Do you know what a company seal is? In Australia, company seals are one of the most common methods used to execute documents. As a business owner, it’s crucial for you to know the procedures that need to be followed when executing documents.
Section 127 of the Corporations Act 2001 (Cth) outlines the various methods a company can use to execute their documents. This section states that a company can execute documents with or without the use of a common seal. Although the use of a common seal is optional, many companies still choose to use a common seal due to its various benefits.
In this article, we explain what a common seal is, whether you’re legally required to use them, the benefits of using a common seal as well as other frequently asked questions.
Read along!
Table of Contents
What is a Common Seal?
A common seal (or company seal) is a legal company signature that’s used for the execution of documents. A company’s common seal— when physically used—is a rubber stamp containing the words ‘Common Seal’ and the name and Australian Company Number (ACN) of the association or company.
However, if the company uses an Australian Business Number (ABN) instead of an ACN, the ABN should appear on the company seal instead.
Is it mandatory to use a Common Seal?
The Company Law Review Act 1988 (Cth) removed the legal requirement for companies to use company seals. Therefore, companies can now execute documents through the signatures of certain company officeholders.
You should be aware that if your company’s constitution was created prior to 1988, your company must continue to use a common seal to execute company documents.
However, if your company constitution was updated after 1988, your company isn’t legally required to use a common seal. If your company isn’t required to use a common seal, you must follow the rules outlined in your company’s constitution in regard to executing documents.
Furthermore, under section 127 of the Corporations Act, companies can execute documents without a common seal or as a deed.
When should you use a Common Seal?
Although there is no general requirement for companies to use a company seal to execute documents, common seals are frequently used for the following:
- Significant contracts for large and substantial purchases
- Real property( land) contracts
- Real (land) property transfers
- Loan documents
- Mortgages
- Guarantees
- When a third party requires its use
- You should use a common seal if your company is involved with businesses internationally to verify the credibility and legality of your business
What are the Benefits of Using a Common Seal?
Using a common seal to execute documents has the following advantages:
- Using a company seal stamp is a simple way to show that your business is dedicated to building a strong and professional brand image
- Company seal stamps suggest that documents are authentic and permitted by the business
- Company seals provide consistency, accuracy and help to reduce errors when executing documents
- Documents that have a common seal appear more legitimate and credible
- Common seals are accepted more commonly by individuals who are unaware of the other methods Australian companies use to execute their documents, such as international partners and customers
- Common seals provide third parties with assurance
What are the Benefits of Not Using a Common Seal?
The use of company seals has become less popular over the years as not using a common seal provides the following benefits:
- Lower costs for business owners
- Faster delivery of documents
- It removes concern regarding the location of the seal
- It removes the inconvenience of using ink pads
- Company seals can be forged or duplicated, particularly where the seal has implemented a basic design
- It’s possible for a company seal to go missing, and they are at risk of being stolen if proper care is not taken
- Company seals can cause inconvenience and difficulty for the execution of documents as they require the physical presence of company directors
- The use of common seals is viewed as being outdated
What are the requirements for execution with a Common Seal?
According to section 127 of the Corporations Act, a company can use a common seal to execute a document if the seal is fixed to the document. Furthermore, the fixing of the seal needs to be witnessed by:
- Two company directors or
- One director of the company and one company secretary or
- In the case of a proprietary company, a sole director must witness the fixing of the seal where the sole director is also the sole secretary of the company or if the company doesn’t have a company secretary
You should be aware that you’re required to follow your company’s constitution regarding the use of company seals.
What information must be included in a company seal?
Common seals must include the following information:
- Your company name
- It has to include the word ACN or the words Australian Company Number
- Your company’s ACN number
- It has to include the word ABN or the words Australian Business Number if your company doesn’t have an ACN
- You must include your company’s ABN if your company doesn’t have an ACN
Conclusion
Your company isn’t legally required to have a common seal, and its use is optional. It can be difficult to properly execute documents. Therefore, you should determine the method your company intends to use to execute all documents.
This method should be outlined in your company’s constitution to ensure that you follow the correct method.
And if you need further assistance, hire a lawyer who can advise you on how to use a company seal, how to execute documents or to have your company constitution and agreements reviewed.
