Do you really know your Customer?
…And its legal entity.
It is surprising the number of clients who do not actually know who they are dealing with in their course of business. You can ask a client who is your customer and more often than not you will receive the response “Oh, it’s (the infamous!) Joe Bloggs, he owns the tailors down the road and I’ve known him for years”.
However, is ‘Joe Bloggs’ really your customer? Is he the ‘legal entity’ that you have been dealing with?
In law your customer will have what is known as a legal entity. Legal entities can appear in all shapes and sizes, although the most common are as follows:
- Limited Company (e.g. Joe Bloggs Tailoring Limited)
- Sole Trader (e.g. Joe Bloggs t/a Joe Bloggs Tailoring)
- Partnership (e.g. Joe Bloggs Tailoring (a partnership))
For the reasons below, it is imperative that you know who you are dealing with when you are contracting with your customer. The legal entity of a customer can affect, amongst other things, the extent of the customer’s liability and the ownership of its assets such as the customer’s goods and chattels.
You should always make sure that you ask the question with your customer, at the point of contracting, what its legal entity is (this should be preferably done in writing). My view is that the easiest way to go about finding this out is requiring your customer to fill in a credit account opening form or purchase order form. On the form you should have a box or space expressly asking the question ‘What is your Legal Entity’ (or a variation of this). The question should be asked before you carry out your contractual obligation for the customer and not after.
As with most matters in litigation, you will not really find the aforementioned to be of real issue until something goes wrong i.e. your customer does not pay. If it comes to a point where you need to issue court proceedings against your customer or now debtor for outstanding invoices, you will need to issue the proceedings against the debtor’s correct legal entity. Issue proceedings against an incorrect legal entity and you could find your claim being struck out. You could also potentially find that in a worse case scenario having an order for costs awarded against you.
Finally, knowing the right legal entity is a must when it comes to enforce a County Court Judgement. You do not want the High Court Enforcement Officer or Bailiff attending the debtor’s address, which is bountiful with assets, only to discover that said assets are in a limited company’s name when your judgment is in that of an employee or director. In these circumstances your judgment, on which you have spent time and money obtaining, will be rendered useless.
You will then be lamenting your failing for not asking the simple question at the outset being “Who is my customer?”
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.