Signing requirements are not top of the agenda in the heat of a contract negotiation or at a completion meeting, but it is important to know the rules when recording an agreement in a written document. In most cases the directors will have authority to bind the company in contract but it is not always so clear-cut.
Signing simple contracts
Contracts can be signed on behalf of a company by a person acting under the company’s express, implied or apparent authority. This is vital – companies need people to conduct their affairs and make their decisions. In practice, this means that any employee (not only a director) with capacity and authority to sign a contract on behalf of the company can do so as its agent. For example, if a senior employee is frequently involved in negotiating and agreeing customer contracts, they may be considered to have implied or apparent authority to sign those contracts on behalf of the company and the customer would generally be entitled to rely on that signature if it appeared on the face of it that the employee had authority, even if they did not.
As a matter of best practice, it is recommended to put in place an internal procedure as to who can sign written agreements on behalf of the company and the scope of authority granted to such persons. A company may decide (via its directors in a board meeting) that this should be restricted to directors or directors plus a certain level of senior employees, possibly with a contract value threshold applying at different levels, and as an additional step, the company could require that all contracts with major customers need board approval.
Deeds require greater formality than simple contracts, and can only be executed either: (a) by the company; or (b) by its attorney.
Looking first at limb (a) above, the most common ways in which a document will be executed by a company is by the signature of two authorised signatories (being the directors or the secretary) or by the signature of a director in the presence of a witness. An employee who is not a director or the secretary is not able to sign a deed or document that requires execution by a company.
This is where limb (b) above might assist a company seeking greater flexibility. It is possible for a third party (who is not a director or the secretary) to execute a deed for a company if the company grants the requisite authority on the third party by power of attorney (executed as a deed) and the company’s articles permit power to be delegated to third parties in this way. As above, such authority could be granted to a certain level of senior employees in which the company places trust and confidence to agree and execute important documents.
Companies should think carefully about who is or should be authorised to sign written agreements on its behalf and put in place procedures to make the position clear to all employees. If in doubt, a written agreement, particularly an agreement with a high value or with an important customer, should be reviewed and approved by the board, and executed by a director.
For an in-depth look at electronic signatures, which are becoming increasingly common, please read the article by Sive Ozer and David Strong on our News and Events page – https://www.marriottharrison.co.uk/media/mh-updates/mh-corporate-14/.
This article is current as of the date of its publication. The information and any commentary contained in this article is for general information purposes only and does not constitute legal or any other type of professional advice. Marriott Harrison LLP does not accept and, to the extent permitted by law, excludes liability to any person for any loss which may arise from relying upon or otherwise using the information contained in this article.
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