In English law (though not in Scots law), a deed is a more formal agreement than a simple contract. Execution formalities go further than a mere signature for the deed to be enforceable, though they are used only for a few types of transaction, including transfers of land, leases mortgages and powers of attorney.
Execution of a deed was traditionally done through the signatures of two company directors, one director and the company secretary or by affixing the company's common seal to the document.
Provisions of the Companies Act 2006 came into force on 6th April which mean that a company can execute a deed with the signature of one director, as long as a witness also signs the document to assert that the director's signature is genuine.
The changes were made to enable the Government to abolish a requirement that private companies have company secretaries. Because of that abolition, other ways for companies to execute deeds had to be found.
Private companies can still have a company secretary; the Companies Act merely removes the requirement for one. Companies can also still execute deeds using a company secretary or the signatures of two directors.
Justine Howard, a specialist in company law at Pinsent Masons, the law firm behind OUT-LAW.COM, said that it may not be in the interests of all companies to take advantage of the rule change.
"Although the ability for a single director to execute deeds in the presence of an attesting witness will make the execution of deeds by all companies adminstratively easier, companies should stop to consider whether they actually want it to be easier to execute deeds, which may relate to significant commitments, such as a sale of a business or a substantial asset, such as a building," she said.
"A requirement for two directors to sign a deed has long been an effective check on a director exceeding his or her authority, whether inadvertantly or not," she added.
Howard said that companies with two or more directors may wish to consider whether:
- the company's internal rules and protocol on executing deeds or simple contracts should be reviewed to prohibit execution of deeds or simple contracts unless a particular director is signing;
- the company's rules and protocol should contain an absolute prohibition on the execution of deeds or simple contracts by a single director in the presence of a witness;
- to bolster internal signing rules so that a breach of any such rules is a disciplinary matter (this may require changes to directors’ service contracts).
Other formalities for the execution of a deed remain unchanged, including the need for the document to make clear that it is intended to be a deed. It must also be 'delivered'. Delivery is the point in time at which the party “evinces an intention to be bound” – though delivery is presumed to take place upon execution unless the contrary is proved.