Companies Act could be cause for concern

Companies concerned that a new Act allowing just one company director to execute a deed is not in their best interests can put their own rules in place to ensure the executing of deeds is still done by two directors.

Traditionally, a deed was executed by a company by the affixing of its company seal in the presence of two directors or one director and its company secretary or the signing of the deed by two directors or one director and its company secretary.

However, since the Companies Act 2006 came into place, it is now possible for a company to execute a deed with the signature of one director only, as long as the director’s signature is witnessed by an independent witness. This is partly due to the fact that private companies are no longer required to have a company secretary.

While this new procedure makes things easier for companies where it is difficult in practical terms to arrange for two directors to sign a deed, some companies may feel it is not in their best interests to take advantage of the new rule, says Alison Barr, Barr Ellison Partner and company/commercial law specialist: “ Many deeds deal with significant transactions such as the sale or purchase of property or the sale of a business and are not therefore to be entered into without proper consideration,” she explains.

 “The requirement for two directors to sign a deed has therefore been an effective means of preventing one director committing the company to a significant transaction without the appropriate authority. Some companies with two or more directors may therefore wish to put in place internal rules requiring that executing deeds should only be done by two directors.”

For more information contact Alison Barr.

The information given in this article is of a general nature only and should not be considered as advice applicable to any particular situation for which specific request should be made to us.

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