When considering the liability of a contracting company one of the most important considerations is that of their authority to contract. Previously we dealt with the scope of practice, as well as the capacity of a company to contract. In the second instalment of this series, we shall now establish the authority of the company or their agent to act on their behalf.
The authority of a contracting company is the power which enables a company, or more specifically its agent to contract on its behalf. Such authority can be found within the Memorandum of Incorporation of a company. This is an essential document to the company which sets out the scope of practice of a company, its agents and their authority as well as regulates the functioning of said company. It will set out who may contract on behalf of the company and in what capacity. It may also set out the manner in which such contracts may be entered into by its agents as well as the requirements for the validity of such contracts.
The first step in determining whether a party with whom you are intending to contract with has the necessary authority to do so is to identify such a party. Consider whether the individual with whom you wish to contract may act on behalf of the company, you may check such authority in the Memorandum of Incorporation (MOI). If such a party is identified in the MOI as an agent with the capacity to contract on behalf of the company, one leg of the necessary authority has been satisfied. However, if the MOI puts a restriction on the authority of the agents and such agent acts beyond the scope thereof the company will not be bound. The exception to this is where a resolution is taken by the company to ratify the contract, such contract would then be binding on all parties.
This is merely a brief outline of some of the considerations which must be dealt with when assessing the liability of a contracting company. The considerations can become complex dependant upon the facts of each scenario.
Should you require any assistance in setting up your company or ensuring the liability of companies you may contract with, contact us and we will gladly assist.