Q&As

A shareholder who owned a 50% share of the company entered into an option agreement (not as a deed) with a third party on behalf of the company. He was not a director. Is that adequate, ie is the option agreement enforceable?

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Published on LexisPSL on 03/01/2017

The following Commercial Q&A provides comprehensive and up to date legal information covering:

  • A shareholder who owned a 50% share of the company entered into an option agreement (not as a deed) with a third party on behalf of the company. He was not a director. Is that adequate, ie is the option agreement enforceable?
  • Actual authority (express or implied)
  • Ostensible/apparent authority
  • If no authority

In answering this Q&A, we have focussed on the general position with regards to the entry into simple contracts (not deeds). We have assumed that the company in question is incorporated in England and Wales (and registered under the Companies Act 2006 (CA 2006)) in relation to a document exclusively governed by and subject to the law of that jurisdiction. We assume the company has capacity to enter into the transaction and that it is not ultra vires. For the purposes of this Q&A we have focussed on whether entry into the agreement by the shareholder on behalf of the company is effective to bind the company. We have not considered the position of the shareholder signatory themselves or the third party counterparty.

Under CA 2006, s 43, a simple contract may be made by:

  1. a company, by writing under its common seal (see CA 2006, s 43(1)(a)), or

  2. on behalf of a company, by a person acting under its authority, express or implied (see CA 2006, s 43(1)(b))

For further information, see Practice Note: Executing documents—deeds and simple contracts.

Any formalities required by law in the case of such a contract made by an individual also apply, unless a contrary intention appears, to a contract made by or on behalf of a company.

In addition, a company may execute a simple contract in accordance with CA 2006,

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