If you are entering into a serious contract with a company, you must be sure it is not a one-man company.

This is important because…

In a one-man company, there is usually no entity separation.

The owner and the company are the same.

And this could be a problem when trying to enforce a contract in a court of law.

Here is how you can look through the structure of a company to see if it’s a one-man entity…

Legally speaking, the structure looks at how the Company or business was registered.

was it registered with the CAC as a business name or a Ltd Liability Company?

One person mostly owns a business name or an enterprise.

A business name is not a legal entity whose owner bears all the risks and liabilities.

He is not accountable to anyone.

On the other hand, a limited liability Company is an actual legal entity.

It is an artificial person (corporate body) with all the powers of a natural person.

Although one person can now set up a Company, it is usually owned by two or more persons.

To easily know the legal structure of a company, do a CAC search by yourself or Request to see their incorporation documents (CAC Certificate of registration).

This will let you know whether it's a business name or a Ltd Liability Company to start with.

 If it’s a Limited liability Company, request to see the current list of the board members. (Directors and advisors)

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Essentially, what makes a company a one-man company regardless of how it is registered is the decision-making power of the founder/CEO…

The founder is accountable to the board.

If the founder/CEO takes all the decisions by himself and he does not answer to anyone (preferably a board), then chances are that he is a one-man company even if it's structured otherwise.

If He doesn't need to consult a board for anything, he can decide to wake up one day and change the object clauses or nature of the business or Company and no one will question him, because no one holds him accountable.

If such happens, it might badly affect the terms and proceeds of your contract in some significant way.

This is red flag that should bother you.

Another important thing is for you to critically look at the composition of the board very well…

Sometimes the board may comprise of all family members, mother, father, siblings, wife, husband etc.

This is not a functional board and, in most cases, those other family members have little or no say in the company…

This can be excused in the case of a well-structured family business where different members of a family have real stakes and functions in a business.

Otherwise, the board might just exist on paper and might not be useful to you.

The conclusion is that before you get into any serious contractual relationship with a company, know its legal structure first.

This will help you know the extent of your exposure and the possible legal implications and liabilities of your relationship.

To help you with your contract issues on the go, we created lawyaaup.

If you have a contract need, quickly click here to get it sorted.