3 WAYS FOR A COMPANY TO VALIDLY SIGN A CONTRACT

The signature at the bottom of a contract is more than just a scribble—it’s a binding promise backed by law. In Australia, the art of contract execution is not taken lightly. It’s a deliberate act, a final nod to a well-negotiated agreement, and a step that demands a keen legal eye. Here are three pivotal ways a company can ensure its contracts bear the mark of validity

In commercial dealings, it is not a mere formality about how a company validly signs a contract, but a legal formality that can ascertain the enforceability of the agreement. Lack of proper execution is also a well-known reservoir of disagreements, and it can even invalidate or make unenforceable contracts. The consequences of this may be large effects on finances and reputation. The Corporations Act 2001 (Cth) sets out strict rules for contract execution methods, and companies must follow them to avoid legal challenges.
This article explains the three main valid contract execution methods: execution by two directors or a director and company secretary, execution using the company’s common seal, and execution by an authorised attorney or agent.

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Execution by Two Directors or a Director and Secretary

Corporations Act Requirements for Signatures: Section 127(1) of the Corporations Act 2001 (Cth) states that an authorised company need not mark a document with a common seal in case it is signed either by two directors or by one director and one company secretary. In the case of proprietary companies that have one director who is the only secretary, he or she can sign singly. This legislative approach leads to the fact that it is considered that the document is signed correctly, and its authenticity is not questioned by the counterparty. Knowing this method is key to ensuring your company validly signs a contract under Australian law.

Example Clause for Signed Pages: Under section 127(1) of the Corporations Act 2001 (Cth), a company may execute a contract without a common seal if it is signed by two directors, or one director and one company secretary. A typical execution block might appear as:
Executed by [Company Name] in accordance with section 127(1) of the Corporations Act 2001 (Cth):
Director: _____________________
Director/Secretary: _____________________

Use of a Common Seal

When and How to Use the Company Seal: Companies are less likely to use their common seal on contracts nowadays, but still may do so. As provided in section 127(2) of the Corporations Act, the seal has to be affixed before two directors, or a director and a company secretary. This is one of the recognised contract execution methods and is often used for formal or ceremonial agreements, or where required by the company’s constitution.

Witnessing Requirements and Seal Register Obligations: When a seal is used, signatures and positions of the witnesses have to be put directly on the document in order to prove proper attestation. It is best practice to keep a seal register that documents the date, description of the document, and the individuals present when the seal was applied. For example, we recently prepared a seal register for a client entering a cross-border supply agreement, ensuring every seal application could be evidenced if later questioned.

Signing by an Authorised Attorney or Agent

Power of Attorney Documentation and Board Resolutions: A company can execute a contract through an authorised attorney if a valid power of attorney has been granted under section 126 of the Corporations Act. This method is also recognised under Australian law as a valid way for a company to sign a contract. The power of attorney document should be retained in the company’s records and be readily accessible for verification.

Registration Requirements for Overseas Attorneys: Where the nominated attorney is not residing in Australia, there are extra requirements, and this may involve registration or notarisation in the respective jurisdiction. Legalisation using the Department of Foreign Affairs and Trade (DFAT) or an apostille must be undertaken in some instances in order to meet overseas requirements. Having these formalities satisfied in advance of signing maintains the integrity of all the contract execution methods used internationally.

Risks of Improper Execution

Consequences: Contract Voidability and Enforcement Issues: A contract that has been signed without following the Corporations Act can be susceptible to objection, thereby making the contract unenforceable. This risk is especially great where there are missing execution blocks or a missing signatory authority. In litigation, the lack of valid execution can destroy the claim in its entirety, so it is essential to make an appropriate selection of the contract execution method in the first place.

Dangers of Back-Date or Incomplete Signature Blocks: Backdating execution or disposing of signature blocks can render a legal and reputational issue, such as a fraud allegation. Even a printing failure of a relatively small item, e.g., the name of a signatory, may make the enforcement difficult. The businesses ought to make sure that all the execution pages are complete and consistent before settling the agreement.

How a Lawyer Can Ensure Your Company’s Contracts Are Executed Validly

Drafting Signature Clauses that Comply with the Corporations Act: A contract lawyer can draft execution clauses that meet statutory requirements, avoiding ambiguity in signatory roles and ensuring the correct contract execution method is applied for each transaction.

Verifying Corporate Registers and Authorities Before Execution: Before a contract is signed, a lawyer can review ASIC records, the company’s constitution, and board resolutions to confirm that signatories have the authority to bind the company.

Overseeing E-Signature Compliance and Cross-Border Formalities: In the case of a company employing electronic execution or having an international presence, a lawyer would make sure that both Australian and international laws had been followed, limiting the possibility of future conflict over the validity of execution.

CONCLUSION

It is crucial to ascertain that your company validly signs a contract because that is the only way to keep the agreements enforceable and prevent legal issues. When you follow the Corporations Act and implement proper contract execution methods, you safeguard the rights and the reputation of your organisation. The mismanagement of executing documents can lead to expensive problems today and erode your business relationships in the future, whereas taking the time to do it right may save money and build stronger business relationships in the future. Review your contract execution processes with CMI Group today to ensure compliance, reduce risk, and safeguard your business from potential legal challenges.

FAQs

How can a company legally sign a contract in Australia?

A company can sign a contract by either two directors, one director and a company secretary, using a company seal, or through an authorised attorney under the Corporations Act 2001 (Cth).

Is a common seal still required for company contracts?

No, using a common seal is optional. Most companies now sign contracts without one, relying on authorised officers or attorneys for valid execution under section 127 of the Corporations Act.

Can a sole director of a proprietary company sign alone?

Yes, if the company has only one director who is also the secretary, they can sign on their own under section 127(1) of the Corporations Act 2001 (Cth).

What happens if a company contract is not properly executed?

Improper execution can make a contract unenforceable, expose the business to legal disputes, and affect the company’s financial or reputational standing.

What is the role of a lawyer in company contract execution?

A lawyer ensures correct execution methods are used, verifies signatory authority, and checks that all legal and regulatory requirements are met, including electronic or cross-border compliance.

Can a company sign contracts through a power of attorney?

Yes, companies can appoint attorneys under section 126 of the Corporations Act. The power of attorney must be valid, documented, and sometimes registered or notarised for overseas use.