64
consequence the doctrine of ultra vires is an illusory
protection for the shareholders and yet may be a
pitfall for third parties dealing with the company.
For example, if a company which has not taken powers
to carry on a taxi-cab service, nevertheless does so,
third persons who have sold the tax-cabs to the company
or who have been employed to drive them, may have no legal
right to recover payment from the company. We consider
that, as now applied to companies, the ultra vires doctrine
serves no positive purpose but is, on the other hand, a
cause of unnecessary prolixity and vexation. We think
that every company, whether incorporated before or
after the passing of a new Companies Act, should,
notwithstanding anything omitted from its memorandum
of association, have as regards third parties the same
powers as an individual.
Existing provisions in memoranda
as regards the powers of companies and any like provisions
introduced into memoranda in future should operate solely
as a contract between a company and its shareholders as
to the powers exercisable by the directors. In our view
it would then be a sufficient safeguard if such provisions
were alterable by special resolution without the necessity
of obtaining the sanction of the Court, subject in cases
where debentures have been issued before the coming
into force of a new Act, to the consent of the debenture-
holders by extraordinary resolution passed at a meeting
held under the provisions contained in the trust deed
165
No comments yet.
Private notes are available after approval.