# Doctrine of Ultra Vires

## Core Concept

The term ultra vires means beyond the powers. Any act done by a company that is beyond its objects clause in the Memorandum of Association (MOA) is void and cannot be ratified — even by a unanimous vote of all shareholders.

## Why This Doctrine Exists

The MOA's object clause defines the scope of the company's powers.
Outsiders dealing with the company are presumed to know its objects (linked to [[doctrine-of-constructive-notice]]).
Protects shareholders and creditors from the company's funds being diverted to unauthorised purposes.

## Key Rules

Rule	Effect
Act within objects	Valid and binding
Act beyond objects (ultra vires)	Void ab initio — cannot be ratified
Act ultra vires the directors but intra vires the company	Can be ratified by shareholders

## Interpretation Principle

Words in the object clause are read in connection with the company's main business. Wide, general terms (like 'general contractors') must be construed in light of the surrounding specific objects — they cannot be stretched to authorise unrelated activities.

Worked example

### Example 1

Case Law — Ashbury Railway Carriage & Iron Co. Ltd. v. Riche (1875):

Facts: The company's main objects were:

(a) To make, sell or lend on hire, railway carriages and wagons;

(b) To carry on business of mechanical engineers and general contractors;

(d) To purchase and sell as merchants or agents, coal, timber, metals, etc.

Directors entered into a contract with Riche to finance construction of a railway line in Belgium. The contract was later ratified by a special resolution of shareholders. The company subsequently repudiated it as ultra vires. Riche sued, arguing the term 'general contractors' covered the act and that majority shareholder ratification cured any defect.

Held: The contract was null and void. The term 'general contractors' had to be read in connection with 'mechanical engineers' (the company's main business). If interpreted in isolation, it would authorise contracts of any kind, which would defeat the purpose of the object clause. Shareholders cannot ratify an ultra vires act.

⚠️ Common exam mistakes

Believing that shareholders can ratify an ultra vires act by passing a special resolution — they cannot; the act is void from inception.
Reading wide phrases like 'general contractors' in isolation rather than in context of the main business.
Confusing 'ultra vires the company' (void, cannot be ratified) with 'ultra vires the directors but intra vires the company' (ratifiable by shareholders).

Reference:

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →