Common seals can be helpful when a company is trying to prove the legitimacy and legality of important documentation. Keep reading this Legal Kitz blog to find out what a common seal is, what is required on the seal, and when it should be used.
What is a common seal?
A common seal (also known as a company seal or corporate seal) is a physical illustration emboss (usually a rubber stamp) with the words “common seal”, and either:
the company’s name, the words “Australian Company Number” (ACN), and the company’s ACN; or
if the last nine digits of the company’s Australian Business Number (ABN) are the same, and in the same order as, the last nine digits of its ACN, the words “Australian Company Number” and it’s ABN.
Common seals were historically used to seal contracts, deeds and share certificates. It is the equivalent to a person’s signature. A company may also have a duplicate common seal which must bare the words “duplicate seal”, “share seal” or “certificate seal”.
What legislation governs common seals?
The use of a company seal is outlined in section 127 of the Corporations Act 2001 (Cth) (Corporations Act). If a company chooses to use one, a common seal can be used to validly execute a document if the seal is fixed (stamped) to the document (Corporations Act s127(2)).
(2) A company with a common seal may execute a document if the seal is fixed to the document and the fixing of the seal is witnessed by:
(a) 2 directors of the company; or
(b) a director and a company secretary of the company; or
(c) for a proprietary company that has a sole director who is also the sole company secretary—that director.
The Act states that:
“A company is not required to have a common seal. If it does, the seal must show the company’s name and its ACN. The seal is equivalent to the company’s signature and may be used on important company documents such as mortgages.”
Is a common seal mandatory?
It is usually not mandatory to use a company seal. Prior to 1988, documents/deeds were only valid with a common seal. The Company Law Review Act 1988 (Cth) abolished the requirement for companies to use company seals, and can instead be replaced by signatures of certain office holders. Companies still use common seals for a sense of legitimacy, particularly for those unfamiliar with Australian document execution. Businesses with many overseas clients may choose to use a company seal to provide a sense of legitimacy and show legality.
If a business’s constitution has been established before 1988 and has not been updated, the company may still require a common seal.
When should companies use common seals?
A common seal is not necessary for everyday business, but may be appropriate for use in the following circumstances:
large contracts for major purchases;
real property transfers and land contracts;
loan documents, mortgages and guarantees; and
occasions where its use is required by a third party.
If a business does have a company seal, its use should be restricted as it must be authorised by a board resolution.
All uses of a common seal should be recorded by a company’s general counsel or legal officer, including the use of and a cross-reference to the board minutes authorising its use.
When can a company execute a document without a seal?
Section 127(1) of the Corporations Act provides that a business may execute a document without a company seal if it is signed by:
At least two directors;
A director and secretary; and
A sole director who is also a sole company secretary of a proprietary company.
(1) A company may execute a document without using a common seal if the document is signed by:
(a) 2 directors of the company; or
(b) a director and a company secretary of the company; or
(c) for a proprietary company that has a sole director who is also the sole company secretary—that director.
Benefits vs Cons of using a Seal
Benefits
A company seal can provide assurance that documents are authentic, consistent and accurate; and
They can also show that the company has a strong, professional brand image.
Cons
It can be more cost-effective for business owners to find alternatives to a common seal;
Receiving and sending documents may be slower; and
Business owners must deal with the inconveniences of a physical seal and ink pad.
Legal advice
If you need any assistance with when and how to use a company seal, Legal Kitz is here to help! Click here to book your free 30-minute consultation.