Understanding Authority and Execution Under the Companies Act 2016
One of the most common questions in commercial practice is: who may sign on behalf of a company and whether a single signature is sufficient. Under the Companies Act 2016 (“CA 2016”), the answer depends on whether the issue is one of authority or execution. Section 64 of the CA 2016 concerns a company’s ability to enter into contracts through authorised officers or agents, whereas Section 66 governs the formal execution of documents where execution formalities are required. Confusing these two concepts has led many to assume that two signatures are always necessary when, in fact, the CA 2016 adopts a more nuanced approach.
Authority and Execution: Two Distinct Questions
Authority concerns a person’s power to bind the company to a transaction. Execution, by contrast, concerns the formalities by which a document is signed in the company’s name. Although related, the two concepts are distinct. A person may have full authority to bind the company to a contract, yet the document may not satisfy the applicable statutory requirements for formal execution where such requirements apply. Conversely, a document may be executed in accordance with the prescribed formalities, yet questions may still arise as to whether the signatory had the requisite authority to act on the company’s behalf.
Ordinary Contracts: Section 64
Most commercial documents, including supply agreements, service agreements, purchase orders and non-disclosure agreements, are governed by Section 64 rather than Section 66. Section 64(1) provides that a contract may be made on behalf of a company by a person acting with the company’s express or implied authority. The practical consequence is straightforward: unless the nature of the document requires formal execution, there is no statutory requirement for two signatories. A contract may therefore be validly entered into with the signature of a single authorised signatory.
Express authority commonly arises from a board resolution, power of attorney or a valid delegation of authority. Implied authority may arise from the office held by the individual or from the company’s conduct in representing that person as having authority to act on its behalf.
Formal Execution: Section 66
Section 66 does not apply to every letter, invoice, or routine commercial contract. Rather, Section 66(6) confines its application to documents that are required by written law, a resolution, an agreement, or the company’s constitution to be executed in accordance with Section 66(1). If none of these instruments requires formal execution, Section 64 will generally be sufficient. Where any of them does, the requirements of Section 66 must be complied with.
Where Section 66 applies, a document may be executed either by affixing the company’s common seal, subject to any conditions or limitations in its constitution, or by signature in accordance with section 66(2). Since adopting a common seal is optional under Section 61, execution by signature has become the more prevalent method in practice.
Where the company has more than one director, Section 66(2)(a) requires the documents to be executed by at least two authorised officers, one of whom must be a director. An authorised officer may be a director, the secretary, or another person approved by the board of directors. Accordingly, a board resolution appointing a particular individual as the company’s “sole authorised signatory” cannot displace the statutory requirement for execution by two authorised officers where formal execution under Section 66 is required.
By contrast, where a company has a sole director, Section 66(2)(b) permits the document to be executed by that director alone, provided that the director’s signature is witnessed.
The Courts Confirm the Two-Regime Reading
In WRP Asia Pacific Sdn Bhd v Lee Son Hong & Anor [2024] MLRHU 2481, the High Court held that the sole signature of a managing director did not satisfy the requirements under Section 66(2)(a). Nevertheless, the Court found that the contract remained valid pursuant to Section 64(1)(b), which independently recognises contracts entered into by a person acting with the company’s express or implied authority. The decision confirms that Sections 64 and 66 operate as distinct legal regimes: Section 64 governs the company’s capacity to enter into contracts through authorised persons, whereas Section 66 prescribes the formalities for the execution of documents where formal execution is required. Accordingly, a board resolution designating an individual as the company’s “sole authorised signatory” may be sufficient to confer authority for the purposes of Section 64, but it cannot dispense with the requirement for execution by a second authorised officer where Section 66 applies.
Ostensible Authority and the Indoor Management Rule
While CA 2016 recognises a company’s ability to act through authorised persons, disputes may still arise where internal approvals were not properly obtained. In such cases, common law doctrines of ostensible authority and the indoor management rule, commonly known as the Turquand rule, continue to protect third parties dealing with companies in good faith.
In First Consolidated Sdn Bhd v Padu Ehsan Sdn Bhd [1993] 3 MLRH 572 and Gemencheh Enterprises Sdn Bhd v Aikpoint Development Sdn Bhd [2005] MLJU 412, the companies sought to repudiate transactions entered into by their directors on the basis that the requisite board resolutions had not been obtained. In both cases, the courts held that the directors had been held out as having authority to act on behalf of the companies, whether through regulatory filings or their conduct in negotiating and concluding the transactions. Accordingly, the counterparties were entitled to rely on that apparent authority without inquiring into the companies’ internal management or compliance with internal approval requirements.
Che Tah Ishak v Ahmad Rahman @ Jaafar dan satu lagi [2013] MLRHU 491 affirmed the same principle, citing the Federal Court’s decision in Pekan Nenas Industries Sdn Bhd v Chang Ching Chuan & 12 Ors which recognised that the Turquand rule exists to protect outsiders dealing with a company, rather than the company itself.
The common thread running through these authorities is that a company may be bound by the acts of a single officer notwithstanding the absence of the necessary internal approvals, provided the officer had actual, implied or apparent authority and the counterparty acted in good faith. This reinforces the distinction between authority and execution: defects in internal authorisation may be overcome by agency principles and the Turquand rule, whereas non-compliance with statutory execution requirements under section 66 raises a separate issue.
If a Document Was Signed Incorrectly
An error in execution does not necessarily render a document invalid or unenforceable. A company may nevertheless be bound under Section 64 if the signatory acted with actual, implied, or apparent authority. In appropriate circumstances, doctrines such as ratification, estoppel, and the Turquand rule may also operate to uphold the transaction. However, these doctrines are remedial in nature and depend on the specific facts of each case and should not be relied upon as a substitute for proper execution. Non-compliance, particularly where Section 66 applies, may delay completion, impede registration, or expose the transaction to challenge.
Conclusion
The CA 2016 adopts a dual-track approach: authority under Section 64 and formal execution under section 66. Most commercial contracts may be validly entered into by a single authorised signatory pursuant to Section 64, whereas Section 66 imposes additional formalities only where formal execution is required. The critical question is therefore not whether one or two signatures appear on the document, but whether the correct statutory regime applies and whether the signatory has the necessary authority to bind the company.
This article is intended for general informational purposes and does not constitute legal advice.