Who can sign for the company? How charities can mitigate governance risks when making agreements

Signing an agreement is often treated as the last step in a transaction. However, who signs and whether they have authority to sign, are important governance considerations for charities, both when signing an agreement and when receiving a signed agreement from another party.

Who can sign?
Following COVID, the requirements for executing documents (including deeds) became more flexible for companies registered in Australia, including companies limited by guarantee. While increased flexibility has clear practical value, it does create some risk for companies that need to be managed carefully.

Currently, the Corporations Act 2001 (Cth) provides different ways that a company limited by guarantee can execute documents without using a company seal:

• with the signature of two directors under section 127(1)(a);
• with the signature of a director and the company secretary under section 127(1)(b); or
• with the signature of an individual acting with the company’s express or implied authority to sign the document.

Where a document has been executed in one of the ways described above, the other party can assume the document has been validly and properly executed by the company. This is the case even if the individual signing lacked actual authority, including by acting fraudulently.

What can go wrong?
If the wrong person executes a document or the document is executed incorrectly, there can be significant consequences for your charity. For example, an individual person may bind your charity to a transaction that was not approved and that the company did not want to enter. Conversely, your charity may act on the belief it has entered into an agreement with another organisation, only to later discover that the agreement is not legally enforceable.

How can your charity manage document execution risks?
Your charity should have clear internal policies and procedures to manage these risks, setting out:

• who can approve different types of transactions;
• who can sign documents on behalf of the company;
• whether particular transactions require Board approval;
• any financial or other limits on delegated authority; and
• how delegations are documented, communicated and reviewed.

Who can’t sign?
A person’s position or title does not necessarily tell the whole story about their authority. Charities should be careful about situations where a person’s title suggests that they can enter into an agreement on behalf of the company, but their actual delegation is more limited. Your charity should take steps to make it clear to each staff member their level of authority and approval, and should maintain clear written records around when a person does not have authority to act.

What about documents signed by another organisation?
A charity should ensure that the person on the other side of a transaction has the authority to execute a document.

A good way to mitigate the risk that the person on the other side of the transaction lacks appropriate authority is by ensuring that your charity has a consistent procedure for confirming their authority.

Depending on the circumstances, your procedure could include:

• confirming the signatory’s position and authority;
• obtaining evidence of Board approval where relevant; and
• checking the other party’s constitution or delegations.

A solid procedure should also include keeping records of the checks undertaken by your charity to confirm authority.

Key takeaway
Executing a document is more than an administrative step that occurs at the end of a transaction. It is important that your charity understands who has authority at law to bind it to an agreement, establishes internal measures for determining who is authorised to sign on their behalf and satisfies itself that the person signing on the other side of a transaction has authority to do so. Taking these steps can help your charity to manage its document execution risks so it can focus on its charitable purpose.

This publication was authored by Hannah Rose and Brooke Arcia and is ©For Purpose Advisory and is relevant to charities that are companies. It is for general guidance only and any opinions expressed are the opinions of the authors. For Purpose Advisory can provide advice tailored to the particular circumstances and legal structure of your organisation. The content and any links in this publication are current as at the date it was published and For Purpose Advisory takes no responsibility for any changes to the links or accuracy of the content. Legal advice should be sought before taking action in relation to any specific issues mentioned in this publication.