What Are Ultra Vires Acts?
Let me explain what ultra vires acts are: they are any acts that go beyond the authority a corporation has to perform them. These acts fall outside the powers specifically listed in a corporate charter or law, and they can also include any action that's specifically prohibited by the corporate charter.
The roots of the term come from a Latin phrase that means beyond the power. It's the opposite of intra vires, which means under proper authority. You'll also encounter this term in the legal profession.
Excessive Use of Power
Ultra vires acts can also be defined as any excessive use of the corporate power that has been granted. You should know that these acts cannot be legally defended in court; in fact, they leave the corporation vulnerable to lawsuits by employees or other parties.
Companies have various legal documents and directives that outline the parameters of permitted actions for the organization, its employees, and directors. These can include what's known as a memorandum of association, which is largely used in Europe but not in the United States.
The memorandum, combined with articles of association, serves as a constitution for companies, outlining the conditions under which the organization may operate and interact with shareholders. The memorandum provides guidance on external matters the company can engage in, while articles of incorporation define the nature of a company, its purpose, and the type of organization it will be.
If other entities like government bodies take actions beyond the scope of their legal powers, their deeds can also be described as ultra vires acts.
Examples of Ultra Vires Actions
Actions that breach the directives I've mentioned can be classified as ultra vires. For instance, if a company's constitution outlines the procedure for appointing directors to its board, and board members are added or removed without following those procedures, then those actions would be ultra vires.
If individuals within a company use resources that go beyond their legal purview, this can be called ultra vires. Such actions may include appropriating company revenue or shares that the individuals do not legally own. Consider a manager accessing the company's bank accounts and using those assets for personal needs—this would be classified as an ultra vires act. Similarly, if an accountant or another financial officer transferred ownership of company shares they have rights to control, that also falls under ultra vires acts.
When government bodies or agencies take action, the scope of their powers is determined by laws, which can include a constitution. If branches of government go beyond those outlined powers, their actions can be deemed ultra vires and may face legal repercussions.
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