How many directors does it take to bind a company?

As is generally well understood, section 127 of the Corporations Act confirms a company with 2 or more directors may execute a document by either

(a) 2 directors signing; or

(b) a director and a company secretary signing.

Where a company has a sole director and secretary, that director can sign.

Perhaps less well known is section 126 of the Corporations Act that allows for a company to be bound by an individual acting with the company’s express or implied authority.

In situations where section 126 is being relied on a company’s constitution is also often relevant. For example, a constitution may provide that the directors can resolve that a specified director is authorised to execute documents.

Third parties will of course not necessarily be aware of the internal resolutions of a company. The Corporations Act under sections 128 and 129 therefore provides some protection for third parties confirming that they may rely on certain statutory assumptions as to valid execution.

These assumptions have a number of limitations however, for example they cannot be relied on where:

(a) The person seeking to rely on the assumption knew or suspected that the assumption was incorrect.

(b) The document is being executed relying on section 126, as opposed to under section 127. In other words, if 2 directors (or one director and one secretary) sign then the assumption can be relied on, however if one director only signs and they are not the sole director and secretary then the protection of the valid execution assumption is unavailable.

Practically therefore where are sole director signs a document third parties should ideally:

1. obtain confirmation (for example by performing an ASIC search) that the person is the sole director and secretary;

2. obtain an extract of the constitution for the company and a copy of the resolution appointing the director as an authorised sole signatory; or

3. require the company to instead grant power of attorney to the relevant director. A copy of the power of attorney should then be produced at the time of signing.

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