We are often asked to advise our clients on the proper execution of documents. This article aims to assist you in determining whether a document has been properly executed by a company. If a document is not executed correctly, it may mean that the document is not enforceable.
In this article we will consider the requirements relating to execution of documents by companies under the Corporations Act 2001 (Corporations Act).
What is the simplest way for a company to execute a contract or deed?
The most straightforward and simplest way for a company to validly execute a contract or deed is for the document to be executed in accordance with section 127 of the Corporations Act. Section 127(1) provides that a company can execute a document without a common seal if it is signed by:
- two directors of the company;
- a director and company secretary; or
- for a proprietary company that has a sole director who is also the sole secretary – that sole director or secretary.
Section 127(2) provides that a company may also execute a document by affixing the common seal and having it witnessed by one of the combinations of officers set out above. As many companies no longer use a common seal, this is a less common method of executing documents.
What are the benefits of executing under section 127 of the Corporations Act?
Executing a contract or deed under section 127 is not the only way a company can enter into a document. However, if a document is executed under section 127, then you can make certain assumptions, without further investigation including:
- the company’s constitution (if any), and the provisions of the Corporations Act that apply to the company as replaceable rules, have been complied with;
- anyone who appears, from information provided by the company that is available to the public from ASIC, to be a director or a company secretary of the company has been duly appointed and has authority to exercise the powers and perform the duties customarily exercised or performed by a director or a company secretary of a similar company;
- anyone who is held out by the company to be an officer or agent of the company has been duly appointed and has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company;
- the officers or agents of the company properly perform their duties to the company;
- a document has been duly executed by the company if the document appears to have been signed in accordance with section 127(1) of the Act; and
- a document has been duly executed if the company’s common seal has been fixed to the document and the fixing of the common seal was witnessed in accordance with section 127(2) of the Act.
What are the other ways a company can execute a document?
Section 127 does not limit the ways in which a company may execute a document. For example, section 126 provides that an agent with express or implied authority may execute a document on behalf of a company. This agent may be authorised by a board resolution or under a power of attorney.
Where it is not practical to have a document executed in accordance with section 127, then a contracting party cannot rely on the above assumptions and must instead make their own investigations as to whether or not the company has in fact authorised the execution of the document in question and otherwise complied with the Corporations Act and its own constitution in that authorisation process.
If section 127 is not being used, you should undertake due diligence to satisfy yourself that the document has been duly executed. This could be done by asking to review the source of the agent’s authority such as the board resolution authorising the person to sign the document on behalf of the company or the company’s constitution.
In practice, most parties make a commercial decision on a case by case basis, depending on the size, value and importance of each agreement or deed, as to whether they are prepared to accept execution by a company other than in accordance with section 127 and how much due diligence they do if the company signs in a way other than under section 127.
The correct execution of documents is essential to create legally binding agreements. It is important to be familiar with the requirements for execution, and if a document has not been executed in accordance with section 127, it is prudent to make the relevant inquiries as to the authority of the execution.
If you have any queries about this article or require further information, please contact:
M: 0418 578 701