What Does Ultra Vires Mean in Company Law?

An act beyond power

Ultra vires describes an act outside the objects or powers stated in a company’s memorandum. It may concern both corporate capacity and the limits of authority conferred on directors.

Corporate capacity and director authority

A transaction may fall within the company’s objects but lack the necessary board approval. That is primarily a question of the agent’s authority. A claim that the memorandum entirely prevents the company from entering the transaction raises a different issue.

Matters to examine

• The objects clause
• Management and signature powers in the articles
• Board and general-meeting resolutions
• Whether the third party knew of the lack of authority
• Whether the act can be ratified
• The director’s liability to the company

Current application

An ultra vires defence cannot be resolved by the label alone. Cap. 113, the memorandum, corporate resolutions and common-law principles must be read together. Registrar records and signing powers should be checked before contracting.