Ultra Vires and Intra Vires Business of Companies

To regulate and streamline the companies process, the intention of the legislature generally speaking, was that the company’s objects should be set out very precise and succinctly. This issue raised many legal and operational debates due to its importance for companies.

Mainly, the idea is that the promoters should simply specify in general terms the business they intend to carry on during the tenure of the company. In this respect, the powers of the company which may be required as incidental to that businesspower are not intended to be specified as these would be implied by law.

In fact, for long time, the courts have interpreted the legal provisions in a liberal spirit and agreed that everything reasonably incidental to the specified objects or powers of the company will be intra vires and not ultra vires. 

As a result, there is considerable body of case law deciding what powers will be implied in case of particular types of enterprise and the activities that can be regarded as reasonably incidental to others.

However, many business owners show some reluctance in leaving matters to implication, they preferred to set out in the memorandum the ancillary powers which specify only the business which they thought they would need. 

Moreover, they were not content to specify only the business which the company was initially intended to follow, but preferred also to name and specify all other businesses which they might conceivably want to turn to in the future of the company.

Generally, they put this in a very general term as, “and other powers that are ancillary to the main objects of the company”.

 Due to this, memorandums became far from simplicity as they contain statements of too many objects and also other ancillary powers covering every conceivable and all incidental powers which might be needed to accomplish them. This at least makes it less hazardous to enter into transactions with a company for the likelihood of their being ultra vires is remote.

On the other hand, it offers little assurance of the preservation of the company’s assets and less control over the activities of directors, surprisingly at it may seem. As ironically stated by some parties in the business, “The modern gold mining co”, may quite have powers under the memorandum to operate fried-fish shops or grocery outlets. 

Or, a licensed bank to undertake aviation services or transportation commuting facilities. However, I believe, this is too far and out of context and for sure this kind of activities would be ultra vires with all relevant harsh legal consequences.

To conclude, companies and directors shall endeavour to work intra vires and within the specific direct objects of the company and not to detour out of the route as this could easily end up as ultra vires, which could be very costly for both the company and likewise the Directors of the company. 

Hence, we urge all types of companies, small or big, to be very aware of their direct clear intra vires objectives. Moreover, the regulatory authorities shall keep an open vigilant eye all through, to make sure that “business is in order”.

Dr AbdelGadir Warsama Ghalib is a corporate legal counsel. Email: awarsama@warsamalc.com