Companies enter into many agreements in the course of their business and the majority of these can be signed by a director or a senior employee on the company’s behalf. However, this is not always the case so it’s important to understand who can be given the power to bind the company, and how this power can be given, particularly when it comes to formal property deeds.
This note focuses on companies subject to the execution provisions in the Companies Act 2006 (“CA 2006”) – please be aware that the requirements are different for foreign companies and other types of organisation.
WHAT’S THE DIFFERENCE BETWEEN AN AGENT AND AN ATTORNEY?
When an individual signs a document on behalf of a company (or “principal”) he will be acting as either an agent or an attorney.
An attorney is a person who has an express power, created by deed, to act in a company’s name and on its behalf. The power may specify just one attorney or it may specify multiple attorneys who are able to act individually or in a specified combination. The power will set out exactly what the attorney is able to do and may be very general (encompassing everything that the company is able to appoint an attorney to do) or it may be limited to defined purposes (for example, execution of a specified document). If a properly appointed attorney signs a document on behalf of a company, the company will be bound by this document.
An agent is any person who is recognised by law as having the power to create legal relationships, rights and duties on behalf of the company. An agency relationship may be created by a resolution of the board of directors, in writing (whether by formal agreement or informally by letter or email), by implied agreement, verbally, or purely by the conduct of the parties. For example, an employee with the authority to sign purchase orders acts as an agent, as does a solicitor who’s been given written authority to sign a contract on behalf of his client.
Exactly what the agent can do depends on the authority conferred on the agent by the principal. The acts of an agent will be enforceable by a third party against the principal if the agent has actual authority (granted expressly or by virtue of the agent’s position in the company) or ostensible authority (because a third party would expect someone in that position to have authority or because they have been held out as having the necessary authority).
DIFFERENT TYPES OF DOCUMENT
It’s important to understand that the rules about who can sign a document on behalf of a company are different depending on the nature of the document.
A deed is a formal written agreement with strict execution requirements. While deeds are relatively unusual in most commercial transactions they are required for numerous property transactions. Most leases must be made by deed, as must assignments of leases and transfers of land. Guarantees, mortgages, charges, and trusts of property must all be created by deed. A deed is also required for a surrender, release or variation of any of these documents.
The CA 2006 permits a company to execute deeds in several different ways: by affixing the company’s seal; by the signature of two directors or a director and the secretary; or by the signature of a single director in the presence of a witness. It also permits a company to appoint an attorney to execute deeds on its behalf. An individual executing a deed on behalf of a company should sign in his own name as attorney for the company and his signature should be witnessed. The CA 2006 does not permit the execution of a deed by an agent – any deed that purports to be executed by an agent on behalf of a company is not validly executed.
When an attorney executes a deed which requires registration, the Land Registry will want to see evidence of the power (either the original or a certified copy). If the power was granted more than 12 months before the deed was executed they may also require evidence that the power has not been revoked (though this isn’t usually required).
A simple contract can be used for other types of written agreement. In a property context this includes sale contracts, agreements for lease, agreements to surrender and licences (for example to assign a lease, to change use or to carry out works).
The most common way for a company to enter into a contract is through an agent, though there is no reason why it cannot be signed by an attorney: the only requirement is that the person making the contract has the requisite authority to do so.
Where the contract is being signed by an agent it may be difficult for the party on the other side to be certain that the agent has the requisite authority. For major contracts, a third party will always want to see evidence that the company is able to confer authority (this will be in the articles of association) and that they have in fact done so (for example, by way of a board resolution).
When a tenant takes a lease, and agrees that it won’t have the protection of the Landlord and Tenant Act 1954, it must make a declaration to this effect. It is very important that this declaration is made correctly: if it is not then the tenant will have protection, even if the parties had agreed that it would not.
A declaration can only be made by an individual (not a company), so where the tenant is a company the declaration needs to be made by someone who is “duly authorised” to make it. There are no particular requirements as to how this authorisation is given.
The landlord’s solicitor will want to know that the individual signing has the appropriate authority to do so. A director will be deemed to be “duly authorised” by virtue of his position, and an attorney whose power extends to signing a declaration of this kind will also be duly authorised. However, evidence of due authority is more difficult where the declaration is made by an employee or by the company’s solicitor. In this situation, a board resolution will certainly be sufficient, but a letter or email from a director would also provide the necessary evidence.
LIABILITY OF ATTORNEYS AND AGENTS
If you act as an attorney and you ensure that everything you do falls within the limits of the authority which has been given to you, the company will be bound and you will not be personally liable on any document that you sign. The same applies to agents with regards to signing simple contracts. An agent cannot validly execute a deed on behalf of a company but could potentially be found personally liable on the deed if he does so.
Acts falling outside your authority
If you purport to contract as attorney in respect of something which you have not been granted the power to do, the company will not be bound but there is a risk that you will be held personally liable. However, if you contract as an attorney under a power which has been revoked and the third party is not aware of the revocation, the company will be bound.
If you contract as an agent when you do not have the authority to do so, the principal will not be bound by the document if you had no actual or ostensible authority, or if the third party was aware that the act was outside your authority. However, if the third party reasonably thought that you had the necessary authority, even though you did not, the company may nonetheless be bound.
If the company finds itself bound by a document that you did not have authority to enter into on its behalf, it may be able to sue you for any losses it suffers as a result. You should therefore always take care to ensure that you have the necessary authority before signing any documents on a company’s behalf. You should also ensure that the company understands the transaction and knows what it is that you are signing.
The information set out in this briefing note is provided free of charge for information purposes only to clients and prospective clients of this firm. We make every reasonable effort to check that the information is accurate and up to date but we cannot accept any responsibility for its accuracy or correctness or for any consequences of relying on it. Please note that the information does not and is not intended to amount to legal advice and you are advised to obtain specific personal advice from us or another lawyer about any case or matter and not to rely on the information or comments in this briefing note.
© BSDR 2017