Failure to Comply with the Objects for Which a Company Is Formed Has Ceased to Have Any Adverse Effect on the Company Transactions. Discuss
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QUESTION: FAILURE TO COMPLY WITH THE OBJECTS FOR WHICH A COMPANY IS FORMED HAS CEASED TO HAVE ANY ADVERSE EFFECT ON THE COMPANY TRANSACTIONS. DISCUSS
ANSWER:
To properly do justice to this question, we shall consider the position of the law both under the common law and the statute. However, it should be noted that the question bothers on the doctrine of ‘Ultra Vires’.
The Latin phrase ‘ultra vires’ consists of two words: ‘ultra’ meaning ‘beyond’ and ‘vires’ meaning ‘powers’. Thus the expression ‘ultra vires’ means an act beyond the powers.
In company law, the expression is used to indicate an act of the company which is beyond the powers conferred on the company by the objects clause of its memorandum. The objects clause sets out the limits of the company’s permissible activities, such that anything done by the company outside the provisions of the clause is said to be ultra vires the company. Hence in OKOYA V. SANTILI (1990) 2 NWLR (pt. 131) 172, the Supreme Court held that it is ultra vires for a company to conduct its affairs outside the prescription of its memorandum and articles of association
REASONS FOR THE RULE:
Two reasons have been offered for this rule namely:
1. It protects the shareholders who learn from it the purposes to which their money can be applied.
2. it protects persons dealing with the company who can discover from it the extent of the company’s powers.
(See COTMAN V. BROUGHAM (1918) A.C 514 per LORD PARKER)
POSITION AT COMMON LAW
At common law, a company incorporated under the companies Act has power to carry out the objects stated in the memorandum or acts which are reasonably incidental to the objects. If an act is done or a transaction carried out which is not authorized by the memorandum or the statute, it is ultra vires the company and void, and cannot be ratified by the company, for according to Lord Denning in MCFOY V. U.A.C. LTD(1961) 3 WLR 1405 @ 1409,
‘When an act is void, it is...
ANSWER:
To properly do justice to this question, we shall consider the position of the law both under the common law and the statute. However, it should be noted that the question bothers on the doctrine of ‘Ultra Vires’.
The Latin phrase ‘ultra vires’ consists of two words: ‘ultra’ meaning ‘beyond’ and ‘vires’ meaning ‘powers’. Thus the expression ‘ultra vires’ means an act beyond the powers.
In company law, the expression is used to indicate an act of the company which is beyond the powers conferred on the company by the objects clause of its memorandum. The objects clause sets out the limits of the company’s permissible activities, such that anything done by the company outside the provisions of the clause is said to be ultra vires the company. Hence in OKOYA V. SANTILI (1990) 2 NWLR (pt. 131) 172, the Supreme Court held that it is ultra vires for a company to conduct its affairs outside the prescription of its memorandum and articles of association
REASONS FOR THE RULE:
Two reasons have been offered for this rule namely:
1. It protects the shareholders who learn from it the purposes to which their money can be applied.
2. it protects persons dealing with the company who can discover from it the extent of the company’s powers.
(See COTMAN V. BROUGHAM (1918) A.C 514 per LORD PARKER)
POSITION AT COMMON LAW
At common law, a company incorporated under the companies Act has power to carry out the objects stated in the memorandum or acts which are reasonably incidental to the objects. If an act is done or a transaction carried out which is not authorized by the memorandum or the statute, it is ultra vires the company and void, and cannot be ratified by the company, for according to Lord Denning in MCFOY V. U.A.C. LTD(1961) 3 WLR 1405 @ 1409,
‘When an act is void, it is...