The Company Law Requirements Regarding Authority - Case Study Example

Angela explained to Peter that she was forming a company called Wino Limited and purported to be entering into the contract with Peter on behalf of the Wino Company.The Companies Act 2006 (CA) intends to codify previous legislation regulating company law1. Various sections of the CA are coming into force over a staged process and the relevant provision relating to authority is section 39 and 40, which came into force on 1 October 2007.Section 39(1) of the CA provides that “the validity of any act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company’s constitution”Additionally, section 40(1) provides that: “In favour of a person dealing with a company in good faith, the power of the board of directors to bind the company, or authorise others to do so, shall be deemed to be free of any limitation under the company’s constitution”.

Section 40 (2) of the CA further implements a presumption that a third contracting party acts in good faith. Furthermore, a contractual party is not bound to enquire as to any limitation on the powers of the board or authorise others to do so2. However, with regard to the contract with Peter, this was entered into pre-incorporation and the company did not exist at the time of entering into the contract. Subsequently, the company Wino Limited was not incorporated as Angela and Barbara decided to incorporate under a different name.

As such, the issue of authority becomes irrelevant as the company was not incorporated in the contract is between Angela and Peter. Accordingly, Peter’s point of recourse will be against Angela directly for breach of contract.In conclusion, therefore, the two transactions entered into in August 2007 and November 2007 will be binding on Angela under contract law principles on grounds of being concluded prior to incorporation and not entered into by Freshers Limited.2) Corporate PersonalityThe nature and practical significance of the legal personality of a registered company have created controversy in practice and have been particularly criticised for ignoring the wider legal issues of corporate group structures.