Memorandum of Association — SPCC STD 11 Commerce — Question

1. Introduction In the capital claues of Memorandum of Association the main, subsidiary and other objects of the company are clarified. Any act which is not mentioned in the object clause of memorandum of association cannot be undertaken by management even if it is beneficial for the company. If the directors do any act which is not mentioned in object clause it is called ultra vires.
2. Doctrine of Ultra Vires : A company can prolong only those objects which and are clearly mentioned in its Memorandum of Association. A company possesses only those powers which are either explicitly or impliedly conferred upon it by virtue of its Memorandum of Association. Any activity in excess to what is stated in the object clause will be void and the same will be declared ultra vires (beyond powers). If the act is ultra vires it does not create any legal relationship. Such an act is absolutely void even the whole body of shareholders ratify it and make it binding upon the company.
3. Consequences of Ultra Vires Acts : Following are the consequences of Ultra Vires Acts:
(1) The Directors of the company are held personally liable for ultra vires acts.
(2) Courts can prevent a company from doing such acts
(3) Ultra vires contracts are void.
(4) For any ultra vires act by an employee acting on behalf of the company, the company can be held liable.
(5) The Directors of a company are responsible to the Third Party for Ultra Vires Acts.
In order to avoid above situations generally company includes most area of function with the term “any other objects” in the object clause of its Memorandum of Association.