It is always essential to ensure the liability of a company which you contract, whether in your scope as a private individual or on behalf of your small business. If one does not ensure such liability at the time of contracting, one may be left without recourse when issues arise. Today we shall unpack the capacity with which a contracting agent may act on behalf of a company.
When one approaches capacity in terms of contract law one looks at the individuals’ rights and duties in respect of the contract. As we are now dealing with a company which is a juristic person and as such needs an actual individual to act on its behalf, here we shall deal with the agent’s rights and duties in terms of capacity to contract. One must ensure that the party who appears to contract on behalf of the company is one who is the actual agent of the company and as such has the necessary authority to incur the rights and duties to such contract.
The first step in ensuring the capacity of the agent is to take a step back and look at the company. One must satisfy themselves as to the identity of the company as there may be mala fide elements who may attempt to contract with you by appearing to be contracting as a company, they have no link to, but are merely using that company’s good name to mislead you.
Previously when we addressed the scope of a company, we said that one must look at whether that practice falls within its ordinary scope of business. When looking at the capacity of a company to contract one must ensure that such transaction falls within such scope. The only exception to this is provided for by section 20(1) of the Companies Act which extends the scope of practice of the company. This is applicable to companies which are ring-fenced, which is a company that has a strict limitation to its activities. A reason that ring-fenced companies exist is to ensure the investments of shareholders so that they have a safety net to their investment. For this reason, the extension provided for by section 20(1) should not be used as a blanket extension for one to contract recklessly.
Should you require services in respect of company law and setting up your company so that its structures are compliant with the Companies Act, contact us and we will gladly assist.