Company Constitution and the Ultra Vires Rule - Company Formation - UK Registration Services
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vThe ultra vires rule, after the 1989 Act, is effectively preserved only for internal
purposes. It is used as a means of enabling the shareholders to control the activities of the directors.
The directors must always observe any limitations on the powers under the company's constitution according to section 35. Section 35A states that if they act in excess of these powers and their authority, a third party would only enforce the resulting transaction if it were in good faith. Section 3A was developed not simply to replace a multiple objects clause of the kind which had been previously drafted to try and minimise the impact of the ultra vires doctrine, but rather, it enables the company to opt out of the ultra vires rule for internal purposes. There have however been complications due to an inherent flaw in the single object clause. Consequently, the government's intention has not been achieved. Draftsman have tried solving the problem in several way and the resulting confusion means that it is questionable whether a company that has adopted the new clause, has really effectively 'opted out'. A company would not receive all the powers of a natural person, only the powers which were properly construed to be incidental or conducive to the carrying on of trade and business due to the ‘flaw’. This heading would not cover many activities of the company, not only ex gratia payments to employees or directors, but also practices including the charging of its assets to secure the borrowings of another company. In a study of the practices of company registration agents, de Gay, found that draftsmen are uncertain as to the application of the new single clause, and also found a variety of potentially confusing practice. On this basis she argued that ‘the use of the traditional clause is the most sensible approach in practice’. A series of suggestions on the topic of simplifying corporate constitutions, including the abolition of the distinction between the memorandum and the articles of association have been made by the Steering Group. From an empirical perspective, the subject of corporate constitutions is a fairly unknown one. Further News and Articles 1. Forming A Company Just Became Easier2. Statutory Requirements For New Companies
3. Non Profit Organisations
4. Company Directors and Secretaries
5. Annual Returns6. Accounts and Accounting Reference Dates
7. Company Auditors
8. Share Capital and Prospectuses
9. Late Filing Penalties
10. The Costs and Benefits of Company Registration
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