Meaning
The physical control and safekeeping of a company’s official corporate seal prevent unauthorized execution of formal deeds and binding agreements. Under many common law systems, seal custody determines who has the practical ability to bind the corporation to high-value transactions or land transfers.
Physical Access
Restricted access to the physical stamp is typically maintained by the company secretary or a designated legal officer. This measure ensures that the seal cannot be applied to documents without formal authorization from the board of directors. In many jurisdictions, the physical custody of the seal is governed by specific provisions in the company’s articles of association.
Authorised Use
Procedures for using the seal often require the signature of a director and the secretary to witness the stamping. When seal custody is maintained properly, the risk of fraudulent executions is greatly reduced. This dual-authorization process provides an essential layer of internal control.
It prevents individual managers from making unauthorized commitments.
Corporate Liability
Negligent seal custody can lead to severe legal and financial consequences for a company. If a third party relies on a sealed document that was stamped without authorization, the company may still be held bound by the contract under the doctrine of apparent authority. Resolving such disputes requires extensive litigation.
This risk highlights the need for strict internal policies regarding the storage of the corporate seal.
