execute agreement

How do I execute an agreement?

Businesses enter into contracts every day, including with suppliers, distributors, employees, contractors, clients and customers. Many people assume that once a contract is negotiated and parties are trading according to the agreement, it does not need to be physically signed. However, this is not the case and contracts which are improperly executed or signed can be unenforceable. This article sets out how to properly execute an agreement and the common mistakes to avoid.

 

What is the difference between an agreement and a deed?

There are different requirements depending on whether you are executing a deed or an agreement. The main difference between a deed and an agreement is set out below.

  • A deed is a binding commitment to do something which does not require something valuable in exchange for the commitment. For example, a confidentiality deed where one party agrees not to disclose certain confidential information.
  • A contract or agreement requires ‘consideration’ to be legally binding. This means the parties exchange something for the commitment. For example, a vendor sells goods to a purchaser in exchange for money.

 

What is agreement execution?

Executing a contract means signing and completing it as a legal agreement. Without proper execution of your agreement, it may not be enforceable or legally binding. Ensuring your contract is properly signed or executed can help you avoid unwanted legal disputes in the future.

 

How do I know if my agreement is executed correctly?

The requirements for execution of an agreement depend on the parties to the contract. Generally, where the contracting parties are individuals, execution simply requires a name, signature and date. There is no legal obligation to have a witness to an agreement between individuals, but it is good to do so if possible.

If a party to the agreement is a trust, it is executed by the trustee on behalf of the trust. There are more specific rules for contract execution by companies, as set out below.

 

How does a company execute an agreement?

1. Signing according to s 127 of the Corporations Act

Most commonly, companies execute their agreements by following the signing requirements in the Corporations Act. This requires the signature of:

  • Two company directors; or
  • One company director and one company secretary; or
  • A sole director who is the also the company secretary (this option does not apply to public companies).

 

2. Authorised person on behalf of the company

Alternatively, the director or another individual may have express authority to sign on behalf of the company.

 

3. Common seal

A less popular method is execution of an agreement by common seal. The common seal is a stamp pressed onto the document to symbolise that the company has agreed. Importantly, if a common seal is used it must also be witnessed by:

  • Two company directors; or
  • One company director and one company secretary; or
  • A sole director who is the also the company secretary (this option does not apply to public companies).

There is no explicit requirement to enter the seal onto your company’s register.

 

4. Company constitution

In some circumstances, a company’s constitution may also set out an alternative process for executing agreements and contracts.

 

What are the common mistakes in agreement execution?

Executing or signing an agreement incorrectly can make it invalid and unenforceable. Common mistakes include:

  • Getting the wrong people to execute the agreement (e.g. only one director when there are two, or two company secretaries sign)
  • Signing on behalf of the company without express authority
  • Failing to specify that a person is a sole director and secretary
  • Using a common seal without the correct witnesses
  • Signing as a trust instead of on behalf of the trust

 

How do I avoid making mistakes in executing agreements?

Parties can avoid these common mistakes in agreement execution by:

  • Understanding what capacity they are signing in (e.g. as individual, trustee, authorised signee etc.)
  • Undertaking a company search to establish the identity of directors and secretaries of the company
  • Obtaining photo identification of the directors or secretaries
  • Ensuring they have a properly drafted contract with clear and accurate execution clauses
  • Having their agreements reviewed by a legal professional prior to execution

 

Key takeaways

  • Agreements may be unenforceable if signed or executed incorrectly.
  • There are different requirements for agreement execution depending on whether the parties are individuals, companies or trusts.
  • Companies executing agreements in accordance with the signing requirements under the Corporations Act must ensure that the correct people are executing the document.

Gladwin Legal are experts in corporate and contract law. We can help with drafting and reviewing your contracts and execution clauses. If you would like to speak to our team or better understand your signing obligations, please contact us at or 1300 033 934.