Company Seals & COVID-19 How can we legally use the company seal without two company directors being available as witnesses?
Company Seals & COVID-19
How can we legally use the company seal without two company directors being available as witnesses?
The COVID-19 environment has had and may have into the future travel restrictions applied and will have important consequences for validly executing documents under the correct corporate authority that may be overlooked during this time. This note is intended to shed some light on the company law provisions surrounding the execution of documents under company seal and offers some practical solutions.
Section 43(2) of the Companies Act 2014 (the “Act”) states that, save as otherwise provided by the Act or by the constitution of the company, any instrument to which a company’s seal shall be affixed under witness by two directors, a director and a company secretary, or any individual with the authority to do so (in effect, that the affixing of the company seal is witnessed by two authorised persons). The most common instruments where a company seal is required to be affixed are instruments entered into as deeds, instruments of transfer, and share certificates.
Given the present restrictions of movement and physical distancing measures currently in place, it may be difficult to arrange for two individuals to witness the affixing of a company seal.
It is important to note the words “save as otherwise provided by the Act or by the constitution of the Company”, as this indicates that section 43(2) is an optional provision and can be amended by a company’s constitution. There is no statutory requirement that both signatories must witness the physical affixing of the seal, simply that the individuals are authorised to sign and/or affix the company seal by the directors or committee, where relevant.
In such circumstances where the authorised individuals are separated by distance, the wet-ink pages can be exchanged between the authorised individuals and sealed by the holder of the company seal. Taking this one step further, the discretionary nature of section 43(2) appears to permit a company’s constitution to be drafted to authorise the use of the company seal by an individual and signed without the need for countersignature, thereby allowing a single authorised individual witness the affixing of the seal.
It must be emphasised that this discretion covers the authority to affix the company seal, it does not permit company constitutions from doing away with the need for a company seal altogether as this is provided elsewhere in the Act. We have also received queries as to whether an individual who holds both offices of director and secretary can sign and countersign under the two different offices. This is specifically prohibited by section 134 of the Act. The default position therefore is that the seal must be witnessed by two different individuals, unless otherwise provided for.
Provided that the sealing requirements in a company’s constitutions are applied, and considering that no action of a private limited company may be invalidated for lack of capacity, it follows that an instrument so sealed will be invalidated only where it is in conflict with the law.
Many company constitutions will not reference section 43 and will simply apply the provisions of the Act in relation to affixing the company seal. This may not be the case post-COVID-19 era as more companies, and indeed legal practitioners, draft and adopt company constitutions that veer from the default section 43(2) provision.
In the event that your company’s constitution derogates from the default provisions of the Act (with regards to use of the company seal) and you wish to avail of same, it would be wise to flag this to any counterparties early in negotiations to avoid any unnecessary legal debate on completion.
In any case, the signing and witnessing of the affixing of the seal of the Company by an individual who is not a director of the Company will require a board minute, or in the case of a sole director company a resolution, authorising that the individual may affix the seal and sign an instrument as a witness. It is standard practice for a counterparty in any transaction to request a copy of documents directing corporate authority as evidence that the relevant instruments have been executed properly.
During the current restrictions on movement, company officers should consult the company constitution to determine how the company seal must be affixed as it may be unlikely that such circumstances have been legislated for and to reduce the risk of transactions being invalidated due to improper execution.
In light of the above, company directors may consider amending their company’s constitution to permit for simpler sealing requirements that are in line with the Act. Adopting a new company constitution requires a board meeting that is conducted under the current company constitution requirements and a special resolution of the shareholders approving adoption of the new constitution with the relevant filings to be made to the Companies Registration Office. Bear in mind that a 21 day period is imposed for the entry into force of a new constitution approved by a majority shareholder resolution and as such in order for it to be effective immediately it ought to be passed as a unanimous written resolution of all shareholders.
Companies can also decide to grant a power of attorney to one or more individuals which does not itself require to be entered into as a deed. This may be a simpler route and avoids the requirement to amend the company’s constitution, however there must be clarity on what the attorney is authorised to execute. Deeds signed under power of attorney are not required to be sealed but must be witnessed.
Another possible but uncommon alternative is section 16 of the E-Commerce Act 2000 which permits that, save as provided for in a company’s constitution, an instrument that must be signed as a deed may be signed by a certified e-signature provided that the other party accepts this approach. Again, this is not standard practice and may be prohibited under the company’s constitution but if it is not and the counterparty is prepared to accept it then it will be valid.
This expert advice was forwarded to us from Express Company Formations Ltd.
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