A company is a ‘separate’ entity, so a company seal acts as the signature of a company and can be used to validly execute certain documents. In this article, we will discuss what is a company seal, the requirements for using a company seal and whether a company seal is mandatory.
What is a company seal?
A company seal (also known as a common seal or a corporate seal) is a rubber stamp used by corporations to execute documents. Section 127 of the Corporations Act 2001 (Cth) (Corporations Act) outlines the ways in which a company can validly execute documents. A company with a common seal may validly execute a document if the seal is fixed to the document (Corporations Act s127(2)). A seal is fixed to a document when it is stamped on the document
A company seal should have the words ‘common seal’ along with the following:
- The company’s name;
- The Australian Company Number (ACN) of the company; or
- If the company uses an Australian Business Number (ABN) instead, the ABN should be printed instead of the ACN.
What are the requirements when executing a document using a company seal?
Under Section 127 of the Corporations Act, the fixing of the seal to a document must be witness by:
(a) 2 directors of the company; or
(b) a director and the company secretary; or
(c) for a proprietary (private) company that has a sole director who is also the sole company secretary, then that director.
What are the requirements when executing a document without using a company seal?
It is important to note that these are the same execution requirements used when executing a document without a common seal (Corporations Act s127(1)).
Therefore, a company may execute a document without a seal if the document is signed by:
(a) 2 directors of the company; or
(b) a director and the company secretary; or
(c) for a proprietary (private) company that has a sole director who is also the sole company secretary, then that director.
When should my company use a company seal?
There are no specific requirements to use a company seal. However, the most common uses include:
- Purchases of land (in particular of office space);
- Bank mortgages, guarantees and loans;
- Notable or significant contracts; and
- When a contracting party requires its use (this is rare these days).
Is a company seal mandatory?
Prior to 1988, company seals were mandatory. However, the Company Law Review Act 1988 (Cth) abolished the mandatory requirement for all companies to have a seal and made it an option for companies.
Section 127 of Corporations Act provides that valid signatures by certain office holders (such as the secretary or director/s) can execute company documents.
Why should I use a common seal?
Companies use a company seal to demonstrate professionalism and avoid signing mistakes. This company seal is a brand tool and can help indicate to contracting parties that a document is authentic. Finally, although it is rare, some countries require that documents be executed under a company seal. If your company executes documents in a jurisdiction that requires company seals, then company seals will be essential.
Why shouldn’t we use a common seal?
Company seals have fallen out of fashion. Many regard the company seal as an unnecessary cost for business. Certain inks (needed for the ink pad) can be expensive and an inconvenience. Your company should consider the pros and cons to see if a company seal is right for you and your company.
In addition to the cost and potential inconvenience of using a company seal, a company seal is the signature of its company. Therefore, a company seal has the potential to be fraudulently used or issued. It is vital that a company keep the company seal safe and protected. It is recommended that only a few key individuals within the company be made aware of and have access to the company seal.
Where can I get a company seal?
If your company wants to get a company seal, you will need to purchase it online from an office supply or stamp store. The Australia Securities and Investments Commission (ASIC) does not make or issue company seals.
Make sure you keep the receipt or tax invoice for your company’s company seal as it may be a deductible expensive for your company come tax time.
When should my company use a company seal?
Make sure you check your company’s constitution for a clause or rule as to when the company can use a company seal and how. Otherwise, Section 127 of the Corporations Act can be relied on to execute a document under seal.
If you need more information regarding company seals, or would like a company constitution, contact the Bolter Team here.