When a contract is signed, each party is undertaking to be legally bound by its terms. However, even though a company is its own legal entity, someone still has to give effect to the contract. Further, a document can only be legally valid if a company executes it correctly. In this article, we’ll explain how a company can legally sign a contract.
Corporate Personality
Companies are unique in that they are legal entities in their own right. This means that company officers are not legally responsible for company debts, and that a company can be party to legal proceedings. This raises questions when companies enter into contracts. How can a company indicate that it accepts the terms of a contract? How can you be sure that the company as a whole agrees to the contact, rather than just one director or shareholder? The process for signing company contracts answers these very questions. Here are the 3 ways a company can execute a contract.
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Get startedExecuting a contract
Contracts are only enforceable if they have been executed correctly by both parties. In many cases, this is signified by signing a contract. Different rules apply for companies however, meaning that a company contract won’t be legally valid unless it is executed properly.
How can a company legally sign a contract?
1. Signatures
Under section 127 of the Corporations Act 2001 (Cth), a company can sign a contract with the signatures of two directors. Similarly, a director and a secretary can also sign the document. For proprietary companies, a sole director (who is also the secretary) can sign. Larger companies may be able to appoint an agent to sign documents on their behalf. This usually occurs by appointing the agent as a Power of Attorney for the company.
2. By following the company constitution
Company constitutions may outline their own requirements for signing company documents. An example of this may be that more than 2 directors need to sign, or by allowing for other appointed agents to sign on behalf of the company. In many cases however, company constitutions will follow the requirements set out in the Corporations Act, reinforcing the minimum signature and common seal rules.
3. Common seal
A common seal is the equivalent of a person’s individual signature. Common seals are often used by companies to execute documents and also signify a company’s undertaking to be bound by the terms of the document.
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.
Finally
There are three important things to keep in mind in order for a Company to Legally Sign a Contract. If these aren’t followed, the document won’t be enforceable. If you having further questions about executing a company document, it may be worth contacting a business lawyer.
