COMMON SEAL
Introduction –
A company is a separate legal entity, meaning it is treated as separate from its
members and has its own identity. It is an artificial judicial person having
powers, rights, duties, and obligations prescribed by law. Thus, it can own
property, incur debts, borrow money, have a bank account, enter contracts,
employ people, and sue or be sued in the same manner as an individual. The
signature of a company is a common seal. A company requires a common seal
to be affixed on agreements and documents that the company enters with third
parties and bind the company.
What is a common seal –
The common seal of a company is a stamped imprint of a company’s legal
name. It is affixed on agreements and documents that act as evidence that an
agreement, contract, or document was executed by its authorised agents or
officers on behalf of the company. It is also called a corporate seal.
It is the company’s signature to a document that is affixed and binds the
company to all obligations undertaken. All documents on which the company’s
seal is duly signed and affixed by the authorised company official become
binding on the company.
While the Companies Act, 2013 doesn't provide a definition of a common seal,
the Institute of Company Secretaries of India's Secretarial Standards offer
clarification. They define it as a metal seal used by the company, requiring
board of director approval for its use. In essence, it acts as the official signature
of the company.
Upon incorporation, every company is required to have a common seal. Its use
should follow the guidelines set forth in the company's Articles of Association
(AoA).
Creation of common seal –
According to the Secretarial Standards on affixing a common seal, the
company common seal should be made of metal and capable of manual
operation.
The Companies Act, 2013 does not specify any material from which the
common seal should be made.
However, the common seal should be adopted by a Board resolution,
generally in the company’s first board meeting.
The common seal impression should be the part of the minutes of the
meeting in which it is adopted.
Affixation of common seal –
Common seal can be affixed in the following documents :
Share certificates
Bills of exchange
Memorandum of association
Power of attorney for the execution of deeds
Instrument of proxy executed by a body corporate
Power of attorney authorising a person to use its official seal at a place
outside India
Is common seal required on all the financing documents as per the
Companies Act –
No, a common seal is not required on all financing documents under the
Companies Act, 2013 (as amended by The Companies (Amendment) Act,
2015).
Previously, the Companies Act did mandate the use of a common seal on
certain documents, seen as a formal way for the company to approve and
execute important contracts. The common seal acted like the company's
signature.
However, the 2015 amendments made the common seal optional. Companies
now have the flexibility to use alternative methods for signing financing
documents.
Here's a breakdown of the change:
Before 2015: The Companies Act required the common seal on specific
documents like share certificates and loan agreements.
After 2015: The Companies (Amendment) Act removed the mandatory
requirement. Instead, documents can be signed by:
i. Two directors of the company
ii. One director and the company secretary
This offers companies a more streamlined approach to signing financing
documents.
But it is possible that a company's Articles of Association (internal
governing document) might still have provisions regarding the use of the
common seal.
So, while the Act itself doesn't mandate it, the company's own rules might
still require it in certain situations.
Secretarial Standards –
The Act requires affixation of the common seal on certain documents, share
certificates and share warrants issued by the company.
1. Approval :
The common seal should be adopted by a resolution of the Board.
A new common seal in place of the existing common seal should be adopted
by a resolution of the Board.
The impression of the common seal should be made part of the minutes of
the meeting in which it is adopted.
2. Form and Content :
The common seal should be made of metal and capable of being manually
operated.
The common seal should have the name of the company and state in which
the registered office is situated engraved in legible characters.
3. Authority and Mode of affixation :
The common seal should be affixed to any instrument only by authority of a
resolution of the Board or a committee authorized by the Board.
The common seal should be affixed in the presence of managing director or
any two directors, and the company secretary or any other person as the
Board may authorize for the purpose. The Articles may provide for affixing
of common seal in any other manner.
The persons in whose presence the seal is affixed should sign every
instrument to which the seal of the company is so affixed.
4. Register of documents executed under common seal :
Every company should maintain a register containing particulars of
documents on which the common seal of the company has been affixed.
The register should contain the description of the document; date and
number of the resolution authorizing the affixation of common seal; date of
affixing seal on the document; name(s) of person(s) who attested the
affixation; and the place at which the document was so sealed.
The register should be maintained at the registered office of the company.
Every entry made in the register should be transmitted forthwith to the
registered office of the company in India.
5. Authority and Mode of affixation :
The Board should authorize a person to affix the official seal to any deed or
other document to which the company is a party in that territory, district or
place.
6. Custody :
The common seal should be kept at the registered office or at any other
office of the company authorized by the Board.
The common seal should be kept in the custody of a director of the company
or the company secretary or any other official, as authorized by the Board.
