Regulations on the Scenario when Company itself enter into Contract after getting Business Registration Certificate Hong Kong


Not only through agents but company itself can enter into contracts. But this may not be as easy as it sounds of getting company involved in the direct contracting. Following are some of ways through which company can contract directly.

Method of Common Seal

As per the Section 124 (1) of Cap. 622 it is not mandatory for the company to have common seal and this facility or formality is an optional. But, even still company want to have a common seal of it, then this common seal should be in compliance with the legal formalities such as; it must be metallic, with company’s name legibly engraved on it. Now you may be thinking that what is the point of discussing common seal here? Basically, common seal is something which contrasts the difference between the contract made by some official or the contract company directly went into. Hence, any contract which have the impression or physical presence of company’s common seal then such contract would be considered to have been made or entered into, by company itself. So, it would be legitimate to say that this contract has not been made by the company through any agent of it, instead company itself and directly contracted it.

Document depicting of any contract, shall have the company’s common seal affixed on it and thus on the basis of this, contract or document shall be considered as being authorised by the company directly. Now the next question arises is of the proper authority as company itself not a physical entity though it has the rights and powers as of a natural person but still, strictly speaking it something not physical or living being then who shall have the authority to use the company’s seal? Article 81 of Cap. 622H (for private companies) take care of this issue and explained matter of authority regarding use of company seal as:

Company’s common seal can only be used by the board of directors, unless board decides, every document or instrument upon which seal is to be engraved or used, such instrument should be signed by company director and then should be counter signed by the secretary of the company in company secretarial services Hong Kong or other director or by another person who is authorised by the company’s board of director for this purpose of authorisation and validation.

It must be noted that this requirement of counter-signing or dual signature shall not be considered to be furnished if the signing director is also the secretary of the company or vice versa, as there would be same person doing the authorisation of two different persons. This restriction has some practicality too because the director in whose presence seal is affixed to the document and who attests the sealing, he or she is doing this as the part of operation of sealing rather not as the witness of this, hence the need of getting it counter-signed by the company’s secretary in company secretarial services Hong Kong is merely to authenticate and validating the signature of director. For the situation where constitution of the company does not entail formal procedure of affixing and authentication of company’s seal then such arrangement should be made where seal should be applied or affixed in the meeting of company through the resolution, with the majority in favour of affixing seal. For the situation where company is a trading company, then it would be legitimate if the person who is responsible for managing the affairs of the company, affixes or use the company seal for contracting. In case company is in liquidation then liquidator has the authority to use company’s seal.

Now, what to do with the situation where seal was used for some corporate abuse because corporate world is not just drive by fairness there are some rotten eggs too in corporate world. So, for the situation where the company’s seal is not used in compliance with the Section 124 (2) of Cap. 622 after starting a company in Hong Kong then as per the Section 124 (3) and Section 124 (4) of Cap. 622, an offense would have committed and any person involved in the use of seal or the person(s) or officers who authorised the use of company’s common seal, shall be liable for any duty and non-compliance. But, if name of the company is wrongly engraved on the seal then this does not mean that the document or contract where it was instrumented, shall be invalid. Instead such document or contract shall still be held valid and in compliance with the legal formality, as long as it is free from any probability of abuse.

In case the seal used or affixed in the document or contract, is not metallic, as communicated by the Section 124 (1) of Cap. 622 then such seal would not be considered as being legitimate and proper so, any document or contract executed under such improper common seal, shall be held invalid.

Hence, to execute the contract signed or authorised by the company’s common seal after starting a company in Hong Kong, it is mandatory that the person who affixed the seal must hold valid authority as per the constitution of the company or company authorises him or her to do so. A necessary distinction is required to be made on this issue hence one must not confuse the general authority to affix the seal with the usual authority of affixing the seal to the particular document or contract. To make this clear, there are two perspectives of authority:

  • 1st perspective say that; there must be substantive authority i.e. person transacting, must hold the proper authority to enter into transaction or contract.
  • 2nd perspective communicates the formal authority, which says that person must hold the proper authority to execute the contract or document on which seal is affixed.

If the document has not been properly sealed event though it has been authorised by the company to carry out transaction, then prima facie it seems as if there was no contract for the situation where duly executed document is required to be furnished so that contract can have some legitimate effect. But, to protect the person from any personal liability it is possible to apply Indoor Management rule, so that the suspected irregularity in affixing the company’s common seal could no result in any corporate disaster.

Matters related to the Execution of Documents (assuming it to be under seal)

As we have discussed above that it is an optional formality for the company to have common seal and thus to protect the companies which opt not to have the common seal, some legal voice needs to address them too. So, the Section 127 of Cap. 622 is basically the replica of Section 44 of UK Companies Act 2006 which makes common seal an optional requirement and sets out some principles and legal guidance to execute the documents having no common seal in a way, as if it have been sealed.

For the companies which have common seal, it is a green signal for them but where the company do not have any common seal then it would be sufficient for them to execute the document by getting it signed from the two directors of the company or by the one director and secretary of the company. In case, a company has one director then having signature of that sole director would also be sufficient to execute the document. In addition to this, if the document is signed in accordance with the Section 127 (3) of Cap. 622 and company would be the one who shall execute it, so in such situation this document shall considered to have effect as if it would have been under the common seal of the company.

Matters related to the Execution of Deeds

Deeds are also the vital part of corporate contracting hence Cap. 622 contains the necessary provisions to undertake this matter. As per the Section 128 (1) of Cap. 622, a company is allowed to execute the deed by:

  • Executing the deed in compliance with the Section 127 of Cap. 622.
  • Delivering the deed as of a deed.
  • Expressing it to be execute as a deed, by the company.

Out of all these requirements, delivering the deed as of a deed, might have cost you some brainstorming. Let’s not get you more brainstorm it, so the word “delivery” implies of an intention to abide by the deed, which came into being through some words or conducts. A document is allegedly being considered as deed if it being executed in accordance with Section 127 of Cap. 622, by getting it proved on the contrary.

There is an interesting setting of getting the signatures of director or any other officer who is affixing the seal of the company on the deed, to be attested by; such as solicitor. This is just the optional formality to increase the authenticity otherwise there is no legal requirement to get them attested.

As per the Section 129 (1) of Cap. 622, company has the option to appoint an attorney to execute the deeds and other documents, on behalf of the company. The documents or deeds executed by the attorney of company, shall be considered as it would have been executed by the company, directly.

Issue of Company Chops and Official Seals

Company has the option to use official seal for any execution of documents outside of Hong Kong or in case of offshore company incorporation, says Section 125 of Cap. 622. This legal provision is derived from the predecessor companies ordinance, which authorises the use of official seal only in the condition where articles of the company allows to do so or where the objects of the company consists of corporate transactions outside Hong Kong or in case of offshore company incorporation. But, these requirements are not enforced in Section 125 of Cap. 622.

The only difference between the official seal and the common seal is that; official seal has the name of place engraved on it, where it is to be used otherwise it is the replica of official seal. As per the Section 125 (6) of Cap. 622, a documents where official seal is affixed, will be the binding on the company in the same way if it would have been the binding in case of common seal. Under the Section 129 of Cap. 622, company can also appoint attorney to execute the deeds outside Hong Kong.

As per the Section 126 of Cap. 622 company is allowed to incorporate the common seal for security sealing and it would be the replica of common seal, but it will have the word “Security” engraved on it.

After official seal, let’s discuss the rules and legal status of the company chops. If we talk of Hong Kong then it is very common to use rubber chops by the Hong Kong companies and stamping them on documents of the company. It must be noted that, rubber chop is not equivalent to the company’s common seal nor it has any legal sanctity in the provisions of Cap. 622. So, we can say that, use of chop is a matter of custom to authenticate that the person who is signing, has the authority of the company and more specifically, application of company chop is more relevant to the apparent authority of the person, who is signing or using it. There is the general suggestion in the England that, impression of rubber chop on any document by the duly authorised person or officer of the company, should be considered as the signature of the company but this suggestion is under question, as rubber chops or company chops could not be in any sense considered equal to the common seal.