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Business Environment and Law-Memorandum And Articles Of Association

Doctrine Of Ultra Vires (Beyond Powers) - Memorandum And Articles Of Association

   Posted On :  08.05.2018 07:25 am

The company’s activities are confined strictly to the objects mentioned in its Memorandum, and if they go beyond these objects, then such acts will be ultra vires. The object of declaring such acts as ultra vires is to protect the interests of shareholders and all others who deal with the company.

Doctrine Of Ultra Vires (Beyond Powers)
 
The company’s activities are confined strictly to the objects mentioned in its Memorandum, and if they go beyond these objects, then such acts will be ultra vires. The object of declaring such acts as ultra vires is to protect the interests of shareholders and all others who deal with the company.

1. Ultra vires the directors (Not Void)
2. Ultra vires the Articles of Association (Not Void)
3. Ultra vires the Memorandum of Association/Company (Void)

Effects Of Ultra Vires :


a. Injunction against the company
b. Personal liability of directors to the company
c. Personal liability of directors to third party
d. Ultra vires contracts are void.

Exceptions To Doctrine Of Ultra Vires:


1. Acquires some property
2. Property can be recovered, existed and is traceable
3. Ultra vires loan to pay its own debts – can recover the money from the company
4. Any person borrows money from the company – the company has right to sue and recover the money from him
5. The company may compel the director to refund the money
6. The company is held liable for the ultra vires torts (civil wrongs) of its employees when it is proved.
a. A company exists only for the objects which are expressly stated in its objects clause
b. Any act done outside the express or implied objects is ultra vires.
c. The ultra vires acts are null and void ab initio.
d. The members of a company (even a single member) can get an order of injunction from the court restraining the company from going ahead with the ultra vires act.
e. If the directors have exceeded their authority, such matter can be ratified by the general body of the shareholders, provided company has the capacity to do by its Memorandum of association.
f. Any property acquired by a company under an ultra vires transaction may be protected by the company against damage by third persons.
g. Directors and other officers can be held liable to compensate the company for any loss occasioned to it by an Ultra Vires Act.
h. Directors and other officers shall be personally accountable to the third parties.
i. Money or property gained through an ultra-vires transaction available in specie or capable of being identified shall be restituted (restored) to the other party.
j. In case, an ultra-vires loan, taken by a company is used for payment of its intra-vires debts, the lender of the ultra loan is substituted in place of the creditor who has been paid off and as such can recover the money.
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