Changes to Executing Deeds and Documents following the Companies Act 2006 Reforms

Prompted by a change in the Companies Act 2006 allowing private limited companies to dispense with the need for a company secretary, most companies have yet to become aware that from the 6^th of April 2008, companies can now benefit from a simpler method of executing legal documents.

The position prior to the 6^th of April 2008 was that under section 36A of the Companies Act 1985 a company could execute a deed in any one of the following ways:

1. By affixing the common seal of the company;

2. By signature of the document as a deed by a director and the company secretary; or

3. By signature of the document as a deed by two directors of the company.

A properly appointed attorney could also execute a document as a deed for a company and this remains a method of execution after the new law came into effect. Although this position has not changed an alternative has now become available.

For deeds executed on and after the 6^th of April 2008 the new law will apply. This means that under section 44 of the Companies Act 2006 a company can execute a deed in the following ways:

1. By affixing its common seal;

2. By signature of the document as a deed by two authorised signatories; or

3. By signature of the document as a deed by one director whose signature is witnessed.

Section 44(2)(a) states that every director of a company is an "authorised signatory". In the case of a private company that has a company secretary the secretary of the company is also an "authorised signatory".

Section 44(2)(b) of the Companies Act 2006 now permits execution of a deed by one director where that director's signature of the deed is independently witnessed. This provides additional flexibility over an above the previous law for private companies and is a very welcome progression which is likely to relieve the burden at completion meetings for companies in trying to arrange for multiple signatories to attend.

Companies should therefore consider making some changes if they wish to take advantage of the changes to the law. For example, changes will need to be made to the execution blocks on the company's standard documentation and also the signing authorisation language for board minutes will need updating. An example of the revised execution clause is as follows: -

EXECUTED as a DEED by )

[NAME OF COMPANY] )

acting by its director )

[NAME OF DIRECTOR] ) [signature of director]

in the presence of: )

Witness's Signature………………………………………………………….

Witness’s Name ………………………………………………………….

Address …………………………………………………………..

…………………………………………………………..

Occupation …………………………………………………………..

In some cases, however, a company must also consider the value in some large scale transactions of retaining the original signature format, if they consider for risk management reasons that the transaction should require the signature of more than one director. The Company should therefore contemplate amending its articles of association to deal with the revised signature guidelines.

This could be done by way of a company having an internal policy reflecting who can bind the company for a particular type or size of transaction. Such policies may need reviewing if, depending on the company concerned, they make assumptions that a particular type of contract or document will automatically require two officers' signatures. For example, certain sizes of transaction involving bank finance where banks may continue to expect to see two signatures on security documentation, in order to obtain additional comfort that two company officers have considered the implications of the transaction.

It is therefore not yet reliable enough to assume that it will always be agreeable to the other party for deeds to be executed by a company utilising the new method and this should be verified at the outset of each deal.

Finally, private companies should also consider whether to retain the office of company secretary. One consideration is that the work of the company secretary will still need to be done, it is simply the requirement to have a registered company secretary at Companies House, which is optional.

If the company chooses not to have a secretary, it should check whether its

Articles need amending to allow this. It may also need to make practical arrangements to ensure all relevant mailings are addressed to an appropriate person responsible for ensuring the secretary's work is still done.