How to validly execute a document after 6 April 2008

From 6th April 2008 a document can be validly executed if, on behalf of the company, it is signed by a director of the company in the presence of a witness who attests the signature.

Company: Three ways to validly execute

Section 44 of the Companies Act 2006 comes into force on 6 April 2008. It confirms the three methods by which a company can validly execute documents. The first two are not new but transferred from the existing Companies Act. The third method replaces the old requirement for two directors to sign.

Section 44 provides that a company can validly execute a document by:

• Affixing its common seal; or
• By the document being signed on behalf of the company by two authorised signatories; or
• By the document being signed on behalf of the company by a director of the company in the presence of a witness who attests the signature.

An authorised signatory (bullet point 2 above) includes every director and in the case of a private company with a secretary or a public company, the secretary (or any joint secretary) of the company. The signature by one person who is both a director and company secretary (even if signed twice in their different capacities) is unacceptable. The document must be signed by two different people.

If a company wishes to use the new method of execution (i.e. the signature of just one director), it must ensure that the director's signature is witnessed correctly. The witness must be present when the director signs the document and then should, in the presence of the director, sign and then print his name, address and occupation.

Presumption of valid execution

Section 44(5) confirms that if a document executed by the company is in favour of a purchaser (acting in good faith and for valuable consideration), then it is deemed to be validly executed if it is purported to be signed by the company in accordance with either method set out in the 2nd or 3rd bullet point above. Purchaser extends to a lessee, mortgagee or other person who, for valuable consideration, acquires an interest in property. This presumption does not apply to documents executed under seal and is limited to applying in favour of a purchaser.

However, the presumption is extended by provisions of the Law of Property Act 1925. If a document is signed in favour of a purchaser it is deemed to be duly executed if the seal of the company or corporation is affixed in the presence of and attested by two members of the board of directors, council or other governing body or the corporation (or one such member and the clerk, secretary or other permanent officer of the corporation or his deputy). This deeming provision can be taken advantage of when entering into documents with organisations which are not companies for the purpose of the Companies Act 2006 or when it is more convenient to use the company's seal.

Ensuring valid execution

Whatever method of execution is used by a company there is no presumption of valid execution if the other party is not a purchaser of property. If that is the case, steps should be taken to check that the proposed method of execution is a method authorised by that company. Although it would be rare for the Articles of Association of the Company to restrict the legal methods in which a company can execute documents, a company does have the power to do this, often stipulating documents must be executed by two directors. It is a quick and easy procedure for your legal advisors to check the Articles of a company online.

It should be noted that even if the Articles restrict execution to the affixing of a common seal, section 44(4) of the Companies Act states that by using either method set out in the 2nd or 3rd bullet point above instead, the document will still will be validly executed.

Execution by a partnership

For simple contracts a partner, who has authority, signs in his name for and on behalf of the partnership. It is usual for deeds to be executed by all partners unless one or more partners have been given power of attorney to execute deeds on behalf of the partnership. As the document is a deed and execution is by an individual the signature must be witnessed.

Execution by a limited liability partnership

A simple contract can be made by an LLP or on behalf of an LLP by any person acting under its authority. Important contracts are likely to be executed by an LLP either under seal or by two members. For deeds the situation is not so clear due to an oversight by the government when implementing the Regulatory Reform (Execution of Deeds and Documents) Order 2005, which failed to include reference to LLPs. Either the deed should include the common seal of the LLP affixed in the presence of two members or it should be signed on behalf of the LLP by two members of the LLP.

Execution by non Companies Act Corporations

For corporations such as local authorities, building societies and charities, seals are commonly used to execute simple contracts and deeds. Subject to any statutory provisions which may relate to the particular corporation in question, a deed is executed by the affixing of the common seal and undertaking any other formalities required by the corporation's constitution – for example it may stipulate the affixing of the seal has to be attested by the chairman or other elected member or officer approved by the board.

Execution by an individual

An individual can execute a simple contract by a signature. It does not have to be witnessed. For deeds an individual must sign in the presence of a witness who must then sign and print his name, address and occupation or it is signed at the direction and in the presence of the individual and the presence of two witnesses who each attest the signature. A witness has to be independent so cannot be related to the signatory.

Note

There are other formal requirements, apart from valid execution, which have to be complied with if a document is to be a deed, which have not been covered by this note.