Whether you are a director or secretary of a company or are entering into an agreement with a company it is important to ensure that the company has correctly signed the document.
If a company does not sign correctly then the document may not be binding on the company.
The case of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd is a good illustration of how strict these rules are. The case concerned a director signing a contract but crossing out the words ‘sole director/sole secretary’ indicating that the purchaser company had another director or secretary that needed to sign. The other director did not sign the contract and the purchaser withdrew its offer. In this case the director who signed was not personally liable as he did not purport to act as an agent for the company but was undertaking just one half of the execution of the contract. Had the director signed the execution clause for agents then he could have been personally liable.
Under the Corporations Act a company can execute a document without using a common seal if it is signed by any of the following:
- Two directors of the company
- A director and a secretary of the company
- For a proprietary company that has a sole director who is also the sole company secretary, by that person or
- By an agent with express or implied authority to execute a document on behalf of company. Such authority is typically given by board resolution or under power of attorney
Tips for ensuring valid execution by a company:
- Require contracts to be signed in accordance with clause 127 of the Corporations Act and not by an agent.
- If a contract is signed by an agent then make sure you review the source of the agent’s authority (e.g. by obtaining a certified copy of the power of attorney).
- Do a company search to obtain the identity of the director(s) and secretary and ensure they are correctly described on the execution clause.
- Require companies to have a sole director and sole secretary signing, not just a sole director.