Legal Tip 317: Why a Sole Director Company Needs a Secretary

A company is empowered to execute documents such as contracts and deeds by section 127 of the Corporations Act 2001.


This section says a company may execute a document, without using a common seal, if the document is signed by:

· 2 directors, or

· A director and company secretary, or

· By a sole director if that sole director is also a secretary.



Note that where there is a sole director who is not also secretary then the company execution of documents may be invalid.



But also consider section 129(5) which states

(5) A person may assume that a document has been duly executed by the company if the document appears to have been signed in accordance with subsection 127(1). For the purposes of making the assumption, a person may also assume that anyone who signs the document and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices.



Relevant Legislation

CORPORATIONS ACT 2001 - SECT 127 Execution of documents (including deeds) by the company itself

CORPORATIONS ACT 2001 - SECT 129 Assumptions that can be made under section 128

 

Yes really in such instances the client either must always write Sole Director under any signature or if they can sign as both capacities that also works. If one signing line they will need to write Director and Secretary. OR Sole Director.

This is a issue many cheapie docs fail when being approved by lenders for a smsf loan. Another cheapie document provider issue is companies signing with a witness but not in accordance with s127....Its terrible and yet quite common from online legal document providers. A witness doesnt assist to validate s127 whatsoever. They are just witnessing a mistake being made.

And a company with a seal isnt excepted because they use a seal (s123 Corporations Act 2001). The signature is still defective under s127.

The other one that creates a fuss for lenders is a deed and a company trustee formed the same day. Which was executed first ? When the Trustee is formed on 29/10/2020 it is often better the trust is established and settled the next day 30/10/2020.

But the biggest blunder of the lot is using business.gov.au to form a company. No statutory records, no registers and no constitution. I have seen a handful of companies formed with "founders shares" and other default share classes and yet the company doesnt have rules that explain what these are and they were never allotted. How do they vote ? Who votes if there is no record of members and are Directors validly appointed...Just a mess. The Govt should have known better. They didnt seek the opinion of legal practitioners to that one.