3 Ways For a Company to Validly Sign a Contract | LegalVision 7/10/2022, 10:43 am

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3 Ways For a Company to Validly Sign a

Contract
By Maya Lash
Lawyer

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Commercial Contract Articles (https://legalvision.com.au/category/commercial-
contracts/) » 3 Ways For a Company to Validly Sign a Contract

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Updated on October 6, 2021 Reading time: 6 minutes 8,231

A company is a separate legal entity that has the same legal capacity as an individual, such
as signing contracts. However, unlike individuals, companies can only enter contracts
through the actions of its operators, such as directors or company secretaries. If they do
not follow the specific procedures, the contract may not be enforceable. Therefore,
companies must ensure they are aware of the processes required to sign contracts that
are valid. This article explains three ways for a company to validly sign a contract.

1. Signature of Directors and Company Secretaries

Companies usually execute agreements (https://legalvision.com.au/how-to-execute-a-
document-as-a-company/) through the signatures of its directors and secretaries. 

Under the Corporations Act, a company has validly signed the contract if the signatures
come from:

1. two directors of a company;

2. one director and one company secretary; or

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3. the sole director who is also the company secretary, for proprietary companies
only.

" Proprietary companies are privately owned companies that do not offer their
shares on the stock exchange.

If the company does not follow any of the three methods when signing a contract, then
the contract is not validly executed.

If you are signing as a director or company secretary, your signatures will appear at the
end of the contract on an execution block. 

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(https://img.legalvision.com.au/wp-content/uploads/2018/09/26134915/Screen-Shot-
2018-09-26-at-1.48.39-PM.png)

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Directors' Duties Complete Guide

If you are a company director, complying with directors’ duties are

core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply
to you within the Australian corporate law framework.

Download Now
(https://go.legalvision.com.au/directors-duties-
guide.html)

2. Common Seal 
Companies can also sign contracts by stamping the company’s common seal on the
contract.

# A common seal is a stamp that companies use to execute documents. The seal
usually contains the company’s Australian Company Number (ACN) and the
company’s registered name.

Large companies may use a common seal if signing major contracts or contracts with
overseas parties. Otherwise, the use of a common seal in everyday contracts is
uncommon.

A valid signature by common seal happens when the seal is applied and is witnessed by:

1. two directors of a company;

2. one director and one company secretary; or
3. the sole director who is also the company secretary, for proprietary companies
only.

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(https://img.legalvision.com.au/wp-content/uploads/2018/09/26134924/Screen-Shot-
2018-09-26-at-1.48.47-PM.png)

3. Company Constitution
A company can set rules on how to execute a document through the company’s
constitution. Your company constitution (https://legalvision.com.au/what-should-i-
include-in-my-company-constitution/) can mirror the rules set out in the Corporations Act
for signing with or without a common seal. Alternatively, you can vary the rules to suit
your business needs. 

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# For example, if you are the sole director but not the company secretary, you can
set out in the company constitution that you can sign on behalf of the company.

You can also use the constitution to provide for agents or representatives who can sign
on behalf of the company. This arrangement is useful for large companies who have a high
volume of transactions where it would not be practicable for a director or company
secretary to sign off on every transaction.

Whoever you appoint as a company agent or representative must have the required
authority to sign on behalf of the company. You can provide for this authority through a
board resolution (https://legalvision.com.au/company-and-board-resolutions/).

Otherwise, a registered power of attorney provides transparency as to who has the

authority to make decisions for the company.

" A power of attorney is a legal document that allows someone (in this case, a
director of a company) to appoint someone who can make decisions for them on
their behalf.

If your agent or representative has the authority, they must sign in front of a witness
(https://legalvision.com.au/who-can-witness-your-signature/).

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(https://img.legalvision.com.au/wp-content/uploads/2018/09/26134925/Screen-Shot-
2018-09-26-at-1.48.52-PM.png)

The Importance of Valid Signing a Contract

If a company signs a contract using one of the above methods, outsiders can assume that
that the contract has received a valid signature. The implication is that companies must
ensure that the people who have signed on its behalf have the proper authority.
Otherwise, the company will not be able to escape its legal obligations under the
contract.

On the other hand, the other party to the contract may argue the contract is
unenforceable as your company did not correctly sign off the contract. Indeed, if such a
dispute arose, you would waste time and money trying to argue your case that the
contract remains enforceable. Therefore, you may want to consider how your company
can implement a proper process to manage contract signing.

For example, if you are a director of a large company, you may consider how to
appropriately delegate authority to others to sign contracts on behalf of your company.

You may want to consider:

how many people should have this authority;

what type of contracts they can sign off on your company’s behalf; and
how many people are required to sign off on the contract.

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Key Takeaways
A company must follow specific procedures through the Corporations Act or its company
constitution to validly sign contracts. If they do not follow those procedures, their
contracts may not be enforceable. It may also lead to lengthy and costly legal disputes
over the validity of the contract. Therefore, it is important to ensure that all directors,
company secretaries or any other person within your company are aware of the correct
procedure to sign off on contracts. If you have any questions, get in touch with
LegalVision’s contracts lawyers (https://legalvision.com.au/need-a-contract-lawyer/)
today on 1300 544 755 (tel:1300544755) (tel:+611300544755) or fill out the form on
this page.

Frequently Asked Questions

Can a company sign a contract?
Companies have legal personality, which means they can sign a contract just like
individuals. However, an individual must sign the contract on behalf of the company.
Therefore, you must follow specific processes to ensure the signature is valid.

How do you sign a contract on behalf of a company?

Companies generally sign contracts through three different methods. This includes
getting the signature of the directors and company secretaries, using the company seal,
or by following other rules specified in the company constitution.

Who is authorised to sign a contract on behalf of a company?

To validly sign a contract, you must be an authorised signatory and meet certain
requirements. In Australia, a contract can be signed by two directors of the company, one
director and the company secretary, or the sole director who is also the company
secretary.

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About Maya Lash (Read all articles by Maya

(https://legalvision.com.au/author/mayalash/))
Maya is a Lawyer in LegalVision’s Corporate, Startups and Capital
Raising teams. Maya’s legal and commerce background gives her
practical insights for providing guidance and information about a
variety of business-related legal needs.

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