A company needs to act in accordance with the objects clause provided for in its constitution. Discuss
An object clause is a provision in a company’s constitution stating the purpose and range of activities for which the company is carried on. At common law, a company is limited to act within the objects set out in its memorandum of association. Anything purported to be done by a company which is beyond those objects would be ‘ultra vires’ and void. An ultra vires act is void and cannot be ratified even if all the directors and shareholders wish to do so.
In Mauritius Section 28(1) of the Company’s Act 2001 provides:
“Where the constitution of a company sets out the objects of the company, there is deemed to be a restriction in the constitution on carrying on any business or activity that is not within those objects, unless the constitution expressly provides otherwise.”
This implies that a company is bound to act in accordance with the terms set out in its constitution.
For instance in the case of Ashbury Railway Carriage Co v Riche, the company had objects to make, sell and hire railway carriages. The company entered into a contract to build a railway in Belgium. The contract was ratified by all the members of the company, but was, later on, repudiated by the company. The house of lord held unanimously that the contract was beyond the objects as defined in the objects clause of its memorandum and therefore it was void.
Moreover in the case of Re German Date Coffee Co, the object of the company was to make coffee from dates using a German patent which was never granted and coffee was made using a Swedish patent. Two shareholders petitioned for a winding up on the ground that its objects had failed. It was held that the main object of the company had failed and that it was ultra vires.
The purpose of the ultra vires doctrine is to protect investors by preventing the company from employing money for a purpose that was not stated in the object clause of...