DOES THE COMPANY HAVE CAPACITY TO ACT? THE REFORM OF THE DOCTRINE OF ULTRA VIRES 1. POWERS OF THE COMPANY Companies Act 2006 gives companies unrestricted capacity unless a company’s articles specifically restrict its objects – section 31(1). They will not need to state any objects in their constitution if registered after that part of the Act is in force. Only if they do state objects, will there be any restriction on their capacity. Charities and Community Interest Companies will still need to do this to satisfy the relevant regulator. A previous but little used attempt to achieve this was:
The General Commercial Company Section 3A CA 1985
Where the Company's memorandum states that the object of the company is to carry on business as a general commercial company -
(a) the general object of the company is to carry on any trade or business whatsoever, and
(b) the company has power to do all such things as are incidental or conductive to the carrying on or of any trade or business by it.
[inserted in CA 1985 by Companies Act 1989, section 110 (1) ]
To take advantage of CA 2006’s unrestricted capacity provision, existing companies may need to amend their constitutions to get rid of their objects clauses.
Section 35 CA 1985 which provided additional statutory protection where the company has an objects clause or limits the powers of the board of directors is re-enacted in section 39 of the 2006 Act. When read with section 171 of the 2006 Act (duty of directors to act within their powers) it has the same effect as section 35 of CA 1985 except that the right of a member to prevent an ultra vires action in advance is not mentioned in the 2006 Act although it may survive at Common Law – Smith v Croft (No2) [1988] Ch 114 and Edwards v Halliwell [1950] 2 All ER 1064 (see derivative action handout).
