Whether you are a principal or an agent, it is very important to know the legal identity of the party that you are contracting with. Why? A contract is an agreement between two parties that creates mutually binding legal obligations. If anything goes wrong with that contract, you might need to take legal action against the other party or parties to the contract to protect or enforce your rights. It is therefore important to ensure you take legal action against the correct party. If you get the wrong one, your claim could be thrown out by the Courts and you could face a hefty costs bill.
In many cases, the identity of each party will be obvious and will be set out clearly in the agency contract. In other cases, it can be difficult to get clarity. For example, many companies use trading names and sometimes several companies within a group of companies use the same trading name - which one have you contracted with?
Do you know whether you are contracting with a sole trader, a partnership, a limited liability partnership or a limited company?
This is an individual who trades by themself and in their own name. That individual would be entitled to the relevant benefits under the agency contract but would also have the sole duty to perform the relevant obligations under that contract.
A (general) partnership
This is where a group of two or more individuals trade together to manage and operate a business and share its profits. Generally, the partners will each have unlimited personal liability and will be jointly and severally liable for the obligations and debts of the partnership.
A limited liability partnership
This is a body corporate and is a separate legal entity from its members (partners). In this situation the limited liability partnership would enter into the agency contract and would have the obligation to perform under that contract. One of the key differences from a general partnership is that the liability of the partners is (subject to some specific exceptions) limited to the amount that they put into the business.
A limited company
In this situation it would be the company (rather than its directors or shareholders) that would enter into the agency contract and would have the obligation to perform under that contract. Any liability under the agency contract would begin and end with the company, unless the directors are in breach of their fiduciary duties.
How should the parties be identified in an agency contract?
Each of the above is a separate legal person in the eyes of the law and, when entering into an agency contract it is very important that you identify the correct legal person. That is not always as straightforward as it seems. For example, if you enter into a contract with 'ABC Agencies', which of the above is the legal person that you are contracting with? It could actually be any of them, as 'ABC Agencies' could simply be a trading name.
What do you need to do to clearly identify the party that you are contracting with?
- For a sole trader: at the very least you would need to set out the full name of the individual, any trading name that they are using and their current address (eg John David Smith t/a J S Agencies, 1 Bright Avenue, Birmingham, B1 2PA). You might also want to consider setting out some piece of identifying information which leaves no doubt as to the identity of the individual, particularly if they have a fairly common name (eg their date of birth, national insurance number or passport number).
- For a (general) partnership: you would need similar information to a sole trader, but you would need to identify at least some of the partners (eg John David Smith and Jane Elizabeth Doe trading as ABC Agencies (a partnership), 1 Bright Avenue, Birmingham, B1 2PA).
- For a limited liability partnership: you would need to set out the full legal name of the partnership and any trading name, the address of its registered office, its registered company number and the country in which it was incorporated (eg John Smith Agencies LLP t/a John Smith Agencies, a limited liability partnership incorporated in England and Wales with company number OC123456 whose registered office is at 1 Bright Avenue, Birmingham, B1 2PA).
- For a limited company: you would need to set out the full legal name of the company (along with any trading name), the address of its registered office, its registered company number and the country in which it was incorporated (eg John Smith Agencies Limited t/a John Smith Agencies, a company incorporated and registered in England and Wales with company number 12345678 whose registered office is at 1 Bright Avenue, Birmingham, B1 2PA).
It is worth taking some time at the outset of the relationship to make sure that you know who you're contracting with. It can save a lot of time, hassle and cost later on!