Parties must correctly sign their contracts to avoid disputes down the track. The words 'signing' and 'executing' may be used interchangeably. Importantly, if you do not execute your contract properly, you risk a court deeming the contract to be invalid. The result is that your intention of the agreement will be unenforceable.
Depending on the type of vehicle (for example, a company or trust) entering into a contract, the rules may vary. Therefore, this article will explain how to execute your contracts correctly.
There are three ways in which a company can sign a contract.
Firstly, a contract can be properly signed by a company through the signature of either:
- two directors of the company;
- one director and one company secretary; or
- for proprietary companies only, the sole director who is also the company secretary.
Secondly, an individual can execute a contract on behalf of the company. This is provided that the individual is acting with the express or implied authority of the company. A company may authorise an individual to contract on behalf of the company by way of the company constitution or by a board resolution.
However, this can lead to issues of reliability. Indeed, the other side may want to undertake due diligence to satisfy itself that the contract has been properly executed.
Thirdly, a company can execute a contract by its attorney. Notably, a company must duly appoint this person under a power of attorney. However, note that this requires a formal process of appointment with strict documentation requirements.
Alternatively, under a trust structure, the trustee of the relevant trust must execute any contract. The execution block should explicitly state that the signatory is executing the contract in its capacity as trustee, or 'as trustee for' ('ATF') the trust.
Notably, the way the contract is signed will depend upon whether the trustee is a corporate trustee or an individual.
Furthermore, if the trustee is a company, ensure you execute the contract in accordance with the rules for companies (explored above).
Subject to the trust deed stating otherwise, individual trustees will execute contracts similarly to the way individuals generally do. Therefore, where an individual trustee is executing a contract on behalf of the contract, it is best practice for the individual trustee to:
- print their name below the signature line;
- sign the contract in the presence of a third-party witness; and
- require the witness to sign and print their name on the contract for evidentiary purposes.
It is important to ensure you execute your contracts correctly. Otherwise, they may not be enforceable. Therefore, for companies, the safest option is to correctly sign in accordance with the Corporations Act or by an attorney appointed under a power of attorney. For trusts, if the trustee is a corporate entity, you can follow the same general approach for companies. Alternatively, if the trustee is an individual, they should execute in the presence of a third-party witness.