Who is the client: one-man business or limited company?

Who is the client: one-man business or limited company?

In commercial transactions, orders are not always recorded in writing. Negotiations are sometimes done in person, whereupon a client verbally accepts a contractor’s offer. It is possible that it is not clear who is actually the legal principal. This may cause problems, in particular if the client has not paid the invoice. Contract Lawyer Hidde Reitsma explains the case submitted to the Dutch Court.

 

 

Client: one-man business or limited company?

In this case, the following had happened. X ran a contracting firm in the form of a one-man business. At some point, X set up a limited company. The Claimant submitted an offer to X for plumbing works. The invoices remained unpaid. It turned out that X Limited was insolvent, and the Claimant initiated collection proceedings against X. The dispute focused on the question whether, at the time of conclusion of the contract, X had acted in respect of the Claimant in his own name, i.e. as the contracting party of the Claimant, or otherwise. The answer to this question depends on what X and the Claimant declared to each other in this respect, and what they concluded or could conclude from each other’s statements and actions.

Invoices made out in the name of X Limited

The Dutch Court pointed out that X notified the Claimant before receiving the (first) invoice that the invoices had to be made out in the name of X Limited. When it appeared that the invoice for the first period was still in the name of X, X immediately requested an amendment. The Claimant complied with this request. According to the Court, it meant that X had informed the Claimant on conclusion of the contract that he wanted to conclude the contract not in his own name but in the name of X Limited. In this case, X had acted as the indirect director of X Limited.

Dutch Court: The limited company was the client

The fact that the Claimant understood this follows from the fact that he immediately changed the name on the invoices at X’s request. The judge also stated that it was irrelevant that X had partially paid the invoices himself. After all, these payments by X were the result of the bad payment performance of X Limited’s client. Because of this, the company sometimes did not have money to pay its subcontractors, such as the Claimant. The Claimant’s claim against X was therefore dismissed. The Claimant will have to approach X Limited.

AMS Advocaten in disputes regarding fulfilment of contract

Say, you have negotiated a contract with a certain Mr Jansen. Jansen has a one-man business by the name of Jansen Company. You then conclude a contract with Mr Jansen privately, who is “trading under the name Jansen Company.” The fact is that a one-man business does not have separate capital. Therefore, you will have to address Mr Jansen personally for payments or performance of the contract. It is not so clear when Jansen suddenly (also) appears to have a company called Jansen Limited. How do you know with whom you have concluded the contract if the parties are not specifically named in a contract? In that case, it depends on what the parties had agreed and what they might conclude from each other’s statements and actions.

Hidde Reitsma - Advocatenkantoor AMS Advocaten
Hidde Reitsma Hidde has a varied consultancy and litigation practice, focusing on corporate law and insolvency law. He frequently acts in proceedings before the Enterprise Chamber of the Court of Appeal in Amsterdam and in cases on directors’ liability. Hidde also advises on drawing up and negotiating contracts, mergers and acquisitions and joint ventures. Follow Hidde also on Google or LinkedIn. Hidde is available via e-mail and +31 (0)20-3080315.
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