Page 224 - DMGT407Corporate and Business Laws

Unit 9: Memorandum of Association

shares into which the capital is divided and the amount of each share. If there are both equity and Notes
preference shares, then the division of the capital is to be shown under these two heads.

Self Assessment

State whether the following statements are true or false:

1. In the case of an unlimited company, liability clause need not be given in the memorandum.
2. The memorandum is to be printed, divided into paragraphs, numbered consecutively and
signed by at least seven persons in the case of a public company in the presence of at least
one witness.
3. The liability clause defines the objects of the company and indicates the sphere of its
activities.

9.2 Doctrine of Ultra Vires

We have mentioned earlier that a company cannot go beyond its objects mentioned in its
memorandum. The company’s activities are confined strictly to the objects mentioned in its
memorandum and if they go beyond these objects, then such acts will be ultra vires. The object
of declaring such acts as ultra vires is to protect the interests of shareholders and all others who
deal with the company. Some points worth noting as regards doctrine of ultra vires are:
1. A company exists only for the objects which are expressly stated in its objects clause or
which are incidental to or consequential upon these specified objects.
2. Any act done outside the express or implied objects is ultra vires.
3. The ultra vires acts are null and void ab initio. The company is not bound by these acts; and
neither the company nor the other contracting party can sue upon it.

Examples:

(i) A company with the objects, namely (a) to make and sell or lend on hire railway
carriages and wagons and all kinds of railway plant, fittings, machinery and rolling
stock; (b) to carry on the business of mechanical engineers and general contractors;
(c) to purchase, lease, work and sell mines, minerals, land and buildings; (d) to
purchase and sell as merchants timber, coal, metals or other materials. The company
contracted to finance the construction of a railway bridge in Belgium and, there was
evidence that the agreement had been ratified by all the members. Later, the company
repudiated the agreement and was sued for breach of contract. In its defence the
company repudiated its lack of capacity to enter into a contract which was outside
the scope of its objects clause. The other party brought an action for damages for
breach of contract. His contentions were that the contract in question came well
within the meaning of the words ‘general contractors’ and, was, therefore, within
the powers of the company and secondly, that the contract was ratified by the majority
of the shareholders.
Held: That the term general contractors must be taken to indicate the making generally
of such contracts as were connected with the business of mechanical engineers. If the
term ‘general contractors’ was so interpreted it would authorise the making of
contracts of any and every description, such as, for instance, of fire and marine
insurance and the memorandum in place of specifying the particular kind of business,
would virtually point to the carrying on of business of any kind whatsoever and

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