Contracting Essentials: Identifying Who Your Contract Is With

Introduction

Entering into a contract without clearly identifying the correct legal entity can lead to significant complications if a dispute arises. Knowing exactly who your contract is with is essential, as only legal entities—such as individuals, companies, or trustees—can be held accountable under the law.

This guide explains the importance of contracting with the right party and provides practical steps to help you verify and confirm the identity of your contracting partner. By addressing these details upfront, you can avoid costly and time-consuming issues later on.

Interactive Tool: Check If You’re Contracting with the Right Legal Entity

The Importance of Contracting with a Legal Entity

Understanding What a Legal Entity Is

A contract is only enforceable when it is made with a recognised legal entity—that is, a person or organisation the law allows to sue and be sued. The most common legal entities are individuals and companies, so you should enter into agreements only with parties that fall within this definition.

However, many familiar business structures are not legal entities. Before signing anything, remember that:

• Trusts and business names are merely labels or legal relationships, not “persons” in the eyes of the law.
• Contracting with these non-entities creates significant problems because, if a dispute arises, it becomes difficult to work out who the actual legal party is.

The Risks of Getting It Wrong

Failing to identify the correct legal entity can have serious consequences. If you contract with a non-entity, you may be unable to enforce your rights, pursue outstanding debts, or commence court proceedings when trouble strikes.

This oversight also makes any future dispute far more expensive and complicated to resolve, which is why it’s crucial to understand the role of dispute resolution clauses in contracts. Lawyers will have nobody to chase unless the proper legal party can be found, turning what should be a straightforward process into a costly—and sometimes impossible—mission to discover who you actually have a deal with.

Identifying Different Types of Contracting Parties

Individuals & Sole Traders

A sole trader is an individual person operating a business on their own.

Because individuals are recognised as legal entities, you can enter into a binding and enforceable contract with a sole trader.

When dealing with a sole trader, keep in mind:

• The contract is with the individual person behind any trading name.
• A trading name (for example, “Simon Simple trading as Silly String”) is merely an alias; any legal dispute is directed at the individual, not the name.
• This business structure is usually the simplest to identify.

Companies

A company is a distinct legal entity, separate from its owners or directors.

When you enter into an agreement with a company, your contract is with the company itself, not the individuals who run it. Companies are a common structure in Australia.

You can recognise a company by the following identifiers:

• Its name often ends in “Pty Ltd” or “Ltd.”
• The Australian Company Number (ACN)—a unique nine-digit identifier—pinpoints the exact legal entity, whereas an ABN is primarily for tax purposes.

Partnerships

A partnership forms when two or more individuals or entities decide to go into business together. It is not a separate legal entity from its partners.

Consequently, contracting with a partnership means you are contracting with all the partners collectively.

Important implications of this arrangement include:

• Each partner generally acts as an agent for the others, so decisions by one bind all.
• If a dispute arises, legal action is usually taken against every partner, even if you dealt with only one of them.

Trusts

A trust is a legal relationship, not a legal entity. Therefore, you cannot contract with—or sue—a trust itself.

Any agreement involving a trust must be made with its trustee, the individual or company responsible for managing the trust’s assets.

Best practice when contracting with a trust includes:

• Clearly naming the trustee as the contracting party (e.g., “FF Pty Ltd as trustee for the Farlow Trust”).
• Recognising that there is no public register of trustees; failing to name the trustee can make later enforcement expensive or even impossible.

How to Verify Your Contracting Party

Using ABN & ACN Searches for Verification

Free online tools allow you to confirm the details of the entity you are dealing with. Although many people rely on an Australian Business Number (ABN), it is primarily for taxation and may not clearly identify the legal party, particularly where trusts or business names are involved.

For a more definitive check of a company, use its Australian Company Number (ACN). This unique identifier stays with the company even after name changes, and a quick ASIC search will confirm that the number matches the company name provided.

To verify an entity quickly, take these two simple steps:

• Enter the ACN into ASIC’s company search to ensure the number aligns with the supplied company name.
• Use the ABN on the Australian Business Register to view the entity’s recorded details, including any registered business names.

Dealing with Business & Trading Names

Business or trading names are simply labels used by a legal entity; they are not legal entities in their own right. Consequently, you cannot enter into a contract with just a business name, so it is crucial to discover who owns it.

If you are given only the business name, identify the underlying legal entity responsible for the obligations. The underlying legal entity could be:

• an individual
• a company
• a partnership

For example, the contract might name the individual as the customer—“Simon Simple trading as Silly String”—ensuring the agreement binds the actual legal person.

When to Ask More Questions

You must resolve any confusion about the contracting party before signing.

Ask for clarification whenever you see:

• a trust named without a trustee
• only a trading name where no legal entity is specified

Where a trust is involved, insist on identifying the trustee, whether a person or a company, because that is who you are truly contracting with. For deals involving significant value or risk, request a copy of the trust deed so you can confirm the trustee’s authority to act on the trust’s behalf.

Conclusion

Ensuring your contract is with a recognised legal entity, such as an individual, company, or trustee, is fundamental to its enforceability. Taking a few moments to verify the correct party before signing is a simple step that can save you significant time, money, and difficulty should a dispute arise later.

If you need assistance with your business systems or want to ensure your contracts are correctly structured, contact the business and commercial lawyers at PBL Law Group today for trusted guidance on protecting your business interests.

Frequently Asked Questions