Guide to Choosing Company Representatives
This is an article to enlighten you about people that are eligible to represent or stand up on your company’s behalf. This is because of the fact that a company is an entity on paper that can operate only through human beings. There is a good deal of difference however between people who can be deemed to be company and those who can work on behalf of such an entity.
The definition of an agent
An agent is anyone who has the power and capacity to act on behalf on someone else. If there are two persons and one of them happens to be the agent, the other is referred to as the principal and the agent works to the advantage of the principal by making contracts with the strangers on its behalf. This individual not only negotiates but also concludes and executes contracts on behalf of the principal. As this agent works on behalf of the company, third parties seek remedy from the principal and not this agent in case of a dispute.
It is the manner in which an agent behaves that places him in a strong position in a triangular relation with the principal and the third party. He works as a link between the principal and the third party. In general, the third party knows that the agent is working on behalf of another entity. However, principal is always over and above the agent and he has the power to enforce a contract against a party.
The relationship between Principal and the Agent
The role of the agent is described in detail in a contract and he has to be careful and diligent when working on the third party. As he receives compensation for his time, the agent has some obligations towards the principal. He should not behave in a manner that is in conflict with the interests of his principal.
The relationship between the agent and the third party
The agent is contracted by the principal and he has to work in the interest of this principal. The agent does not have any rights or even liabilities towards the third party.
Authority that is actual or express
When authority is vested in an agent orally or through a written instrument, it is said to be Express authority. There are many different ways in which this express authority can be conferred.
An agent can be appointed through the Articles of Association or the Memorandum. He can be appointed through a decision taken at the meeting of the board of directors of the company. When the Chairman or the managing Director takes a decision to this effect, the role, functions, and the responsibilities of the agent are specified in writing. It is possible for an agent to appoint subagents to delegate authority. This usually takes place when sales representatives are appointed by a company to enter into transactions on behalf of his company.
Authority that is implied
Authority, when it is not express or stated, is often implied and dictated by circumstances. This type of authority can take many different forms. One of these is Incidental authority that arises when an agent faces tasks that are incidental to a main task that he has been assigned to carry out. These smaller tasks have to be performed in order to be able to complete the assigned task. There is another type of authority called Usual Authority. When an executive is appointed to an office, he has to carry out roles and responsibilities that are inherent within the scope of that job that he has been assigned. In case of such an authority, the person takes decisions in good faith and works to further the interests and objectives of the company.
Authority that is apparent or ostensible
Sometimes, an agent also has ostensible authority in addition to authority that is real and actual. This is a kind of authority that the outside world seems to acknowledge because of the association of the agent with the principal. At times, this is an authority that is not there but the agent seems to have. For this authority to be implicit there has to be some proof in the form of a certificate or a representation. Such a representation must have come from a top official of the company to have the desired impact on the outsiders.
Sanction of authority
If the agent does not seem to have apparent or actual authority, the company is not bound to honor the commitments made by him with the third party. In many cases, principal chooses to ratify the actions of the agent at a later date and place. As third party, you have every right to look for unequivocal ratification from the principal form his conduct. There is section 41 in Companies Act that states that if the decisions taken by the promoter are not subsequently ratified by the company he can be held personally liable for them.
You must be careful when looking for signs of authority in an agent as the principal is not liable for the commitments made by the agent if the authority is not there, either actual or implicit. As a company, you must be careful with your actions as they can constitute authority in an individual and you can be made to conduct a transaction that you did not want to do in the first place.