What is Ultra Vires?


Whether you have been the victim of an illegal act or if you have been charged with an offence, there are times when you may feel that your rights have been violated. This is when you need to look into the law of ultra vires. This is a legal term that relates to actions that lie outside the authority of a corporation or a person. It is used when someone challenges the validity of an action that has been taken by a municipal or governmental agency.

Actions that lie beyond the authority of a corporation

Essentially, ultra vires is a Latin phrase that means beyond the limits of the law. This term refers to actions taken by corporations and government bodies that exceed the scope of their legal powers.

The most common use of the term is in business law. Ultra vires acts include unlawfully appropriating company revenue or shares. If a manager uses his or her company bank account without the company’s knowledge, that would be a violation of the law. In addition, acts that violate a company’s by-laws or company constitution are also considered ultra vires.

An example of an ultra vires act is an interest rate swap, which was a popular method of circumventing borrowing restrictions. The underlying theory of this scheme was that, if both parties agree to the transaction, they cannot be harmed by it. However, the courts have ruled against this practice, because it is not enough to simply perform the transaction.

The term may be used in court to describe any action that is outside the company’s authority. For instance, an accountant’s transfer of ownership of the company’s shares could be classified as an ultra vires act.

An effective tool for protecting third parties, the doctrine of ultra vires was designed by Lord Reid. Aside from providing an exception to governmental immunity, the ultra vires doctrine has a number of benefits for shareholders and creditors.

Cases in which someone challenges the validity of municipal action

Attempts to engage in activities deemed to be beyond the scope of their corporate charter may be considered ultra vires. However, there is no rule of thumb that deems such acts as unconstitutional. The judicial systems in most countries are tasked with the task of determining if a proposed activity is legal or not. This can lead to some surprising rulings.

The best way to combat such an activity is to consult a competent lawyer who will be able to advise on a number of strategies for dealing with such a scenario. One such approach is to seek a writ of mandamus. This will force the corporate officer to reconsider the decision to deny the petition. Alternatively, a shareholder may choose to sue for an injunction in an attempt to restrain the errant corporation from committing the sins of the past.

A small number of jurisdictions have taken the ultra vires to the extreme and have abolished it altogether. The companies act of 1985 largely wiped the ultra vires off the books. Some companies are chartered to only do business in a particular state, while others can operate anywhere, provided the requisite permits are granted. A plethora of laws, regulations and restrictions apply to these entities, and the aforementioned state statutes are among the more notable.

Disadvantages of ultra vires

Whether a corporate body is ultra-vires depends on the nature of the act. A corporation can be classified as ultra-vires if its actions are outside the scope of its memorandum of objects. It also means that a contract made by the company is not binding.

A corporation is a legal entity that has a separate and distinct legal personality. The law does not allow a third party to enforce a company’s ultra-vires transactions in court. However, a lender can stop the company from parting with a loan.

The doctrine of ultra-vires is a Latin word that means ‘beyond the powers of’. It refers to any transaction that is not in the scope of the company’s memorandum of objects. In other words, the act is void ab initio.

The term ultra-vires also describes the action of a director or a government authority. This could include the appropriation of company assets, income, or shares. It can also involve an unauthorized change in the company’s object clause.

The object clause is a statement of the purpose of the company. This is a crucial part of a corporation’s charter. If the board changes its object, it is required to obtain approval from the CLB. The new object must be in keeping with the purpose of the company.