Contracts...

[will7]

Let's say that I set up my business as a Limited Company. Now, if I had my secretary as an accountant (or someone from the company I am using to set-up), could they sign contracts on behalf of the company and make them legally binding?

So, for example, lets say I have a Terms & Conditions section on my site (which I do, but it looks like I'm gonna have to take it off). For every site project I undertake, if I get the client to sign and my secretary to sign, that would make the contract legally binding, right?

I hope I am making myself clear here, hehe. I would be MD of the company, but, because I am only 15 I would not be able to enter legal contracts, so is this a way to "get around it" so to speak?

 

[bwglaw]

In short, it needs to be a Director to enter into legally binding contracts. Company Secretaries do not always have the authority or capacity to enter into contracts on the behalf of the Company unless they are a Director as well

As MD of the Company you would have to sign the agreement on the behalf of the Company, regardless of your age.

By the way, a signature does not entirely make the agreement legally binding. It is the performance if any that makes an agreement binding. You need to ask for part payment to be on the safe side before carrying out any work.

Let's say that I set up my business as a Limited Company. Now, if I had my secretary as an accountant (or someone from the company I am using to set-up), could they sign contracts on behalf of the company and make them legally binding?

So, for example, lets say I have a Terms & Conditions section on my site (which I do, but it looks like I'm gonna have to take it off). For every site project I undertake, if I get the client to sign and my secretary to sign, that would make the contract legally binding, right?

I hope I am making myself clear here, hehe. I would be MD of the company, but, because I am only 15 I would not be able to enter legal contracts, so is this a way to "get around it" so to speak?

 

[will7]

So, as Director, I can enter into a legally binding contract on behalf of the company even though I am 15?

Other people have told me I can't, some have told me I can! Which is it?!?!?!?

 

[bwglaw]

So, as Director, I can enter into a legally binding contract on behalf of the company even though I am 15?

Other people have told me I can't, some have told me I can! Which is it?!?!?!?

Have a look at:

http://www.companieshouse.gov.uk/about/gbhtml/gba1.shtml#two

As it says, you can be a Director, regardless of age.

Regarding the issue of entering into contracts. A Ltd Co is a legal person in its own right and it can enter into contracts in its own name. The contract would not be binding on you personally but you would be acting as Director on the behalf of the Company. Just like any other Director you have to act in the best interests of the Company.

Having said that, I do not think you are completely disbarred from entering into contracts on the behalf of your company, provided that you have the legal capacity to do so. Although you are considered to be a 'minor' under the age of 16 and this does usually question whether you have the legal capacity, however, the contract is with the Ltd Co, not you so this may not be an issue.

There are some kinds of contracts that you would not be able to personally enter into due to your age i.e. contracts under the Consumer Credit Act 1974 etc. I do not think it would be a problem for you to contract with the Bank to open an account in the Ltd Co name but you would need to check first with the Banks to see if they would accept you, before forming a Ltd Co.

To conclude, I must ask, why do you need to form a Ltd Co, at such a young age. Are you actually ready to take on the level of responsibility along with your education etc. Did you know that if a Director fails to act appropriately and in the best interest of the Company they can be found liable, including the fact that you can be fined for filing a late return to the Companies House.

I would suggest you contact an Accountant to see if there are any real advantages for you to form a Ltd Co or to be a sole-trader.

 

[will7]

I can enter into contracts. That's the main thing. You see, when doing web design, I need to have a contract that specifically says what work we will do for a set price. This is to combat the "can you do this as well and if you don't I want my money back" questions!

So, could I get around this anyway if I was a sole trader?

 

[BMS]

Hi Will
I'm no contract law expert but I would imagine that a contract is a contract is a contract, I don't think it matters what the company status is.

However if you are a sole trader then the contract is with you and we maybe back to square one in can you be legally bound by a contract if you are 15.

With a Ltd company the contract is with the company, which is a legal entity in it's own right.

As handsonaccess states a director does have responsibilities to the company, one of which is filing an annual return, however you will still have to produce accounts as a sole trader.

 

[bwglaw]

could I get around this anyway if I was a sole trader?

Being 15 you can enter into a contract. The rule that persons under 18 are considered to be minors under the law of contract is to protect minors when entering into contracts and are not fully aware of their obligations and any unfavourable consequences of their actions etc.

In your case it is the reverse. You can enter into a contract with a party to offer web design services and because you are offering a service using your web design skills it is unlikely you would be able to claim any unfavourable consequences of a contract because by offering the service you are claiming to have knowledge in the work you do.

It would be wise to have a contract drawn up to ensure you are protected and to avoid any unfavourable consequences, such as, the other contracting party might try their luck to take your work and then claim that the contract was void because you are under 18. Like I said before, do not do any work without taking a deposit or part-payment. It would be safer to ask for a part-payment in advance. Deposit is slightly different!

You need to ensure that you are able to honour your agreements because once entered into it becomes a business transaction and it can get incredibly complicated especially where websites are concerned. I deal with the legal stuff for our Hands On Access division that design websites so I am aware of the pitfalls.

Whichever route you take you need to ensure you are on the right track with the Inland Revenue in terms of paying tax, NI etc. An accountant can advise on this.

 

[bwglaw]

Hi Will
I'm no contract law expert but I would imagine that a contract is a contract is a contract, I don't think it matters what the company status is.

No, not entirely. It is a question of whether the contract is legally binding and for it to be legally binding some factors have to be taken into account and one of them is whether a contractual party has the legal capacity to contract, amongst other factors.

The status of the PERSON is relevant. Not the company status because someone has to act on the behalf of a corporate body. In what capacity was the contracting party acting and is the contracting party acting as a Director, if so, is the Director acting in good faith and in the best interests of the Company i.e. not to defraud etc.

Where the Director appeared to be not acting in good faith and in the interests of the company the 'limited liability' may not apply and that means the individual Director (along with other Directors) can be personally liable.

In simple terms, if I am 15, offering a service and trading as AtoB Ltd, entered into a contract, dishonoured the contract and argue that I did not understand the contract. The legal capacity of the person will be questioned as well as his role as Director.

 

[fastfences]

To offer another point of view, I wonder if there is too much emphasis on 'contracts' here?

Certainly, the contents of a contract afford rights and protection to both parties to the sale, BUT, what about the service? If the service is performed/provided as discussed and agreed and provided at the quoted cost, there should be no reason for recourse to the conditions of contracts, which, incidentally, would erode all profit made from the sale because of legal costs to enforce the contract. cheers, Nigel

 

[bwglaw]

there should be no reason for recourse to the conditions of contracts

In an ideal world, yes. Entering into contracts is part of our everyday lives, not just for the commercial world. Intentions of parties are often misconceived, specifications not met, quality not satisfactory etc, then recourse to the conditions of contract may be required.

If service is performed as discussed and agreed then the contract has been honoured. This does indicate a verbal agreement and this is often where the problem lies in the commercial sector.

I have had direct experience of contracts that do not always go to plan.

We sub-contracted someone to provide services to our client direct. We paid this person monthly and then despite our agreement that person invoiced our client direct. Our client paid the sub-contractor and and then the client refused to pay us. The sub-contractor was wrong to invoice our client but in the end she succeeded. We lost all monies and have to pay an extra £1000.

Despite our agreement which proved to be fairly useless. I have a low opinion of the civil justice system!