At the beginning of any relationship, it is important to know the other party(ies) involved. While in our small twin island nation where “everybody know everybody” that is fairly easy to achieve in our personal relationships, in our business relationships, greater caution and discretion is advisable.
In this Article, we identify certain basic documents that you should request of your counterpart from the outset of any business relationship and which you would want to keep current throughout the life of that relationship.
Where your counterpart is an individual…
In business relationships where the counterparty is an individual, it would be important to receive and retain from that individual, copies of his/her photo identification and a proof of address (typically in the form of utility bill or bank statement).
Depending on the nature of the transaction, including the significance of the business/transaction (and particularly if the proposed relationship includes an obligation on the counterparty to pay money), there may be value in requesting a job letter or a written reference from the counterparty’s bankers or attorneys at law to get comfort surrounding the counterparty’s reliability and reputation.
Where your counterpart is a company…
In the case of companies, attention needs to be given to both the company itself and the person(s) representing the company.
In the first instance, the corporate existence and good standing of the company should be verified. This can be done by requesting that the company produce its certificate and articles of incorporation, its by-laws, its latest annual filings and any notices of change filed after the company’s last annual return (such as a notice of change of directors or secretary).
Depending on the nature of the proposed relationship and transaction with the company, additional due diligence may be required into the company’s good standing, including carrying out a review of the company’s file maintained by the Companies Registry to verify that the company is not subject to any winding-up proceedings and that its assets are not subject to any charges.
In circumstances where the transaction falls within the “ordinary course” of the company’s business, it may not be necessary to require evidence of the authority of the company to enter the particular transaction. However, in circumstances where the transaction is one which may be outside of the “ordinary course” of business, a careful review of the company’s articles and by-laws may provide insight on the requisite approvals to permit such a transaction. Typically, it would be prudent in such instances to request evidence from the company of its directors’ approval of the transaction. Shareholder approval might also be required in certain circumstances, such as e.g. if a shareholders agreement among the company’s shareholders (notice of the existence of which should be filed in the companies registry) reserves certain matters to shareholder approval; if the company’s directors might be conflicted or have an interest in the particular transaction or if a substantial proportion of the company’s assets are being sold.
With respect to any person who purports to represent and act on behalf of the company, it would be important to verify the identity of the person (by obtaining from the person the same documents mentioned above with respect to individuals). It would be equally important to verify the capacity in which such person represents the company (e.g. as a director, chief executive officer or other officer) and that he/she is duly authorised by the company to transact business on its behalf. Such evidence might be in the form of a letter on the company’s letterhead certifying the position of the person in the company.
Evidence of the board of directors’ authorisation of the transaction might come in the form of a copy of the board’s resolution or a certificate issued by the company’s corporate secretary certifying that the transaction was duly authorised by the company’s board of directors.
Where your counterpart is a partnership…
In the case of partnerships, the critical factors would be verifying the existence of the partnership; the persons who are partners (and therefore have the power to bind the partnership); and that the persons purporting to be partners are who they say they are.
The legal existence of the partnership is generally a question of fact under the Partnership Act Chapter 81:02. However, in most cases in T&T, the existence of a partnership would be evidenced by a partnership agreement among the partners and the partnership’s registration as a firm in the register of business names maintained pursuant to the Registration of Business Names Act Chapter 82:85.
Copies of these documents should therefore be requested.
As for determining who are the partners of the partnership (and who has the capacity to bind the partnership), both the partnership agreement and the filings made by the partnership under the Registration of Business Names Act identify the partners of the firm.
Confirming that a person who holds herself out to be a partner is who she says she is can be verified by requesting those documents set out above with respect to individuals.
Where your counterparty is relying on a power of attorney…
There are circumstances where the person with whom you are dealing may be representing another person pursuant to a power of attorney. In the first instance, it is important to ensure that the power of attorney is effective. The effectiveness of a power of attorney granted in T&T turns on whether the instrument has been duly executed by the grantor as a deed, stamped with stamp duty and (if the power of attorney is intended to be used to deal with the grantor’s real property) registered in the land registry. These matters would likely be best verified by an attorney at law.
Subject to the validity of the power of attorney, it would be important to verify the identities of both the grantor and the grantee of the power of attorney by requesting the individual due diligence items mentioned above.
Finally, the grant of a power of attorney does not necessarily mean that the grantee is empowered to make decisions on behalf of the grantor – it often merely gives the grantee the power to sign instruments and receive payments (among other things) on the grantor’s behalf. As such, it would be important to verify that the grantor is aware of, and has consented to, the proposed transaction.
Where your transaction is being conducted electronically or virtually…
Between the advancements in technology and the consequences of the Covid-19 pandemic on the conduct of business, it is now commonplace for a business relationship to commence and business to be transacted wholly via electronic means. While this no doubt improves the ease of doing business and brings increasing convenience, it also increases the risk of fraudulent dealings where parties never meet in person.
In circumstances where a transaction is being executed wholly electronically, it may be prudent to verify the counterparty’s identity. In such circumstances, scanned or other electronic copies of the counterparty’s IDs and proof of address may be less reliable. As such, it is recommended that a person’s identity be verified either in person or, where not possible, by requiring copies of the counterparty’s IDs to be duly notarized by a notary public.
The above represents the minimum and some general due diligence steps available to establish the identity and to some extent the due authority of the counterparty with whom you are transacting business. It is by no means exhaustive and much more may be required depending on whether the counterparty or the transaction is specially regulated. As with all relationships and all significant commitments within such relationships, the higher the complexity and risk in a transaction, the greater the duty to verify the identity of your counterparty and to ensure that your counterparty is duly authorised to transact the business at hand.
Disclaimer: This Document Provides General Guidance Only And Nothing In This Document Constitutes Legal Advice. Should You Require Specific Assistance, Please Contact Your Attorney-At-Law.