As a legal professional, understanding the principles of contract law is crucial for your success in the business world. In fact, organisations lose an average of $4 million in revenue due to a single non-compliance event.
One of the most important aspects of contract law is the power of a company to enter into legally binding agreements. This is where section 127 of the Corporations Act comes into play. In this article, we will explore what section 127 is, why it is important, and provide some tips and reminders for executing documents under section 127 of the Corporations Act.
What is section 127 of the corporations act?
Section 127 of the Corporations Act 2001 (Cth) outlines the requirements for companies to execute documents. In simpler terms, it lays out the rules for how a company can enter into a legally binding agreement. To consider an agreement valid, at least two directors must sign it, or a director and a company secretary must sign it, or the company must execute it under its common seal (if it has one). If a company fails to comply with the requirements of section 127, the agreement may not be legally binding. This could have serious consequences for all parties involved.
Why is section 127 of the corporations act important?
Failure to comply with the requirements of section 127 can have significant implications for a company. It can render a contract unenforceable, which can lead to financial losses and damage to the company’s reputation. Westpac’s $1.3 billion fine represents the most substantial penalty ever imposed in Australian corporate history. Legal professionals must solidly understand section 127 to protect their companies and ensure their agreements are legally binding.
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5 Tips and reminders for executing documents under section 127 of the corporations act
Section 127 of the Corporations Act sets out the rules for executing documents by company officers. While it may seem complicated, understanding the principles of contract law and the agreement principle can help simplify the process. Here are some tips and reminders to keep in mind when dealing with section 127 of the Corporations Act:
1. Execution by company officers under section 127
A company may execute any document, including a deed, without the use of a common seal if the document is signed by either:
- two directors of the company, or
- one director and one company secretary of the company.
For a proprietary company that has a sole director, that director can sign the document, either where that director is also sole company secretary, or where the company does not have a company secretary. Electronic form documents and electronic signing are both permissible.
2. Executing a deed by signature
If the document is a deed, it must be expressed to be executed as a deed. This can be recited in the testimonium above the signature blocks and should be used consistently throughout the document. It does not need to be witnessed, signed in physical form, or delivered.
3. By use of a common seal
If a company has a common seal, it can also execute any document, including a deed, by fixing the seal to a document and having that fixing witnessed and signed by the required officers. Witnessing can take place either by the physical presence of the required witnesses, or remotely by electronic means. Electronic form documents and electronic signing are both permissible.
4. Document review and approval process
Before executing any document, it is important for the company officers to ensure that they have thoroughly reviewed and understood the terms of the agreement. The document should be carefully examined to ensure that all necessary provisions are included and that it accurately reflects the intended agreement. Any questions or concerns about the document should be addressed before execution to avoid any misunderstandings or disputes down the line.
In addition, it is crucial to follow the company’s internal review and approval process. This may involve obtaining approval from senior management or legal counsel before executing the document. By adhering to the company’s internal review and approval process, the officers can ensure that the agreement is in line with the company’s policies and objectives, and that it is consistent with legal and regulatory requirements.
5. Recordkeeping and documentation
Under Section 286 of the Corporations Act, companies are required to keep accurate records of their financial transactions and other activities. This includes records of any documents executed by the company under Section 127. It is important for the company officers to maintain a record of all executed documents, including the date of execution and the names and positions of the officers who signed the document.
Keeping accurate records of executed documents is not only a legal requirement but also helps to ensure that the company has a clear understanding of its contractual obligations and can easily access important documents if needed. This can be especially important in the event of a dispute or if the company needs to demonstrate compliance with legal or regulatory requirements.
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Understanding the nuances of section 127 of the Corporations Act is essential for legal professionals who want to help their companies and clients avoid costly legal battles and maintain their credibility in the business world.
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