After a few recent queries it may be timely to provide a reminder about legal entities, in the context of preparing and executing documents.
While these queries arose in the context of property documents specifically, the below information is generally relevant to all agreements.
It is common for companies and natural people to operate businesses under business names. A business name must be registered unless it is an entity’s own name. Business names are now managed by the ASIC as part of a national scheme and are contained in a register that may be searched.
For example, Snow White operates a landscaping business under the registered business name “Blooming White”.
In this instance, the legal entity operating the business is Snow White in her personal capacity. The business name “Blooming White” is not a legal entity. It will be the name “Snow White” that must appear in agreements such as leases or services contracts and Snow must execute these documents. However the business name will appear on invoices and often on other documents. You might see it written as “Snow White T/A (trading as) Blooming White ABN 12 345 678 901”.
In basic terms, a trust is a device by which one person holds property for the benefit of another person. It is a construct of equity, which is a body of law that has developed over time based on ethical concepts and that supplements and corrects the common law.
A trust is not a legal entity in its own right and cannot own property or enter into contracts. Rather, it is the company or person who has been appointed as the trustee of the trust that is the entity that legally owns the property (albeit on behalf of the beneficiaries of that trust) and can enter into contracts relating to that property.
The trust deed establishing the trust will specify the trustee and their powers. Trusts and trustees are also governed by legislation.
For example, the trustee of The Three Bears Family Trust is Goldilocks Family Trust Company Pty Ltd. In this instance, the relevant legal entity is Goldilocks Family Trust Company Pty Ltd not The Three Bears Family Trust. You will sometimes see this written as Goldilocks Family Trust Company Pty Ltd ATF (as trustee for) The Three Bears Family Trust. It is Goldilocks Family Trust Company Pty Ltd that will be listed on the title to any land held by the trust and must execute contracts relating to trust property, in accordance with the execution requirements for a company (see below under the heading “Execution”). It will generally not be evident from a title search that the land is held on trust – although sometimes you will see the words “with no survivorship” appear after the names of the registered proprietors, which means the estate or interest is held by them as trustees.
A partnership is a relationship that exists between people carrying on a business in common with a view to profit.
For example, Jack Horner, Jack Beanstalk and Jack Flash have formed a partnership (known as “The Goose Brothers”) and own and operate a vet clinic under the terms of a partnership agreement they have entered into. The partnership leases the clinic site from Jack Horner, who owns the land in his personal capacity. In this instance, the lease is in the names of Jack Horner as the lessor and all three of Jack Horner, Jack Beanstalk and Jack Flash as the lessee.
Following on from the legal entities is the issue of how an entity may validly execute documents.
A company may execute in several ways:
Pursuant to Section 127(1) of the Corporations Act 2001 a company may execute a document without using a common seal if the document is signed by:
- Two directors of the company; or
- A director and a company secretary of the company; or
- For a proprietary company that has a sole director who is also the sole company secretary - that director.
- Pursuant to Section 127(2) of the Corporations Act 2001 a company with a common seal may affix the seal to the document and the fixing of the seal must be witnessed (in accordance with the above execution requirements). There is no longer any legislative requirement for a company to have a seal.
- Pursuant to Section 126 of the Corporations Act 2001 a company may execute a contract through an agent acting with the company’s express or implied authority. Such agents could include CEOs, managing directors or operations managers, but care should be taken when relying on this section.
- Under a power of attorney, where the company has appointed a person in writing to be its attorney for particular purposes. If a document executed under power of attorney is going to be registered with the Lands Titles Office (LTO), that power of attorney must first be registered.
- Pursuant to a resolution of the directors giving authority to a person to execute (this is fairly uncommon).
The signature of a natural person is usually witnessed, with the witness signing and printing their own name.
If the document is going to be registered with the Lands Titles Office, there are strict requirements in relation to how a person must execute. The witness is required to include their name, address and daytime telephone number as well as their signature. In witnessing the signature they are required to declare that they either know the person or have been satisfied as to their identity and there are strict penalties (noted on the document) in relation to improper witnessing.
A natural person may also grant a power of attorney and the same registration requirements apply to the power of attorney if the document being executed by the attorney is to be registered with the LTO.