What Happens if My Company Executes Documents Incorrectly?

Company directors are responsible for many decisions that chart a company’s course. As a director, your obligations include overseeing management affairs and maintaining proper company records. In particular, you must ensure your company executes documents correctly. Failing to execute a document properly may mean that it cannot be legally enforceable. In the case of a company, it may even lead to personal liability on the part of the directors. This article explains the execution requirements for company documents and the consequences that may arise if your company executes documents incorrectly.

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Types of Legal Documents

To understand the execution requirements for a document, it is first important to distinguish between the types of legal documents you may be entering into. In the course of business, you are most likely to encounter documents that take the form of an agreement or a deed. 

The major difference between the two is that you do not need to provide consideration for a deed to be binding. Whilst an agreement requires the passing of mutual promises, a deed is one party’s promise to do something without receiving something particular in return. In other words, a deed typically contains a one-sided promise. So, it has much more stringent execution requirements that your company must follow for it to be binding. 

Form of Legal Documents

The form of a legal document is often just as important as the document’s contents. Depending on the form of the legal document, there will be different execution requirements.

The consequences of incorrectly executing a document may not always be fatal. However, it is important to understand the execution requirements to avoid lengthy disputes about the enforceability of a document. 

Defective Executions of an Agreement

The execution requirements that apply to you will depend on your business structure. 

Suppose you are a sole trader or a proprietary company with a sole director who is also the company secretary. In this case, the agreement simply requires your name and signature to be executed properly. In the case of all other companies, the Corporations Act requires that an agreement be signed by either two directors of the company or one director and one company secretary. You can learn more about the execution requirements which apply to you when executing agreements in our Legal Guide to Executing Agreements. 

Notably, a mistake when executing a contract or agreement is not necessarily fatal to the agreement. If the parties can prove that there was an intention to create a legally binding relationship, this may be sufficient for the contract to be enforceable.

Further, the importance of correctly executing an agreement is twofold for a company. For one, there is the potential for a court to find the agreement unenforceable. In addition, the director who incorrectly executed the agreement may be personally liable to perform the contract’s obligations. This would be the case if the director signed the contract on behalf of the company. 

Defective Execution of a Deed  

As mentioned, a deed has more rigid execution requirements than an agreement. Failing to execute a deed properly means that the deed will be unenforceable. 

For a deed to be legally binding, it must:

• be in writing; 
• have a seal on the document; and 
• be delivered to the other party.

You can properly execute a deed by affixing the company’s common seal (ink stamp) to the document.

Parties often bypass the requirement to have the company seal on the deed by inserting the words “signed, sealed and delivered” into the execution block. Notably, it will not be fatal if you fail to attach the company seal to the deed. However, you must ensure you abide by other corporate law requirements. Likewise, the deed should include words to the effect of “signed, sealed and delivered”. 

Executing a Document per Your Company Constitution

You may still have a legally binding document if you execute the document as per the provisions of your company constitution. When doing so, you should include a true or authentic copy of the company’s constitution to verify the right to execute a document in that manner on behalf of the company. 

Key Takeaways

Correctly executing a legal document is a small formality, but is key to creating a legally binding arrangement. Businesses must execute legal documents according to the requirements set out in the Corporations Act, or for companies, per the company constitution. Importantly, correctly executing documents helps to avoid disputes later on. 

Further, if your company executes documents incorrectly, you risk a court finding the contract unenforceable and not legally binding. You also risk being personally liable to perform the contract’s obligations. 

If you need help understanding your corporate governance responsibilities, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

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