I am an accountant working with a newly established company. We want to enter into a contract for supplying our products to another company (the purchaser). Our retained lawyers prepared a draft contract which we sent to the purchaser for signing. However, the purchaser has refused to sign the contract until we affix our company common seal. We don’t yet have a common seal. The purchaser’s director says it is illegal for a company to execute a document without affixing its common seal. Is the director’s assertion correct?
The purchaser’s director is incorrect as affixing a common seal of a company in executing documents is not mandatory. Section 39 of the Companies Act states that a document executed by a company can be executed either by affixing its common seal or where a common seal is not fixed, a document signed by a director and the secretary of a company, or by two directors of a company, and expressed (in whatever form of words) to be executed by the company has the same effect as if executed under the common seal of the company. Having said this, the market practice is that most company documents are executed under seal.
You can thus refer to the above cited law while persuading the purchaser’s director to sign the draft contract or alternatively and to avoid arguments, get a company seal. You will certainly need it one day!