COURSE CODE MGT - 302 COMPANY LAW LECTURER DR. HAMZA RECAP OF PREVIOUS LECTURE Stages of Formation of A Company • Promotion of Company • Incorporation or Registration of Company • Subscription of Capital • Commencement of Business WHAT TO EXPECT? • Ultra Vires (Beyond power/ authority) • Dimensions of Ultra Vires • Shares • Debentures • Difference Between Shares and Debentures • Similarities DOCTRINE OF ULTRA VIRES • A Memorandum of Association of a company is a basic charter of the company It is a binding document which describes the scope of the company among other things • If a company departs from its MOA such an act is ultra vires DOCTRINE OF ULTRA VIRES The Doctrine of Ultra Vires is a fundamental rule of Company Law It states that the objects of a company, as specified in its Memorandum of Association, can be departed from only to the extent permitted by the Act Hence, if the company does an act, or enters into a contract beyond the powers of directors and/or the company itself, then the said act/contract is void and not legally binding on the company DOCTRINE OF ULTRA VIRES • The term Ultra Vires means ‘Beyond Powers’ In legal terms, it is applicable only to the acts performed in excess of the legal powers of the doer • Since the Doctrine of Ultra Vires limits the company to the objects specified in the memorandum, the company can be : • Restrained from using its funds for purposes other than those specified in the Memorandum • Restrained from carrying on trade different from the one authorized Doctrine of ultra vires • The company cannot sue on an ultra vires transaction Further, it cannot be sued too If a company supplies goods or offers service or lends money on an ultra vires contract, then it cannot obtain payment or recover the loan • However, if a lender loans money to a company which has not been expended yet, then he can stop the company from parting with it via an injunction The lender has this right because the company does not become the owner of the money as it is ultra vires to the company and the lender remains the owner Further, if the company borrows money in an ultra vires transaction to repay a legal loan, then the lender is entitled to recover his loan from the company DOCTRINE OF ULTRA VIRES • Sometimes an act which is ultra vires can be regularized by the shareholders of the company For example, • If an act ultra vires the power of directors, then the shareholders can ratify it • If an act ultra vires the Articles of the company, then the company can alter the Articles DOCTRINE OF ULTRA VIRES • Summing up the Doctrine of Ultra Vires • An act, legal in itself, but not authorized by the object clause of the Memorandum of Association of a company or statute, is Ultra Vires Hence, it is null and void An act ultra vires the company cannot be ratified even by the unanimous consent of all shareholders DOCTRINE OF ULTRA VIRES • If an act ultra vires the directors of a company, but intra vires the company itself, then the members of the company can pass a resolution to ratify it • If an act Ultra Vires the Articles of Association of a company, then the same can be ratified by a special resolution at a general meeting DISADVANTAGE(S) OF THE DOCTRINE OF ULTRA VIRES • While the main advantage of the Doctrine of Ultra Vires is the protection of shareholders and creditors, it has disadvantages too • This doctrine prevents the company from changing its activities in a direction agreed by all members • Further, a special resolution can alter the object clause of the Memorandum This defeats the core purpose of the doctrine DOCTRINE OF ULTRA VIRES IN THE NEW COMPANIES ACT OF GHANA (922). Act 992 of 2019 • Per section 18 ( 1 ) of the new Companies Act, a company has the power and full capacity to carry on or undertake any business or activity, do any act or enter into any transaction subject to the Act and any other enactment • This presupposes that a company may be set up to engage in all types of activities to the extent that such activities are legal and permitted by law, without being accused of acting ultra - vires DOCTRINE OF ULTRA VIRES IN THE NEW COMPANIES ACT OF GHANA (922). • By implication therefore, a company that does not register its constitution is at liberty to engage in any permissible business activity • A company will not be deemed to have acted ultra - vires where the company engages in a different activity during the course of its operations DOCTRINE OF ULTRA VIRES IN THE NEW COMPANIES ACT OF GHANA (922). • As such, although a company is permitted to engage in any business activity in accordance with section 18 ( 1 ) of the new Companies Act, it is specifically registered with definitive objects per the Registrar’s Form 3 which is signed by the first directors of the company • Any acts of the company that are carried on contrary to the objects in the Form 3 will be deemed ultra - vires WHAT IS A SHARE ? • The unit of measure that determines the member’s interest in the company Such that a member’s interest is directly related to the strength of his/her shares in the company • Shares are supposed to be traded because they fluctuate depending on the strength of the company SHARE CONT • A shareholder is not a creditor of the company Thus if a shareholder’s dividend is not declared , the company does not owe the shareholder • In other words, if dividends are not paid the company does not owe you anything TYPES OF SHARES • Ordinary Shares : An ordinary share carries the usual shareholder rights (right to vote, dividend ... ) This is the most widely found type of share • Preference Shares : A preference share gives its holder a right of priority over the holder of an ordinary share The right of priority generally operates when paying dividends or if the company goes into liquidation However, a preference share does not usually confer voting rights The shareholders financial interest in the company • A director does not owe any fiduciary duty to shareholder • The assets and property of a company belong to the company itself • A company as a legal person can own property, can sue and be sued • A shareholder does not have any legal interest in any specific assets or properties of the company DEBENTURES • A debenture is a bond or promissory note that is issued by a business to a creditor in exchange for capital The repayment and terms of the loan are completed based on the general creditworthiness of the business and not by a lien, mortgage, or any specific property • The term debentures could be used to describe the loan itself • Not every type of company indebtedness can be described as a debenture The loan must be a permanent one even though the time may be uncertain