In prior blogposts, we explained the differences between Deeds and Agreements and what Deed Polls are and we also explained how to properly execute a legal document depending on the type of entity entering into it.
This article relates to execution by or on behalf of an Australian corporation – a Pty Ltd (but not a public company) – that is, what are the requirements for companies signing contracts?
Part 2B of the Corporations Act 2001 (Cth) (Corporations Act) sets out how companies can execute legal document and the assumptions those dealing with companies may make about the execution of documents by or on behalf of a company.
Section 127 describes the ways in which a document may be executed by a company, namely by:
- 2 directors; or
- a director and a company secretary; or
- for a company that has a sole director – that director, if:
- the director is also the sole company secretary; or
- the company does not have a company secretary.
This applies regardless of any other requirements in the company’s constitution.
Companies can also sign via an employee, officer or an agent under s.126 acting with the company’s express or implied authority.
If a company executes a document in accordance with the those sections, then any person dealing with that company is entitled to assume under ss.128 & 129 that:
- those persons shown as directors/company secretaries on ASIC’s register; and
- anyone held out by the company as being an officer or agent of the company
- are:
- validly appointed;
- have the authority to exercise the powers of the company; and
- are properly performing their duties
This assumption applies even if an officer or agent of the company acts fraudulently or forges a document but not if that person knew or suspected that the assumption was incorrect.
Business should be wary of the authority of persons signing and query the person’s authority if they aren’t listed at ASIC formally as a director or company secretary.
Many businesses give higher level employees titles like “Director”, “Sales Director” and the like so, often so as to minimize pay rises or for other reasons, but they run the risk that those persons can bind the company due to the statutory assumptions identified above as they are potentially being held out by their titles as having authority to bind the company.
Separately, those employees also run the risk that they are considered ‘shadow directors‘ if the company runs into financial trouble, particularly where any director duties haven’t been followed.
FURTHER INFORMATION
For further information, please contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au
This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.
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