Companies cannot physically sign documents so it falls upon company director(s) to sign documents on behalf of a company. Directors should familiarise themselves with the formalities for signing documents on behalf of a company to make sure that things don’t go wrong – such as a contract not being binding or enforceable, or a court deciding that the director is personally bound by his or her signature, rather than the company.
It is essential that all documents signed by a company are executed properly to create legally binding agreements that are enforceable.
Companies are no longer required to have a common seal (i.e., a stamp with the company’s name and company number) so many companies now simply rely on the relevant provisions contained in:
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 common seal or choose not to have a common seal and therefore execute documents without it. We look at the different formalities for both below.
Even 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” (read: stamping) 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 in two different capacities (i.e. 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 how the company is to be managed.
The constitution will normally include a provision governing 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, e.g., authorising an employee to sign on behalf of the company under a power of attorney.
Making assumptions when people dealing with companies
Sections 129 of the Act provides that people dealing with companies are entitled to assume that a company has properly executed a document if the document appears to have been signed in accordance with s.127.
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 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. That way 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, or the company could be dragged into unnecessary and costly litigation.
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