Glossary

Capacity

is the legal power to bind yourself to a contract. Adults of sound mind and companies registered under the Companies Act 2006 have it. A company's own constitution cannot be used to undo a deal it has done: Companies Act 2006 s.39. Minors can still make some contracts; the Minors' Contracts Act 1987 sets the modern rules.

Last updated 28 October 2026

The first line of a contract is the legal name. A sole trader is the human being. A limited company is a separate person. Directors bind the company; they do not, by signing the company block, bind themselves, unless they also give a personal guarantee. Check Companies House before you start work for a name you have not billed before.

We put the legal name at the top of every Contracts.io paper so invoices follow it. If a freelancer later incorporates, that is a novation, not a new letterhead. Lex will not silently swap “Sam Lee” for “Lee Studio Ltd” without the client’s signature.

Can a company act beyond its constitution?

For outsiders, yes. Companies Act 2006 s.39 says the validity of an act done by a company cannot be called into question for lack of capacity by reason of the constitution. Section 40 protects a person dealing with the company in . The old ultra vires trap is not a freelance defence.

Can a minor sign a freelance contract?

A person under 18 has limited capacity. Contracts for necessaries and contracts of service that are for the minor’s benefit can bind. The Minors' Contracts Act 1987 repealed the Infants Relief Act 1874 and lets a guarantee of a minor’s contract be enforced against the guarantor. Do not take a teenager as the only contracting party on a commercial job.

Whose name should be on the paper?

The legal person who will do the work and be paid. Not a trading style alone. “Harbour Studio” is a brand; “Harbour Studio Ltd, company number …” is a counterparty. A mismatch is how invoices get lost and how directors later claim they never signed.

What if the person who signed had no authority?

A company is still bound if the outsider dealt in good faith: Companies Act 2006 s.40. An individual who had no actual or ostensible authority does not bind the principal. If you are not sure, ask for a board minute or a second signatory, or have the named director sign.

A worked example

A client PO arrives from “Northwind”. The studio checks Companies House: Northwind Media Ltd, 12345678, is the company; “Northwind” is only the brand. The services agreement names Northwind Media Ltd. The finance director signs. Six months later a different group company tries to move the paper by changing the invoice address. That needs a novation, because the original company is the one with capacity on this deal.

How it shows up in a contract

Sample wording · our own drafting

Each party warrants that it has the capacity and authority to enter into this agreement. Where a party is a company, it is entering into this agreement as principal and not as agent, except as expressly stated. A signature in a company's name does not make the signatory a personal guarantor.

In Plain English

Each side confirms it can sign this. A company is signing as itself, not as someone’s agent, unless the paper says so. The person who signs for the company is not personally on the hook unless they also give a guarantee.

Common mistakes

  • Contracting with a trading name and discovering later there is no such legal person.
  • Assuming a director who signed the company block is a personal guarantee.
  • Letting a 17-year-old intern be the only name on a commercial services agreement.
  • Treating a change from sole trader to limited company as a letterhead update instead of a novation.

What the legislation says

  • The validity of an act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company's constitution.

    Source: Companies Act 2006, s.39Checked 3 November 2026Pending lawyer review

  • The Infants Relief Act 1874 no longer applies in England and Wales. A guarantee of a minor's contract can be enforced against the guarantor even if the minor's own obligation is unenforceable, and the court may require a minor who has been supplied under an unenforceable contract to transfer any property acquired under it, so far as just.

    Source: Minors' Contracts Act 1987, ss.1–3Checked 3 November 2026Pending lawyer review

Sources

Frequently asked questions

What is capacity in a contract?

The legal power to bind yourself. Adults and companies have it. A company’s constitution cannot be used to undo a deal it has done (Companies Act 2006 s.39).

Can a company act beyond its constitution?

Outsiders can rely on the deal. Companies Act 2006 s.39 and s.40 protect a person who deals with the company in good faith.

Can a minor sign a freelance contract?

Only in limited cases. The Minors' Contracts Act 1987 is the modern statute. Do not take a minor as the only party on a commercial job.

Whose name should be on the paper?

The legal person who will perform and be paid, with a company number if it is a company. See /glossary/ and /glossary/sole-trader-vs-limited-company.

Related

The legal wording governsLast reviewed 28 October 2026Pending lawyer review