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The "common seal" is a legal device used to execute a contract on behalf of a company in England, Ireland and most of the Commonwealth.
Traditionally, a common seal was a physical seal formed by making an impression in hot sealing wax. Over time, this form of seal was replaced by a wafer affixed to the document or by a metal stamp which leaves indentations in the paper. Part of the reason for this shift was the spread of printing and literacy, which made legal documents more numerous and thus made wax seals less attractive than stamps or simple signatures.
Today, the notion of a "common seal" may still imply a physical seal, but in many jurisdictions the "common seal" is physically realized by the signatures of company representatives--usually two directors, or one director and the company secretary.
A common seal is not necessary for a company to enter a contract: companies are generally bound by the signature of one authorized (or apparently authorized) agent. The common seal is mainly used where a document is being executed "as a deed." This has different implications depending on the contract law of the governing jurisdiction, but usually it involves:
- A longer statute of limitations to bring claims under the contract. (In England, a person has six years to bring a claim under a contract, but twelve years to bring a claim under a deed.)
- Looser requirements for consideration. This can be particularly important in the world of corporate finance, where parent and subsidiary companies often enter each other's contracts in a very one-sided manner (for example, one may guarantee an obligation of the other without receiving anything in return).
- The ability to grant certain rights not grantable by a simple contract, such as property rights and powers of attorney.
In the United States, on the other hand, the notion of "seals" is disappearing from contract law. The Uniform Commercial Code has made seals meaningless on contracts regarding the sale of goods, and by extension (since businesspeople are creatures of habit) much less common in business contracts. Most state courts have further whittled down the traditional effects of a seal under common law, to the point where some US states do not care at all about seals and others recognize seals as having minimal effect (e.g. only serving as evidence of the contract's authenticity and perhaps the presence of consideration). Where seals still feature in American contract law, a signature of one representative is generally enough to constitute a seal for the purposes of executing a contract (although the document may still need to specify that it is being executed under seal).
Common seals are still alive and well in most of the rest of the former British Empire (albeit generally in the form of signatures and not in the form of melted wax), and are a popular way to make a contract more ironclad than it would be by a single signature.
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