31 Dec What is Section 127 of the Corporations Act?
Author: Ian Aldridge, Progressive Legal
In this blog, we discuss the importance of having your Company legal documents executed in accordance with Section 127 of the Corporations Act 2001 (Cth).
If you are a business owner or a lawyer who is advising a client that may be unsure of how to execute Company legal documents properly, it is imperative that you have a sufficient understanding of the rules governing this area of law. Correctly executing legal documents will ensure that they are not later rendered unenforceable.
What is Section 127 of the Act?
Put simply, Section 127 provides the rules pertaining to the execution of company documents. Companies are legal entities and obviously cannot physically sign a legal document. This is why Section 127 allows members of a company to execute the document. Executing a contract or deed can be straightforward and easy as long as it is executed pursuant to the requirements prescribed under Section 127.
Section 127(1) provides that a company can execute a document without a common seal (i.e. the official stamp of an association) if it is signed by:
- Two directors of the company (s 127(1)(a)); or
- A director and a company secretary of the company (s 127(1)(b)); or
- If it is a proprietary company that has a sole director, that director if he or she is the sole company secretary, or the company does not have a company secretary (s 127(1)(c)).
The same requirements are necessary if you are executing a document with a common seal (s 127(2)) with the only requirement being that the board of directors approves the use of the common seal.
Why is it so important to use Section 127 when executing a document?
Executing a document under Section 127 allows parties to understand that certain assumptions can be made relating to the company. These include and are not limited to:
- That the document was executed in accordance with the company constitution;
- That the company has complied with its obligations under the Act; and
- That the actual or ostensible authority of the signatory as a company agent can be assumed. This means that if an employee signing has not been given explicit authority to sign (actual authority), if they are executing a document under Section 127 they are taken to still have authority (ostensible authority). However, if a signatory is representing they have authority, and they actually do not, the individual may be personally liable for fulfilling the contract.
Examples of execution clause
The following is an example of an execution clause which has been executed by two directors of a company (as per s 127(1)(a)):
| Executed as an agreement | |
| Signed OR Executed] by [NAME OF COMPANY] [in accordance with section 127 of the Corporations Act 2001 (Cth)] by: | |
|
__________________________________ |
__________________________________ |
|
Signature of Director
|
Signature of Director
|
|
__________________________________ |
__________________________________ |
|
Name of Director
|
Name of Director
|
The following is an example of an execution clause which has been executed by a sole director and Secretary
| Executed as an agreement |
| Signed OR Executed] by [NAME OF COMPANY] [in accordance with section 127 of the Corporations Act 2001 (Cth)] by: |
|
__________________________________ |
|
Signature of Sole Director and Secretary |
|
__________________________________ |
|
Name of Sole Director and Secretary |
Key Takeaways
Section 127 of the Act sets out the formal requirements for executing a document. This section is often overlooked by businesses, but it is important to use Section 127 when executing a document in order to ensure that the document is legally binding. There are several ways to execute documents under Section 127, including electronically. By using Section 127, you can be sure that your document will be legally binding and enforceable.
If you require any assistance with your corporate documentation, fill our online contact form here, or contact our office at 1800 820 083.
Section 127 of the Corporations Act FAQs
Can I execute a document other than in accordance with Section 127?
You can execute a document other than in accordance with Section 127, however, the advantages you obtain by executing under Section 127 are far more favourable to your company. For instance, if Section 127 has not been used, you should take reasonable steps to ensure that the document has been duly executed, such as asking for the source of the agent’s authority (i.e. a board resolution permitting the person to sign on behalf of the company).
As a result, executing a document under s 127 allows you and others to make assumptions that may in turn save time for all parties involved.
What does Section 127 say about deeds?
Section 127(3) provides that a company can execute a document as a deed, if the document is expressed to be executed as a deed and is executed in accordance with the requirements in s 127(1) (without a common seal) or s 127(2) with a common seal.
Can a contract or deed be signed electronically under Section 127?
Yes it can!
Previously, the general rule was that the execution of documents (including deeds) under s 127 could only occur by means of physical execution.
However, with the COVID-19 pandemic and increasing reliance on technology, the Corporations Amendment (Meetings and Documents) Bill 2022 (“the Bill”) amended the Act to permit companies to execute documents (including deeds) electronically. The Bill had the effect of (among other things) the following:
- Section 110(1)(b) renders that Part 1.2AA, Division 1 of the Act applies to documents (including deeds) to be signed by a person under s 127 on behalf of a company; and
- Section 110A(1)(b) provides that electronic signatures are permissible subject to satisfying s 110A(2) by:
- Identifying the person and indicating the person’s intention with respect of the information in the document; and
- And the method was reliable as appropriate for the purposes it was recorded or fulfilled the functions described in s 110A(2)(a).
It should be noted that the amendments provided for by the Bill only applied to documents which are signed and executed on or after 23 February 2022. If you are unsure whether you are correctly signing documents electronically, it is best to seek legal advice.
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Ian Aldridge is the Founder and Principal Lawyer Director at Progressive Legal. He has over 15 years experience in advising businesses in Australia and the UK. After practising in commercial litigation for 12 years in major Australian and International Law Firms, he decided to set up a NewLaw law firm in Australia and assist growing Australian businesses. Since then, he has advised over 2,500 small businesses over the past 6 years alone in relation to Intellectual Property Law, Commercial, Dispute Resolution, Workplace and Privacy Law. He has strived to build a law firm that takes a different approach to providing legal services. A truly client-focused law firm, Ian has built Progressive Legal that strives to deliver on predictable costs, excellent communication and care for his clients. As a legal pioneer, Ian has truly changed the way legal services are being provided in Australia, by building Legal Shield™, a legal subscription to obtain tailored legal documents and advice in a front-loaded retainer package, a world-first. He has a double degree in Law (Hons) and Economics (with a marketing major). He was admitted to the Supreme Court of NSW in 2005.
