Contracting with Companies and other Entities
About the Author:
Steven Dukeson
Commercial Lawyer at Dukesons Business Law
Auckland commercial lawyer, Steve acts only for business clients in matters of Commercial and Contract Law, Company or Corporate Law, Employment Law, and Intellectual Property Law (mainly name protection, including trade marks).
When dealing with a company that has several directors, there’s a misconception that a single director can bind the company.
Generally, it can’t be assumed that one of several directors can bind the company. That means that when a party wants to contract with a company, they should have the contract signed by at least two of the directors. (The Companies Act allows companies with more than one director to have contracts signed by two directors and so long as the other party doesn’t know that those directors aren’t authorised to bind the company, the party can rely on the signatures.) .
Simple rule: If the company only has one director, you can assume that they have authority to bind the company and to sign for it. If the company has more than one director, it’s best to have at least two directors sign any contract – otherwise there's a risk that the contract won’t bind the company.
The need for caution doesn’t stop there. If a party wants to contract with the trustees of a trust, it can’t be assumed that one trustee can bind the trust. It would be prudent to have all trustees sign the contract.
Though relying on one partner of a partnership may be OK, it would be prudent to have all partners sign. One partner can bind the partnership unless they don’t have authority to do so and the party dealing with them knows that they don’t have authority. Requiring all to sign may avoid arguments later. Partners may seek to avoid liability by asserting that the partner who signed on their behalf had no authority – why even give them the opportunity to argue?
In all of this, non lawyers often don’t realise that typical trusts and partnerships aren’t legal entities. It’s common to refer to “the trust” or “the partnership” but the legal persons involved are the trustees and the partners. That’s why it isn’t appropriate in legal documents like contracts to include a trust or a partnership as a party, instead of the trustees or partners.
Steven Dukeson
Commercial Lawyer
Dukesons Business Law
09 379 4556
www.dukesons.co.nz
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