Does My Company Need a Common Seal?
A common seal is a stamp that companies use to execute their documents. Learn about common seals, its legality and requirements for execution here.
It is essential for all business owners to be aware of the formalities that need to be adhered to when executing documents. Section 127 of The Corporations Act 2001 (Cth) sets out ways in which a company can execute its documents. As stated in the legislation, a company may choose to execute documents by using a common seal stamp. Despite the use of common seal being optional, some companies still choose to use it as a way of indicating validity of their signing. In this article, we will review the legality of common seals and answer some questions relating to its usage.
What is a Common Seal?
A common seal (or company seal) is a company’s legal equivalent of a personal signature. The common seal is, in its physical manifestation, a rubber stamp carrying the words ‘Common Seal’ and the name and Australian Company Number (ACN) of the association or company. However, if the company uses its Australian Business Number (ABN) instead of the ACN, then the ABN should be on the company seal instead.
Is it Mandatory?
The Company Law Review Act 1988 (Cth) abolished the requirement for companies to use company seals. This legislative change means that having a company seal is no longer a legal requirement and can be replaced by the signatures of certain office holders.
When do I use a Common Seal?
Generally, there is no requirement for companies to use company seal for the execution of documents. However, uses of company seals include:
- Significant Contracts
- Real (landed) property transfers and land contracts
- Loan Documents, mortgages and guarantees
- When a third party requires its use
What are the Benefits of Using a Common Seal?
Using company seal stamp is a simple way to show that your business is dedicated to building a strong, professional brand image. Company seal stamps suggest that documents are authentic and permitted by the business, as well as provide consistency, accuracy and reduce errors.
What are the Benefits of Not Using a Common Seal?
The use of company seals has become less popular over the years. And for some good reasons.
- Lower cost for business owners
- Receiving documents faster
- No concern relating to the location of the seal
- No inconveniences like ink pads
What are the Requirements for Execution with a Common Seal?
The use of the common seal needs to be witnessed by:
- Two directors of the company; or
- By one director and one secretary of the company; or
- For a proprietary company, where there is a sole director/secretary, by that person.
It is also important to abide by the provisions in your company’s constitution regarding the use of company seals.
Proper execution of documents, at times, can be complicated than it needs to be. Thus, you should determine the manner in which your company intends all documents to be executed. Accordingly, you must stipulate the method of execution in your company’s constitution and ensure that you adhere to these procedures. For further information on the use of company seal or a review of your company’s constitution or agreements contact a business lawyer here.
Anupa is a Legal Intern at Lawpath, and is currently in her final year of studying Bachelor of Laws at Macquarie University.