.
However, in these circumstances the other party to the contract should require proof of the authority of the individual to sign on behalf of the company, such as a copy of a resolution of the sole director as the other party cannot rely on the assumptions in s 129 of the Act that the document has been properly executed.
Other formalities
It is important to note that some State and Federal government departments impose additional formalities that need to be complied with when executing documents. Typically, this will apply where documents need to be registered, for example where they concern the transfer or mortgage of real property or if they are to be used in relation to court proceedings.
Institutions, such as banks, that lend money and rely on the enforceability of documents are often very meticulous in checking that all documents have been executed correctly. They often require that legal documents be executed in accordance with the Act so that they can rely on assumptions in the Act that the document has been executed properly. They don’t need to verify who has executed the document.
Conclusion
It is essential for documents to be executed in accordance with the formal requirements provided under the Act and/or the company Constitution.
If a document is not executed properly it may not be enforceable or, even if it is enforceable, it could still cause delays while errors are rectified to comply with the required formalities.
If you need any help or advice regarding the execution of documents on behalf of a company, please contact us on (07) 4724 1016 or email [email protected].
