i have recently started my bookkeeping business on the Norfolk,Suffolk border covering parts of Norfolk,Suffolk and Cambridgeshire as i am due to be made redundant later in the year from an assistant accountant role, as the company is centralising its branches. i am hoping to sign up my first client using the BKK letter of engagement but they are now querying the part relating to jointly and several responsibility as it is only one director spot that is to sign the letter. Are they being overly picky or should I have changed the wording? There are 2directors I just happened to address it to only one of them.
also they think I am being overly formal and over the top with sending this letter, most of the previous trails on letters of engagement seem to show this as the norm these days. does anyone not send these letters out atall?
The document is being signed by one director on behalf of the company acknowledging the liability of the company and the officers of the company to adhere to the terms of the engagement.
The wording is pretty standard and nothing that they would not sign if they went to an accountant.
Signing the engagement letter is a key part of the clients obligations in the engagement procedure (along with you sending the ettiquette letter to the incumbent financial professional to ensure that there is no reason that you should not accept the engagement (such as the incumbent not knowing that they are being replaced!)).
There probably are some bookkeepers and accountants that do not follow the procedures that they should but you are doing it correctly and in the event of disagreement you have a legally enforcable document to back you up... The knowledge of the very existence of which may do as much as ever having to use it.
Yes you could work without it the same as you could drive a car without a seatbelt... Actually, that anology is very apt.
I am sure that the client would not argue over the content of legal documentation associated with a loan so why are they so perturbed about signing a standard form agreement in order for a financial professional to represent them.
You are doing everything correctly Nicola,
welcome to the forum,
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Joint and several liability is not only for partnerships. The director of a company can legally bind the other directors of a company by signing joint and several liability even if such is done without their knowledge or even presence in the company at the time (which is a good reason to ensure that one reviews all documentation before investing in a company).
Joint and several also refers to the directors and also the firm which as you appreciate in itself has many of the rights and obligations of a human being.
The inclusion of Joint and several effectively lifts the veil of incorporation from clients attempting to hide from their debts (which is why you will always find it in bank loan documentation to ltd's).
I'm afraid you'll have to explain that a little bit more for me, Shaun. As I understand it, a director's signature binds the company on whose behalf he is signing, and the company becomes liable thereby. The signature does not, in my belief, bind co-directors, or even the signatory himself personally (unless there are some underhand shenannigans, going on). Nor does it bind shareholders. Neither the directors nor the shareholders are parties to the agreement.
As an attempt to lift the veil of incorporation, I think it fails, being aimed in the wrong direction entirely, and if it is an attempt to contract with the Company together with its directors personally, I think it would fail because the letter is addressed only to the Company ... although I do admit the words "Dear Andrew" could suggest that the contract is with "Andrew". I don't think that would stand up, however, unless Andrew did something to adopt it for himself.
In my view, an engagement letter should be addressed to the Company, the salutation should be impersonal ("Dear Sirs" ... an informal covering letter can be sent with it which can start "Dear Andrew" if you like), and the acceptance/consent should be signed by the proprietor or partners or for and on behalf of the company.
-- Edited by ilsm on Thursday 30th of May 2013 03:31:06 PM
I'm sure you could draft a better letter without much difficulty, and present a much less legalistic-looking document to your customers. I dislike it and would never use it. But its better than nothing.
The wording on the Services Form, where the customer acknowledges joint and several liability is relevant only where the customer is a Partnership. A Partner can bind co-partners, so it is sufficient for only one to sign, but, personally, I would prefer both/all to sign a statement that accepts joint and several liability to demonstrate they all knew of and agreed to the commitment they were making. This is often impractical, however, but it doesn't hurt to ask.
Sole Proprietors, obviously, bear responsibility for their liabilities alone, as do limited liability companies. So you must modify the letter and form according to each customer's status, and BKN is remiss not to point this out and to suggest appropriate variations for different types of client. The instruction, "Amend the letter as appropriate, inserting your details where necessary" is less than helpful to someone who is relying on the template to establish new procedures.
If your clients are in Partnership, you must insist they accept joint and several liability. If they are not, the provision is meaningless and can be deleted.
I'm afraid to say that you are wrong on the partnerships only line.
Joint and several liability is not only for partnerships. The director of a company can legally bind the other directors of a company by signing joint and several liability even if such is done without their knowledge or even presence in the company at the time (which is a good reason to ensure that one reviews all documentation before investing in a company).
Joint and several also refers to the directors and also the firm which as you appreciate in itself has many of the rights and obligations of a human being.
The inclusion of Joint and several effectively lifts the veil of incorporation from clients attempting to hide from their debts (which is why you will always find it in bank loan documentation to ltd's).
Removal of the phrase is to my mind fine if they owe the money to someone else but if they owe the money to me then thats a different kettle of fish.
A sole trader would be the exception to inclusion of the paragraph but its presence does not detract from the agreement so there is no reason to remove it.
On the whole area of amending the engagement letter, mine in five pages and looks nothing at all like the BKN one but the joint and several line remains.
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
not sure of other members but the one thing that people tend to be unwilling to share is their engagement letter.
The reasoning behind that is that everyone adopts the engagement letter to their own needs and in doing so potentially creates an issue with it's legal status.
By sharing it one accepts liability for the content.
As stated above in my reply to Iain, the joint and several line is as valid for limited companies as for partnerships.
Have a read of this thread. It doesn't give an engagement letter but it does give some sound guidance as to what people on here tend to include in theirs (which goes beyond the site version)
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
We have a couple of different aspects to the debate here in that the joint and several agreement is overriding the veil which is why banks include such in their agreements so as to ensure that in the event of default they are able to pursue the owners of the entity for the debt.
In more general terms Salomon vs Salomon (1897) defines that there is legal seperation and that the debts of the company cannot be pursued against the individual (or vice versa).
And that is why legal documentation seeks to circumvent the limitation of liability by tieing joint and several liability to the directors as well as the company (which pretty much obliterates much of the benefit of limited liability).
If Joint and several is missed from the agreement then it is only the company that is bound by the agreement, not the directors of the entity.
I was going to quote Neville v Krikorian (2006) as the case law but it doesn't quite fit the scenario and off the top of my head I can't think of another. This may be one that I have to come back to but I am adamant that a single directors actions can tie the other directors to personal liability by signing a joint and several liability.
Unless of course the articles do not permit a single director to commit the other directors which again is a seperate debate with this one being purely in relation to whether in general terms a director signing a joint and several liability commits the other directors personally as well as the company.
My understanding is that it does but I am happy to be convinced (with case law) that I am wrong.
kind regards,
Shaun.
p.s. my arguement is based upon directors, management and those in positions of governance of the entity. Not investors. Shareholders investment is limited to whatever they have invested and no more. If the director is also a shareholder it is as a director, not a shareholder that they have gained personal liability for the companies debts.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Notwithstanding the Salomon v Salomon decision already cited by Shaun, which established that companies were separate legal entities from their shareholders, the idea of piercing the corporate veil refers to occasions where debtors can pursue shareholders for debts incurred by the company. In England, it is rare, and the courts will only allow it where the company truly is no more than the alter ego of the shareholder, as in Gencor ACP Ltd v Dalby [2000] 2 BCLC 734, or in instances of fraudulent activity such as Jones v Lipman [1962] 1 WLR 832, or where the company was being used to circumvent an earlier contractual agreement made by the principal actor, as in Gilford Motor Co Ltd v Horne, also cited by Shaun.
The Companies Act 2006
s. 40(1) provides:
In favour of a person dealing with a company in good faith, the power of the directors to bind the company, or authorise others to do so, is deemed to be free of any limitation under the company's constitution.
And s.43(1) provides:
Under the law of England and Wales or Northern Ireland a contract may be made -
(a)by a company, by writing under its common seal, or (b)on behalf of a company, by a person acting under its authority, express or implied.
Chapter 2 of the Act sets out the duties of directors and specifies their obligations to the Company if any of those duties are breached. It does not give third parties rights against the directors for breaches of contract by the Company, however.
Joint & Several Liability
Per Financial Times Lexicon (http://lexicon.ft.com/Term?term=joint-and-several-liability)
When a number of parties make a joint commitment under a contract and agree to be liable as a group as well as individually (jointly and severally) for that obligation to be fulfilled.
Privity of Contract
By the 19th century, it had become an established common law principle that a third person could not enforce the provisions of an agreement concluded by the contracting parties (see Price v Easton (1833) 4 B & Ad 433; 110 ER 518; Tweddle v Atkinson (1861) 1 B & S 393; 121 ER 762). This doctrine has gradually been refined, particularly by Lord Denning who disapproved of it, but the House of Lords confirmed the doctrine as a principle of English Law in Midland Silicones Ltd v Scruttons Ltd [1962] AC 446 (Lord Denning dissenting).
In 1999 the Contracts (Rights of Third Parties) Act gave certain third parties rights to sue on a contract under certain conditions, primarily, where the contract was for the benefit of those persons, or where they were authorised under the agreement to enforce it (see s.1). Those persons had to be identified or identifiable by the contract in order to be able to sue.
The BKN Engagement Letter Template
The template is presented as a letter addressed to a sole proprietor. As such, none of the Company Law questions we are debating are relevant. But I would suggest that it is also necessary for model letters to be available suitable for companies, partnerships and unincorporated associations at the very least.
The Acceptance section of the Book-keeping Services Form is, of course, adequate for a sole proprietor. Joint and several liability is irrelevant, but as Shaun has observed, it will not affect the rest of the document.
If the agreement is to be accepted by a Partnership, then one partner can bind all others and liability will be joint (not joint and several - except in Scotland), but for the joint and several provision. Here the provision is effective, and enables the bookkeeper to recover outstanding debts from any of the Partners, leaving it to them to sort out any appropriate share between themselves.
If the Agreement is with a Company, it should, strictly speaking, be addressed to the Company itself, not an individual Director or Manager (true also of a partnership, by the way); a covering letter can be used for the niceties. As noted above, a director (and where authorised, a manager) can sign on behalf of the Company and commit it. But in doing so, they do not commit themselves, because they are not contracting with anybody personally. The notes above show clearly that a third party cannot enforce a contract concluded by two other people, and it is self-evident that two people cannot enter into an agreement that obliges someone else to do something without his approval and consent. That agreement must be accompanied by consideration (i.e., he becomes part of the contract), or be given by deed (a special form of agreement). The BKN template is not a deed and there is no consideration provided to the directors that would bring them within the contract. As it stands, the Rights of Third Parties Act will not save it because the agreement doesn't even identify the directors properly, and it is not for their benefit. Rather, it attempts to impose an obligation on them.
As an attempt to pierce the corporate veil, the joint and several provision is misplaced. First, piercing the veil is something the courts do, not contracting parties. And they only do it where there is a suggestion of fraud or deception. If that happens to you, your engagement letter is worthless anyway.
So I maintain that the joint and several provision in the BKN template is irrelevant for companies, and as an attempt to include the directors as parties to the agreement, it fails for want of consideration or form. If you want to include them, address the letter to the Company and to each director, and ask them all to sign the Agreement, or get them to sign a guarantee or a letter of indemnity.
dare I mention quasi partnerships where a limited company is perceived by the courts as a partnership (per Ebrahimi v Westbourne Galleries Ltd. (1973)).
Most of the companies that we deal with have a few directors who both own and control the entity and accross the board I think that they fall foul of being quasi partnerships if the courts so chose to regard them as such.
As the directors are in substance over form partners then surely so too can joint and several be treated as though the company was a partnership.
ok, I admit that this has gone beyond the question and entered into pure theory but like yourself these are matters that I enjoy pondering and it is always good to get alternate opinions on a freindly basis to prepare one for when such discussion may be needed in the real world. (we've had a few tax debates between Bill and myself on a similar basis... Actually, on that one I cannot ever actually remember winning one of those debates but we did end up with a few draws where it was determined that the tax system being what it is we were actually both correct).
I may not be able to answer much between now and Monday evening but I'm thinking that this thread is far from finished with and hopefully the exchange will be resumed fully next week.
If I don't get chance to talk before, have a good weekend and IO look forwards to chatting next week.
Kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
To save money though I now do all of my own divorces. (it's really easy for people like ourselves used to filling forms and getting them into the right place at the right time).
Last one was problematic in that a strtaight translation of the wedding certificate into English was not sufficient and just getting it to a state where the judge was happy enough that we were actually married cost over £500.
You would think that if you could not prove that you were married then you are not but unfortunately it doesn't work that way.
p.s. yes, foxy, there will be cake :)
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
