Arguably the execution clause of a contract is just as important as the terms within the document itself.  Getting the execution clause wrong can result in a well written agreement being declared invalid and unenforceable.  Notwithstanding this, in the absence of obtaining legal advice, few give any real thought as to how a document should be executed and by whom.

Importantly, where a company is a contracting party, consideration must be given as to whether the contract is being signed ‘by’ the company or ‘on behalf of the company’.  The Companies Act 2006 (the “Act”) draws a distinction between the two and provides for differing formalities in each case.

Simple Contracts

In a simple contract (not a deed) it is sufficient for a person authorised by the company (usually a director) to sign a contract ‘for and on behalf of’ a company, namely by signing “[NAME] for and behalf of [COMPANY]”. 

Deeds

However, in some cases, such as a document dealing with transfers or leases of real estate, mortgages or charges, appointments of trustees and powers of attorney, a deed is required.  In such cases the document must not only state on its face that is intended to be a deed but it must also be signed ‘by’ the company itself being executed “by [COMPANY] acting by …”.  Additional execution requirements for such circumstances are set out in section 44 of the Act and must be observed.  These requirements provide that when a company (rather than a person authorised by the company) is executing a document, it must be signed in the following way, either:

·       The company’s seal must be affixed to the document; or

·       Signed by two directors; or

·       Signed by a director and a company secretary; or

·       Signed by one director in the presence of a witness who attests the director’s signature.

Any director who fulfils the role of director and company secretary within the same company should note that they are not able to validly execute the document by signing in both capacities.  Therefore if the only director available to sign is also the company secretary, another method should be selected.

If the document is being executed in the presence of a witness it is best practice for the witness to be independent and disinterested in the subject matter of the contract to enable them to provide credible evidence, if needed at a later date, regarding what was signed, by whom and when.  For this reason it is inadvisable for a witness to a director’s signature to be a family member or other director of the company.

Conclusion

If you are in any way unsure as to the form of execution required to ensure a contract is both valid and enforceable please don’t hesitate to get in touch.