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.
