FULL CAPACITY STATUTORILY CONFERRED

　　The 2004 amendments to the Companies Act removed the requirement for objects to be stated in a company’s memorandum. Section 23(1) provided that a company ‘has full capacity to carry on or undertake any business or activity, do any act or enter into any transaction’. Obviously, this provision is meant to exclude the applicability of the doctrine of ultra vires.

　　The exclusion is, however, incomplete because Section 23(1A) preserves the option of having objects included. The incorporators of a company may therefore choose to have an objects clause included in the memorandum. Furthermore, Section 23(1B) allows the inclusion of a clause in the memorandum of provisions that restrict the company’s capacity and powers. As the operation of Section 23(1) is expressly qualified by, inter alia, the provisions of the memorandum or articles of the company, it would appear that for those companies exercising the option to restrict capacity, the doctrine of ultra vires remains relevant.

　　CONSTRUCTION

　　When would an act of a company be considered outside of its capacity? The answer to this question depends on a proper construction of the company’s objects clause. In this regard, it is important to distinguish between a company’s objects and the powers conferred on the company to carry out those objects. The objects provide the purposes for which a company exists, while the powers are the means by which these purposes are to be achieved.

　　It is only when the act is outside the company’s objects (as opposed to its powers) that the act is ultra vires. However, this does not mean that all transactions falling outside the company’s stated objects are necessarily void.

　　In Attorney-General v The Great Eastern Railway Co Ltd (see reference 3), the House of Lords held that a company had the implied capacity and power to enter into transactions that were necessarily incidental to the carrying out of the authorised objects, even if those transactions did not fall strictly within the objects expressly provided for in the company’s memorandum.

　　The company in question was authorised to construct a railway and to provide and maintain all the rolling stock and locomotive power necessary for the working of the railway. A contract entered into by the company to offer locomotive engines and other rolling stock for hire was held not to be ultra vires. Lord Selborne LC stated that the ultra vires doctrine ‘ought to be reasonably, and not unreasonably, understood and applied, and that whatever may fairly be regarded as incidental to, or consequential upon, those things which the [memorandum] has authorised, ought not (unless expressly prohibited) to be held, by judicial construction, to be ultra vires’. (See reference 4).

　　Often, a company’s memorandum states both its objects and its powers. In Rolled Steel Products (Holdings) Ltd v British Steel Corp (see reference 5), Browne-Wilkinson observed that not all the activities listed or mentioned in the objects clause are necessarily objects in the strict sense explained previously. Some of these may really only be ancillary powers, existing not as independent objects, but to enable the company to achieve its stated objects.

　　The power to create a security over the company’s assets would be such an ancillary power, as would the power (unless the company was a bank) to borrow money. Vinelott observed as follows:

　　‘The question whether a stated ‘object’ is truly an independent object or purpose is always a question of construction. Even borrowing and lending monies are activities capable of being pursued as independent objects – for instance in the case of a bank or finance company; but commonly, where a sub-clause of the memorandum of association of a company states that one of the objects of the company is ‘to lend or advance’ or ‘to borrow and raise’ money, it is artificial to construe the sub-clause as anything other than a power conferred for the furtherance of what are, in truth, its ‘substantive objects’ or purposes.’ (See reference 6)