Signing Documents On Behalf Of A NFP

Executing documents and signing contracts is part of everyday life for many Not-for-Profits (NFPs). It is therefore critical that Directors, management personnel, and other stakeholders understand their legal rights and limitations; and what to look out for when signing on the dotted line.

The following article considers the legal requirements relating to execution of documents by, or on behalf of, NFPs.

It is important that all relevant individuals are familiar with the formalities that need to be adhered to when executing documents so as to ensure that they become legally binding agreements that are enforceable.

How should a NFP execute legal documents?

As noted in our previous article, “Not-for-profits | The basics”, NFPs take on various legal structures.

According to the Australian Institute of Company Directors (AICD), the majority of NFPs are small, unincorporated organisations; that is, they do not have a legal status that is distinct from their members.

For the remainder of NFPs with a formal legal status, the most common corporate structures are incorporated associations under relevant state or territory Incorporated Associations Acts or companies limited by guarantee, which are registered with ASIC.

Other, lesser common legal structures may include trusts, cooperatives, Indigenous corporations, religious organisations and organisations formed by a Special Act of Parliament.

The rules and requirements around executing legal documents vary depending on the organisation’s type. We have set out below an overview of the key requirements pertaining to the most common types of NFPs.

If your organisation type is not covered below, feel free to get in contact and we can provide you with specific information to help you executing contracts and agreements.

Unincorporated associations

Unlike an incorporated structure, an unincorporated association is not a separate legal entity from its members. This means that an unincorporated association cannot enter into contracts in its own right.

Any contract made on behalf of an unincorporated association will need to be made with all the members as signatories, with each member personally bound to its terms. Alternatively, an agreement made be made by an individual member on behalf of the unincorporated group, who will therefore be responsible and liable for performance of the group’s obligations under the agreement.

It should be noted that an unincorporated association will not have legal standing to enforce the obligations of other parties to agreements. Individual members may, however, take steps to legally enforce the relevant agreement.

Incorporated NFPs

Incorporated associations

The rules pertaining to the valid execution of legal documents by incorporated associations will vary depending on the state or territory in which they are located and the accompanying Association Act.

In NSW, incorporated associations are governed by the Associations Incorporated Act 2009 (NSW). Section 22 of the Act sets out the rules pertaining to the execution of documents (including deeds) by an association. This section provides:

1. An association may execute a document without using a common seal if the document is signed by two (2) of its authorised signatories.
2. An association 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 two (2) of its authorised signatories.
3. An association may execute a document as a deed if the document is expressed to be executed as a deed and is executed in accordance with 1 or 2 above.

In accordance with section 36, an association’s authorised signatories includes its public officer. This section goes on to provide that an association’s committee may from time to time appoint additional authorised signatories from among such of its members as are ordinarily resident in Australia.

It should be noted that this section does not limit the ways in which an association may execute a document. This means that the governing document of the association may set out an alternative procedure for execution. Additional details on this are set out in further detail below.

Different rules will apply to associations that are incorporated in other Australian states and territories, and regard should therefore be had to the relevant Association Act in order to understand the relevant legal requirements.

Companies limited by guarantee

NFPs, which take the form of public companies limited by guarantee, are registered with ASIC and governed by the Corporations Act 2001 (Cth).

Section 127

Section 127 of the Act sets out the rules relating to execution of documents (including deeds) by the company itself. This section provides that a company may execute a document without using a common seal if the document is signed by:

a. Two (2) directors of the company; or

b. A director and a company secretary of the company.[1]

Section 127 goes on to note that a company with a common seal may also execute a document if the seal is fixed to the document and the fixing of the seal is witnessed by:

a. Two (2) directors of the company; or

b. A director and a company secretary of the company.

We note that a company is not required to have a common seal. However, if it does, the seal must show the company’s name and its ACN.

A company may also execute a document as a deed if the document is expressed to be executed as a deed and it is executed in accordance with either of the options set out above.

This means that when executing documents on behalf of a NFP that is registered with ASIC, one person cannot sign the document or attest the fixing of the common seal. It should also be noted that one person cannot do these things in two different capacities (for example, as a director and company secretary).

Similarly to above, this section also does not limit the ways in which an association may execute a document.

For completeness, we note that a company is not able to execute documents under section 127 electronically.

Section 126

Section 126 of the Act enables an individual acting with the express or implied authority of the company to execute a contract on behalf of the company.

Evidence of express authority will usually be sourced from either the director minutes, whereby a resolution has been passed to explicitly permit the exercise of that power, or the company’s constitution. Additional details on each of these methods are set out below.

A person acting under the express or implied authority of a company may contract on behalf of the company in the same manner as if the contract were made by a natural person.

The NFPs Constitution

An organisation’s Constitution contains the rules and procedures in relation to how it is to be governed and managed. A well written constitution will ordinarily include a provision setting out the manner in which the organisation should execute documents.

Sometimes, the procedure set out in the constitution may vary the mode of execution from the requirements contained in the relevant Act in order to best suit the organisation’s needs. At other times, the Constitution will directly replicate the requirements under the Act.

In certain instances, the Constitution may also provide for an agent or representative to execute legal documents on behalf of the organisation. This arrangement may be especially useful for large NFPs, whereby it is not practicable or feasible for a director and secretary to sign off on each and every document. In these instances, each signature provided by the agent or representative will need to be appropriately witnessed.

If this is something that your organisation is interested in, we recommend that you consider in detail who should have this authority, how many people should have this authority, what type of contacts they can sign on the organisations behalf, whether certain individuals will only be empowered to sign certain classes of documents etc.

For completeness, we note that the execution rules set out in the governing document may be varied from time to time in order to suit the organisation’s business needs. In this event, changes to the constituent document would need to be made in accordance with relevant legislative procedures.

Resolution of board members

As foreshadowed above, a NFP may also authorise the execution of documents by an alternate means via resolution of its board members.

This resolution may be general and pertain to all legal documents now and in the future, or may be more specific and permit the execution of certain documents only.

Procedures and protocols set out in the organisation’s governing document and relevant statutory regime should be complied with in order to ensure that such a resolution is validly passed.

Additional points to note

It is important to note that certain legal documents will carry additional formalities that will need to be complied with on execution. Typically, this will apply where documents are to be registered, for example, where they relate to the transfer of real property or pertain to court proceedings.

In these situations, external legal advice or guidance may be required so as to ensure that all documents are validly executed and binding.

Taking measures to ensure that all legal documents are appropriately and validly executed on behalf of your NFP will help ensure the binding and enforceable nature of documents, and save you time and money down the track in trying to assert and substantiate legal validity.

How can we help?

We would be more than happy to answer any questions that you may have in relation to the above.

We can also assist you in appointing an appropriate representative who can execute legal documents on behalf of the NFP, including providing limitations on this power where relevant.

Contact Us

[1] Note: There are additional rules pertaining to proprietary companies.