The ultra vires doctrine is a legal principle that holds that a corporation or other legal entity has no power or authority to act beyond the scope of its charter or articles of incorporation. This doctrine is based on the idea that corporations are creatures of the state, and as such, they are granted certain powers and privileges by the state in order to carry out their designated purpose or mission. These powers and privileges are typically outlined in the charter or articles of incorporation, which serve as the foundational document for the corporation.
The ultra vires doctrine is often used to challenge the validity of corporate actions that fall outside the scope of the corporation's powers and privileges. For example, if a corporation were to enter into a contract or take other actions that are not specifically authorized by its charter or articles of incorporation, a court may declare those actions to be ultra vires, or beyond the corporation's legal authority. This means that the corporation would not have the legal capacity to enforce the contract or hold others accountable for their obligations under the contract.
One of the main purposes of the ultra vires doctrine is to protect the interests of shareholders and other stakeholders by ensuring that the corporation acts within the limits of its legal authority. If a corporation were to exceed its legal authority, it could expose itself and its shareholders to legal and financial risk, as well as damage its reputation and standing in the business community.
The ultra vires doctrine is also important for maintaining the integrity and stability of the corporate form of business organization. By limiting the powers and privileges of corporations, the doctrine helps to prevent abuses of corporate authority and ensures that corporations are accountable to the state and to the public.
In summary, the ultra vires doctrine is a legal principle that serves to protect the interests of shareholders and stakeholders, and to maintain the integrity and stability of the corporate form of business organization. It requires that corporations act within the limits of their legal authority, as outlined in their charter or articles of incorporation, in order to ensure that their actions are valid and enforceable.
(PDF) Doctrine of Ultra Vires In Company Law
The plaintiff claimed that fair value of the shares must be determined and directors must be ordered to purchase them at a fair value. In Lal Kamal Das v. The rectification is not possible even if the shareholders pass a special resolution with the majority of the votes. What is the Purpose of Doctrine of Ultra Vires? Certain Magisterial Powers were conferred by the Delhi Police Act on the senior police officers. Difference between ultra vires and an illegal act: An ultra vires act is completely different from an illegal act.
Cross-references West's Encyclopedia of American Law, edition 2. Is doctrine of ultra vires? Further, the court made the directors of the company personally liable for the payment made by them. The second thing to be noted is that none of the provisions of the Delhi Police Act is about the appointment of the executive magistrate, therefore only the powers of the executive magistrate are conferred. Similarly, the president has no authority to cause the corporation to hire counsel to fight with the minority shareholder. Every action or the conduct of a company shall e mentioned in the object clause of that particular memorandum of the company; Hence, if the company is exceeding their own authority which was given their self in the object clause of the Memorandum of Association, it must be censured under this doctrine. If the action of the delegated legislation body affects the fundamental rights guaranteed to the people, then it is said to be ultra vires to the constitution.
The ultra vires doctrine is much more limited than the Under the Ultra Vires Doctrine Prohibited Officer and Director Actions Under the Ultra Vires Doctrine A second area in which the ultra vires doctrine comes to play is when the officers, directors, or other corporate agents take the corporate action without or exceeding their authority as agents. The lack of jurisdiction of any delegated body forms the error on record. It occurred during the duration of employment. What is an example of intra vires? Basically, it is to be understood by the concept that, when a piece of delegated legislation is declared to be ultra vires, it is void and becomes unenforceable. Riche entered into a contract in which the company agreed for the financial construction of railway line.
An exceeding of legal powers. Thus, directors must be very cautious while borrowing funds, as it may not only make them personally liable for the consequences of such acts but also may result in considerable losses to investors and creditors. The appeal was, therefore, dismissed. Case Laws relating to Doctrine of Ultra Vires In India the first concept of ultra vires was noticed in the case of Jahangir R. The doctrine of ultra vires was applicable in all countries, however in modern days; it has been abolished in the developed countries.
Due to the mala fide or improper intention, a person tries to cross his limits and corrupts the power conferred upon him. There should be no conflict between the delegated legislation and the enabling legislation. Often the controlling shareholder will attempt to exercise control over the corporation as its president, bypassing board and shareholder votes. In the case of a private business entity, the act of an employee who is not authorized to act on the entity's behalf may, nevertheless, bind the entity contractually if such an employee would normally be expected to have that authority. Section 20 5 and 70 1 confers the powers of the executive magistrate upon certain senior police officers.
Riche filed a suit for recovering its damages from the company. Our Legal Journal contains a vast assortment of resources that helps in understanding contemporary legal issues. Erika Rasure, is the Founder of Crypto Goddess, the first learning community curated for women to learn how to invest their money—and themselves—in crypto, blockchain, and the future of finance and digital assets. Once, these questions are answered then the control can be applied in places where there is an excess of power. What is ultra vires act of the corporations? Now, we have got a complete detailed explanation and answer for everyone, who is interested! An act is ultra vires if it is beyond the legal powers of the person doing it; thus an act by a company not expressly or impliedly permitted by its memorandum or articles is ultra vires. If a manager were to access the bank accounts of the company and use those assets for personal needs this would be classified as ultra vires acts. Last Update: October 15, 2022 This is a question our experts keep getting from time to time.
Prohibited Corporate Actions Under the Ultra Vires Doctrine in Texas
If any borrowing is made beyond the authority provided by these objectives mentioned in the memorandum, it will be considered as ultra-vires. Modi vs Shamji Ladha in India. It helps the directors to know within what lines of business they are eligible to act. Such acts cannot be ratified even by shareholders as they are void-ab-initio. The Doctrine of ultra vires 1 may be a fundamental rule of Company Law.
This works on an assumption that the powers are limited in nature. The main aim of the doctrine of ultra vires is to protect the interest of the investors and creditors of the company from suffering from any kind of issues that the company is responsible to pay. However, in this particular case, the directors were employed, and they had accepted the office on the footing of the articles of association. LexForti Legal News and Journal offer access to a wide array of legal knowledge through the Daily Legal News segment of our Website. If pursued for personal benefit, they are ultra vires.
