Contracting with a company

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Contracting with a company - practical notes

Contracting with a company - practical notes

This article provides guidance on aspects of dealing with a company.

The basics
A contract may be in writing, verbal, or inferred from a course of actions or dealing; One of the primary purposes of corporate structure is to limit the personal liability of its share holders; It is far more painful for an individual to face bankruptcy than for his company to be liquidated; It follows that you should contract with one or more individuals wherever possible, rather than with a company. If that is not possible, then obtain personal guarantees from the directors of the company; Day to day business is conducted largely through companies and most businesses are prepared to take a risk on the solvency of a company as the price of that business opportunity; Day to day business credit risk can be reduced by allowing credit to build up gradually and by making specific enquiries of third parties; Most Internet businesses trade widely, so that it is less easy to obtain references and undertake credit checks. They therefore tend to insist on advance payment; If you are about to enter into a contract - any contract - the first question you should ask is as to whether you are actually contracting with an individual or a company. Many traders will give the impression that you are dealing with an individual or partnership, but when you see the paperwork, you discover in the small print that the contracting party is actually a limited company; It may be safe to deal with a company in the normal course of business for that company. Less safe situations arise when the identity of the contracting party is not clear or is obscured. A company is obliged by law to disclose clearly its registered office and the names of its directors. If it fails to do, then consider that the directors are prepared to break the law in order to confuse you. Could this be accidental? We think not; A contract with a company outside its normal business is generally less safe for you. So you may be happy to buy widgets from a widget maker but be wary about buying a used machine tool from that widget maker; The best protection for you is very simple - insist on a personal guarantee from at least two people. If that is not available, then take up references; Telephone references are best because many people are reluctant to say “bad” things in writing. Furthermore, you can often gather as much from what a referee does not say as from what they do say. Before you ring, write a few notes of questions to ask. Include a few vague ones which invite a critical response; Information from a credit reference agency is generally reliable, but may be limited. It is most useful when dealing with larger companies; If you are about to enter into a written contract and you are not sure who the correct contracting party is, then ask! When you have the answer, consider carefully what effect that might have, particularly if the reply was not what you expected. Example; If you are about to buy or lease something, is it owned by a company or by its directors? Is it mortgaged back to the directors or to a third party bank or finance company? If you are impressed by stock or premises, are they owned by the contracting party? Maybe not? In every case, any doubt can best be resolved by personal guarantees. Banks use PGs as a matter of course. You should too. PGs should be taken from two people. Two directors are best. If a company has only one director, then that one and his spouse. If no spouse, then a parent. Many people are happy to risk legal proceedings, even bankruptcy, but fewer would put their mother or father in court or see them thrown out of their house to pay you; If you have trouble in obtaining acceptance of a PG, try for a PG limited to a smaller sum than the whole contract value. Even a very tiny risk of “wipe-out” may be more than a perfectly honest person wants to risk. So the guy who is building your new house may be prepared to put his name on the line for £50k of a contract for £200k; Remember that the guarantor must be a party to the contract and must sign it!; Practical matters - a director of a company always has “ostensible authority” to sign a document which binds that company. If he does not have real authority, then the Court will order him personally liable for misrepresentation of his authority; Any form of signature is valid provided the company is stated to be the party and the person signing is a director. Two signatures are not needed. It is best however, to use simple confirming words such as; Signed on behalf of xxx Ltd, by John Doe, a duly authorised director; A physical company seal is no longer required for any transaction within the UK, but may be required in some foreign jurisdictions. A company may still have to “seal” some documents, principally those concerned with transfer of land. Net Lawman is not permitted at law to draw a transfer and does not offer such documents for sale.

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Do not provide a complete or authoritative statement of the law;
Do not constitute legal advice by Net Lawman;
Do not create a contractual relationship;
Do not form part of any other advice, whether paid or free.