PART 7: THE CAPACITY OF THE COMPANY
AND THE AUTHORITY OF ITS AGENTS
THE COMPANY’S OWN CAPACITY (AND THE ULTRA VIRES
DOCTRINE)
a. Historically, companies only had the capacity they were given
Does a company have the capacity to do everything which a human being can do?
o Historically, the law dealing with registered companies answered ‘no’ (the opposite
answer was given for ‘chartered companies’).
o Instead, a registered company’s capacity was limited to the capacity given to it,
primarily by the objects clause of its ‘memorandum’. If the company tried to do
something which was beyond that capacity, then it was said to be acting ultra vires
(beyond its powers) as opposed to intra vires.
o Ashbury Carriage Co v Riche (1875) LR 7 HL 653: Its importance as case law has
been diminished as a result of the Companies Act 2006 s 31, which allows for
unlimited objects for which a company may be carried on. Furthermore, any limits a
company does have in its objects clause has no effect whatsoever for people outside
a company (s 39 CA 2006), except as a general issue of authority of the company's
agents.
o So, the idea was companies would have (reasonably narrow) statements of the
objects they were being created to pursue, and if they entered into transactions that
strayed outside of those objects (they started trading in cars when they were set up
to trade in horses), such transactions would be ultra vires.
o Because companies disliked the uncertainty that the ultra vires doctrine created, they
sought ways of avoiding it. They did this primarily ‘contractually’ – that is, they
drafted ever longer objects clauses that anticipated every possible activity the
company might ever conceivably wish to engage in. But the validity of such clauses
was sometimes challenged (typically by liquidators of insolvent companies
desperately searching for a way to avoid a past, unprofitable, contract). And a mass
of case law developed ruling on the effectiveness of such all-purpose objects
clauses.
o But the point to stress is that the courts gradually moved towards accepting the
validity of objects clauses that purported to permit companies to engage in almost
every feasible activity. So, through imaginative drafting by those forming
companies, and a reasonably tolerant attitude from judges, the ultra vires doctrine
started to lose some of its teeth.
b. The historical effects of the ultra vires transaction.
Page 1 of 12
AND THE AUTHORITY OF ITS AGENTS
THE COMPANY’S OWN CAPACITY (AND THE ULTRA VIRES
DOCTRINE)
a. Historically, companies only had the capacity they were given
Does a company have the capacity to do everything which a human being can do?
o Historically, the law dealing with registered companies answered ‘no’ (the opposite
answer was given for ‘chartered companies’).
o Instead, a registered company’s capacity was limited to the capacity given to it,
primarily by the objects clause of its ‘memorandum’. If the company tried to do
something which was beyond that capacity, then it was said to be acting ultra vires
(beyond its powers) as opposed to intra vires.
o Ashbury Carriage Co v Riche (1875) LR 7 HL 653: Its importance as case law has
been diminished as a result of the Companies Act 2006 s 31, which allows for
unlimited objects for which a company may be carried on. Furthermore, any limits a
company does have in its objects clause has no effect whatsoever for people outside
a company (s 39 CA 2006), except as a general issue of authority of the company's
agents.
o So, the idea was companies would have (reasonably narrow) statements of the
objects they were being created to pursue, and if they entered into transactions that
strayed outside of those objects (they started trading in cars when they were set up
to trade in horses), such transactions would be ultra vires.
o Because companies disliked the uncertainty that the ultra vires doctrine created, they
sought ways of avoiding it. They did this primarily ‘contractually’ – that is, they
drafted ever longer objects clauses that anticipated every possible activity the
company might ever conceivably wish to engage in. But the validity of such clauses
was sometimes challenged (typically by liquidators of insolvent companies
desperately searching for a way to avoid a past, unprofitable, contract). And a mass
of case law developed ruling on the effectiveness of such all-purpose objects
clauses.
o But the point to stress is that the courts gradually moved towards accepting the
validity of objects clauses that purported to permit companies to engage in almost
every feasible activity. So, through imaginative drafting by those forming
companies, and a reasonably tolerant attitude from judges, the ultra vires doctrine
started to lose some of its teeth.
b. The historical effects of the ultra vires transaction.
Page 1 of 12
