There is not much point in having a sharply tuned contract unless you get the right party to sign it! I have seen many instances where businesses have provided or were about to provide services to a party who was not the named party on the contract!
There is a series of problems here and some are specific to the meetings and events sector. In this and the next article or so we’ll look at the different business structures that you might encounter and how to recognise them, the special problems of dealing with unincorporated associations and the vexed but critical issue of how contracts should be signed – and by whom!
This is the first challenge that we all have to face. Day-to-day we have contact with people. An individual might introduce herself as “Marg Simpson of Duff Beverages”, but that alone carries absolutely no information about what kind of legal entity you are being asked to deal with. “Duff Beverages” is a business name or even a trade mark, which may or may not have been registered. If you sign a contract with the other party named as “Duff Beverages” you do not know whether you are contracting with a company, a partnership or with Marg herself.
In a nutshell, you want to know whom who you are obliged to provide your goods and services, and (of some importance) who is obliged to pay your fees/price! If things go wrong, who can sue you and who can you sue?
The type of legal entity with which you contract may have a profound effect on credit control and the extent to which you are happy to extend “credit” to the client. On making enquiries, you may even discover that you are being asked to deal with a company in receivership of liquidation or a bankrupt individual! I would not be comfortable racking up a level of work in progress or to incur large expenses on behalf of a client unless I know who is going to pay and unless I know who I am dealing with!
The landscape is populated by only a few different business “types” – but working out what type you are dealing with can sometimes be a real challenge. The difficulty is that so many businesses do not properly or clearly identify themselves. Some quick revision of this most basic of points is useful:
• Companies – this is an entity governed by the principles of company law, principally the Corporations Act. The company is a separate legal entity from its shareholders and directors. Private (“Pty Limited”) and public (“Limited”) companies both usually have two or more directors, though it is possible for a private company to have only one director/secretary. Companies have names, but many have the same or similar names – the critical thing to remember here is that the only unique identifier of a company in Australia is its ACN, a nine digit number issued by ASIC. Companies sometimes register business names where they wish to be known by a name other than the registered company name.
• Partnerships - are rapidly disappearing because they involve joint and several liability of the partners and in these more risk-aware times fewer people are happy to be liable for the actions of others. When you contract with a partnership you are dealing with two or more individuals (companies can be partners too) who are bound together by a partnership agreement. The effect is that all of the partners are liable jointly and severally to you. Generally one partner has the authority to bind all others. Partnerships do not have ACNs because they are not companies but they may have an ABN for GST purposes that can help to identify them. Partnerships also often register a business name because the name under which they trade is not their own.
• Incorporated Associations are bodies which may have been loose associations of individuals with a common venture or goal (such as staging an event), who have, generally because of liability concerns, applied for and been granted incorporated status under the various state Associations Incorporations. These bodies have separate legal status and some similarities to companies (varying from state to state) but are designated by the word “Incorporated” or its abbreviation, “Inc”.
• Sole traders – are individuals who trade on their own. They may employ others but the legal entity with who you are contracting is the individual/owner. Sole traders also register business names where they trade under a name other than their own name.
• Unincorporated association – an unincorporated association is not a separate legal entity and so has no power to enter into a contract – you are really dealing with one or more of its members. These are the most difficult of clients to pin down because they invariably have no internal arrangements and you will often end up contracting with all of them separately (a logistics nightmare) or worse, one only of them in the mistaken belief that you have “captured” them all. Contracting with unincorporated associations has special problems which I will cover in the next edition of this esteemed publication.
Look at the documents you have been given – draft contracts, proposals, brochures and other preliminary papers and if it is not clear, ask the client/supplier! The question to ask is “who will we be contracting with?” If you get a response as meaningless as “Duff Beverages” drill down further and ask “What kind of business is ‘Duff Beverages?’ – is it a company or some other kind of entity?” Ask for the ACN and ABN, if it is not on the paperwork you have been given.
Don’t leave it at that – do a search and get confirmation. You can get basic information for free by performing a search of the ASIC database (the “national names index” at www.search.asic.gov.au . All you need is the name, though an ACN or ABN may help refine the search. The responses you get may be company names or business names and you will only get the most basic information. If you want names of owners/shareholders and (in the case of companies) directors you will have to pay ASIC the modest fee for that information.
And a call to arms – let’s all get into the habit of properly designating who and what we are on our stationery and promotional material and recognise the importance to others of being able to identify us.
Next time we’ll examine signing issues for each type of business entity and why it might be necessary to identify the directors.
For further details contact
Matt Crouch on (02) 8281 7800 or email mcrouch@bartier.com.au.
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