BCL - 13. Powers of a company and the doctrine of ultra vires

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Business & Company Law13. Powers of a company & the doctrine of ultra vires : 

Business & Company Law13. Powers of a company & the doctrine of ultra vires Norsurianna Teh Binti Abdullah Malaysian Institute of Accountants – Qualifying Examination

1. Objects Clause : 

1. Objects Clause Every company is required to state its objects in the memorandum of association: Section 18. The function of the objects clause is to identify the activities in which the company may engage.   In fact it is common to find that the objects clause in the memorandum contain the following: Main objects Dependant objects Powers Main objects The main objects are those activities in which a company is expressly and specifically authorized to engage in. It is the purpose for which a company exists and the purpose for which shareholders invests in a company. Thus if the company’s main objects failed it could be ground for winding-up on the ground that is just and equitable to do so under Section 218[1]: Re German Date Coffee Company

1. Objects Clause : 

1. Objects Clause Every company is required to state its objects in the memorandum of association: Section 18. The function of the objects clause is to identify the activities in which the company may engage.   In fact it is common to find that the objects clause in the memorandum contain the following: Main objects Dependant objects Powers Dependant objects These are general unspecified activities in which a company is authorized to engage in association or in connection with its main object: Bell Houses Ltd v City Wall Properties Ltd where the company had the following clause” Bell House Clause “To carry on any trade or business whatsoever which can in the opinion of the board of directors be advantageously carried on by the company in connection with or ancillary to any of the above business or the general business of the company”

1. Objects Clause : 

1. Objects Clause Every company is required to state its objects in the memorandum of association: Section 18. The function of the objects clause is to identify the activities in which the company may engage.   In fact it is common to find that the objects clause in the memorandum contain the following: Main objects Dependant objects Powers Powers The main and the dependant clauses set out the permitted range of business activities that a company may lawfully conduct. A company however also requires certain powers to enable it to achieve these objects. Companies have the implied powers to do anything which is incidental to their specified objects: Attorney-General v Great Eastern Railway Company.

1. Objects Clause : 

1. Objects Clause Every company is required to state its objects in the memorandum of association: Section 18. The function of the objects clause is to identify the activities in which the company may engage.   In fact it is common to find that the objects clause in the memorandum contain the following: Main objects Dependant objects Powers Independent objects It is common practice to list as many objects and powers in the memorandum. The objects clause may end with a statement stating that each object or power should be construed as stating a separate object ~ ‘independent and main clause or Cotman v Brougham clause.

2. Doctrine of ultra vires diminished by Section 20[1] CA1965 : 

2. Doctrine of ultra vires diminished by Section 20[1] CA1965 Any act by a company which is not specified in its objects or powers was regarded as ultra-vires and under common law was null and void. Under common law an ultra vires transaction was null and void and cannot be ratified even the unanimous consent of its shareholders: Ashbury Railway Carriage & Iron Ltd v Riche.   However the effect of ultra vires doctrine is very much diminished in Malaysia because of Section 20[1] which provides that ‘no act or purported act of a company … and no conveyance or transfer of property where real or personal to or by a company shall be invalid by reason only of the fact that the company was without capacity or power to do such act or to execute or take such conveyance or transfer”.

3. Doctrine of ultra vires saved by Section 20[2][a-c] : 

3. Doctrine of ultra vires saved by Section 20[2][a-c] However some residual effects still remain within the company itself by virtue of Section 20[2] where the company’s lack of capacity or power may be relied upon the following three circumstances in Section 20[2] namely: In proceedings against the company by any member holder of debentures secured by floating charge of the trustee of those debentures to restrain the doing of any act or acts or the conveyance or transfer of any property to or by the company In proceedings by the company or any member of the company against the present or former officers of the company   Any petition by the Minister to wind up the company