Understanding the Role of Company Agents and Rules of Attribution for Fast Company Formation UK

01 Nov

For either any global company formation UK or local company formation, it is equally mandatory to set the limits for the role played by the legal persons of the company. It is also important to accept the separate identity of a company having separate legal rights. But a question that comes to the mind is that how exactly does a company which is merely a structure use its rights. The answer to this question is the topic of this article.

Agents: A Medium of Action for a Company

The actions of a company must be carried out by its agents. However, an important factor that has to be determined is that, what those acts are exactly, that when performed by the agents can be attributed as the acts of the company. After the determination of these acts, it may be possible to identify such acts as either leading to contractual binding of the company or criminal offences or torts.

Purpose of Identifying Acts of a Company

While starting a company in England, there should be a clear understanding regarding the difference between actions taken and attributed solely to the legal persons of a company and the actions taken by a legal person but on behalf of the company. A company’s acts may be identified and differentiated as mentioned in the topic above so that the normal rulings provided by any contract can be implemented. Similarly, the regular provisions given for any criminal conduct or tort may also be easily imposed on the company. The rules may be applied to check whether any new rights have been given to anyone via the contract or whether any right has been violated via the act of criminal offence.

Elaboration of Agents of a Company

Just as someone who intends to start a business anywhere seeks guidance from company formation agents UK, similarly, agents specifically appointed within the company may perform certain tasks of the company. The most valid answer to the question of “who are the agents of a company?” is given by a case that has been mentioned below.

The case of Meridian Global Funds Management Asia

This case outlines the principles that form the basis of the definition of an agent. Lord Hoffman stated that:

  • For the identification of any act as the company’s act, it is important to set out certain generic rules. Such rules may be termed as “The rules of attribution”.
  • These rules may be primarily defined by the constitution of the company. It may be defined as the reasons for the appointment of the members or attributing either majority votes or unanimous voting in a meeting as the decision of the company etc.
  • However, these are the most generic principles for the identification agents of a company. These rules do not prove sufficient for a company to run its business world wide.
  • The reason is that not every decision that has to be attributed as the act of a company will have to be passed via a resolution at the meeting.
  • Therefore, there is a requirement to provide special rules of attribution.

Primary Rules of Attribution

Articles 3 and 4 of the Model Articles provide the companies with rules that form the base of attribution. They are as follows:

General Power given to the Directors

Article 3 of the Model Articles states that the directors are entitled to manage the company, subjected to the articles. For the purpose of management, the directors are given permission to utilise all the powers of a company.

Special Authorities given to the Members 

The fourth article of Model Articles states that the members are given a special authority to prevent the directors from taking any action that seems a violation to the directors’ duties or detrimental to the interests of the company. The members can prevent any such action specifically or any action of the director generally from taking place via the passage of a special resolution. Similarly, the members can use a special resolution to force the directors to take any action.

Another point given by the fourth provision of Model Articles in the limitation of the facility of special resolution is that, any act that has already been done by a director before the passage of a particular special resolution cannot be invalidated via that special resolution.

Freedom of Devising Rules of Attribution

Although the rules mentioned above are the most common rules to be incorporated for attribution, a company has the right to devise its own set of basic rules of attribution. Another point to notice is that if the articles of association of a company allow, the board may have the authority to transfer its powers to anyone. The articles 5 and 6 of the Model Articles provide for it. If the transfer of power is done according to the rulings provided by the articles, the person who has been given the power has the right to make use of it and bind a company to an extent that does not exceed the bounds of that assignment.  

The Capacity of a Company’s Agents

As the company formation agents UK are given the authority to guide and help the entrepreneurs in forming their businesses, in the same manner the agents of a company are given certain authorities. It is a fact that a company is given the authority to sign any contract, as it lies within its capacity, yet, it is not possible for every random person of the company to take the decision that the company will enter into any contract itself. Take the case of a national petroleum company for a better understanding. Such a company has the right of sale of its supplies to any customer. However, not every member of the company is allowed to take this action. Only specific employees who have been given the authority to decide about selling to any particular customer or getting the company involved into any transaction, can make the company committed for the sale.

Determination of the Limitations of an Agent’s Capacity

The authorisation of Agents leads to problems of specific nature. The agents are not allowed to carry out any action that is not permissible under the articles of association of the company. For instance, an agent of a company that holds the status of a charitable company or does the publishing of monographs in English, does not have the authority to run any business that is out of bounds of the objectives of the company. Henceforth, for the determination of the limitations an agent’s capacity, it becomes equally necessary to analyse the interpretation of all the constitutional documents of a company as may be done for the determination of the limitations of a company’s capacity.

Impact of Third Parties

Practically, the consequence of previously mentioned rulings would have been the removal of hindrance to the people outside the company that was caused by the objectives of that company and their effectivity on the capacity of that company. However, this problem appears again in another semblance. Moreover, the impact of the problem is same for it is impactful on the capacity given to the agents. However, the solution to the problem has been sought by the legislature. It favours the third parties who intend to run any business for some fair dealing with the company. It does so by giving the power to directors for binding the firm, or ratifying any other person to do the same. Moreover, this authority is not bound to abide by any restrictions given by the constitution of the company as stated by section 40 (1) of Companies Act 2006. It should be noted that this favour is given to outsiders who specifically want to do the business in good faith. It is a goal of every entrepreneur that after a fast company formation UK, the company has a speedy growth as well. This may be possible by signing profitable contracts with third parties. However, the third parties may not easily sign any contract with any company unless they are given certain securities.

Additional Limitations on the Actual Capacity of Agents

It will be wrong to assume that only the objectives of a company impact the actual capacity enjoyed by an agent. They are not the only thing that govern the freedom of an agent. For instance, in cases where the deal that has to be made is in accordance with the objectives of a company, the company may allow certain people to lead that deal. The company may decide the persons upon its set criteria. Consider the example of a national petroleum company again. The company will allow some of its members to lead the sale of petroleum to large retailers or wholesalers. These members may be selected on the basis of certain limitations such as the seniority level. The same company may give its other members the actual power to sell the petroleum merely at the outlets constructed at local level. It may be unlikely for the members of the latter case to sell the petroleum in bulk to large retailers or wholesalers as they are not authorised to do so. However, any assumption made about the authority of any member on the basis of appearance may misguide the third party. For instance, it may seem to the outsiders that any employee that works in the head office of any company may have the right to auction the petroleum bulks to any wholesaler, but the company’s internal rules and regulations and the structure of the company does not allow the member any such authority. In such scenarios the legislature provides for the protection of interest of outsiders. However, this is done by the utilisation of common law methods and not the methods given by the statute. Such methods include the lawful regulations for authority that is apparent or ostensible as well as the principle of “Indoor Management”.

Limitations of the Protective Provisions

All the protective provisions that have been discussed in the previous topic and are devised for the intention of providing security to the third parties, are beneficial if the outsiders have faith in and rely on the assumption that the agents of the company are given enough authorities to manage important transactions on behalf of the company. Any situation where this assumption cannot be realised any protection given to the third parties by the protective provisions will go in waste.

Director’s assertion for any transaction carried out

It is particularly mentioned in Section 41 of Companies Act 2006, that Section 40 of the same act cannot be relied upon by the directors or other relevant persons utterly to decide the legitimacy of any particular transaction. Although a company is entitled to ratify any such transaction. Under the same section, some remedies are also provided that exceed the remedies provided by common law in scope. They are as follows:

  • The contract can be deemed void. However, it may be subjected to certain limitations.
  • Any party that led the transaction or any director that allowed for carrying out of the transaction will have to compensate for any loss that occurs to the company because of that transaction. Similarly, if any profit is gained by the company via that transaction, the same party who led the transaction and the directors that permitted the transaction will be held accountable for the profit.

Upon a clear understanding about the role of agents and learning the difference between the capacity of a company and the capacity of an agent, starting a company in England becomes efficient and fast, but still have to tread an easier path for the fast growth of that company.

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