• 3 min read

Has this contract been signed correctly?

writing-1149962_1920 contract

As a company is a separate legal entity, distinct from its shareholders and directors, there are two ways it can enter into a contract; 1) someone signs the contract ‘on behalf of’ the company, or 2) the contract is signed ‘by’ the company.

Signing ‘on behalf of’ the company

For a person to sign ‘on behalf of’ a company they must have express or implied authority to do so:

  • Implied Authority: Directors generally have implied authority to sign contracts.
  • Express Authority: Other individuals, such as employees or managers, may be granted authority by the company to sign specific contracts. This is often authorised in company board minutes.

Signing ‘by’ the company

If a contract needs to be signed personally ‘by’ the company, the following methods are common:

Common seal

This is perhaps the method most comparative to an individual applying their signature, and it is where a company affixes its common seal to the contract. However, seals are rarely used nowadays, and companies are no longer required to have one, nor do Companies House provide one on incorporation anymore.

If your company does have a seal, it is important to be aware that the articles of association set out how the seal must be applied.

Power of attorney

 An alternative way a contract can be entered into ‘by’ a company, is for the company to appoint a person to act as its attorney. This is called execution by power of attorney and the appointment itself must be made by way of a deed.

Two authorised signatories or one director and witness

Most commonly, a contract is signed ‘by’ a company in one of these ways:

  • two authorised signatories (e.g. two statutory directors or a statutory director and company secretary).
  • one director of the company in the presence of a witness who attests their signature.

It is important to note that where two authorised signatories sign, these must be two different individuals. If a person is both a director and company secretary, they cannot sign in both capacities.

Some companies may have a corporate director or company secretary. In this case, that limited company must have authorised an individual to sign on its behalf and you would need to consider how this authority has been provided to ensure your document is executed correctly.

Signing by electronic means

As we know, it is more common for contracts to be signed electronically now as opposed to by ‘wet ink’ signature, but the same rules apply, except that a company cannot affix a seal electronically.

Determining whether a contract needs to be signed ‘by’ or ‘on behalf of’ a company

Certain contracts must be executed ‘by’ a company by law. Examples include:

  • Contracts containing guarantees
  • Powers of attorney
  • Contracts without consideration
  • Transfers of interest in land
  • Certain statutory notices

Additionally, some parties may prefer contracts to be signed ‘by’ the company to:

  1. Benefit from the statutory presumption of due execution. This means the other contracting party, if they are acting in good faith, can rely on the signatures even if the company has failed to comply with its internal execution procedure.
  2. Extend the statutory time limit for claims. If a contract is executed as a deed, the statutory time limit for claims increases from six to twelve years.

Why is it important?

After investing significant time in negotiating and finalising a contract, failing to execute it correctly can:

  • undermine its enforceability; and/or
  • result in the loss of statutory benefits.

For in-house legal teams there are two key aspects to getting this right:

  1. Who in your company is authorised sign contracts?
  2. Does the other party’s signatory have the requisite authority if they are not a statutory director?

A litigation perspective

Litigation lawyers are often asked whether a company can escape an unfavourable contract signed by an employee acting without actual authority (a ‘frolic of their own’). The answer is generally no. For more on tackling such scenarios, see our Dispute Resolution team’s article here.

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