Imagine you’re getting your house renovated, or maybe you’re buying supplies for your small bakery. You’re signing a contract with a company, right? Now, here’s the thing: you need to be sure that the company is going to hold up their end of the deal. If they don’t, and something goes wrong – like the renovations are a disaster, or the supplies are faulty – you want to know you have a way to get it fixed or get your money back. That’s what we mean by ‘company liability.’
It’s about making sure the company is responsible and can be held accountable. If you skip this crucial step, you could find yourself in a tough spot. You might have no legal way to force them to fix the problems, and you could lose a lot of money.
Now, companies don’t sign contracts with their own hands. They need people to act on their behalf. So, today, we’re going to talk about something called ‘capacity.’ In simple terms, this means making sure the person signing the contract for the company has the right to do so. They need to be an authorized agent.
Think of it like this: if someone walks up to you and says, ‘I’m selling this car for my friend,’ you’d want to make sure they have the friend’s permission, right? It’s the same with companies. You need to make sure the person representing the company has the power to make the deal.
We’ll cover how to figure out if the person you’re dealing with is genuinely authorized. We’ll also talk about how to check if the company itself is legitimate. You wouldn’t want to be tricked by someone pretending to be from a well-known company, would you?
This isn’t just legal mumbo jumbo; it’s about protecting yourself and your hard-earned money. By understanding these simple steps, you can avoid a lot of headaches and ensure that any deal you make with a company is solid and reliable.
CAPACITY
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 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 applies 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 for 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.
Saeedah Salie
saeedah@bbplaw.attorney
Associate
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