The Doctrine of Ultra Vires under Malaysian Company Law

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Discuss the doctrine of ultra vires and its effect in Malaysian Company Law. According to s18 Contract Act 1965, every company formed should have a memorandum printed and divided into paragraph and with the date stated. In s18 (b) Contract Act 1965, it shows that the requirement of the Memorandum of Association (M/A) required a statement of object clause. The object clause can be used to describe the nature of the business such as manufacturing business, merchandising business or service business. Besides, it also show the company power, its purpose and the legal capacity of the company.[1] Furthermore, the purpose of the object of M/A should be lawful as stated in s14 (1) Company Act 1965. The consequence of unlawful purpose and incompatible to peace, welfare, security, public order, good order or morality in Malaysia will be Registrar of Company will refuse for the registration of the company as followed to s16(8)(a) Company Act 1965. As it has been stated that object of M/A function as recognize the legal capacity of the company, in the same time, it has limited the company which it require the company to act based on the statement. If the operation of the company is different with the object of M/A, ultra vires will be recognized. Ultra means “beyond” whereas vires means “power” where ultra vires happened when an act is against the object clause. Although the company want to ratify the act, the act is void at initio. This can be further explained by the common law and statue. However, if the company wants to prevent ultra vires, the company must alter the object clause. There are certain requirement as stated s28 Company Act 1965. In s28 (1) Company Act 1965, it stated that alteration can be made based on a special resolution. Besides, by holding this special resolution, members and debentures holder of the company should be given 21days of notification to the special resolution as according to s28 (2) Company Act 1965. Common Law The doctrine of ultra vires under common law refers to the rules that company must act within their objects clause that is stated in the memorandum of association. Any activity that is outside from the company capacity is void. Neither the company nor the third party could enforce this. In other words, ultra vires act is void and the contract cannot be ratified even if the company wishes to. Under common law, the company’s contract is void due to internal or external context. Externally, when a third party contracting with a company, if the contract was not fulfill the objects of company that stated in memorandum of association, then the contract was ultra vires and void. Internally, if the company and the director enter into an ultra vires contract, the company may immediately stop the act of the director and claim damages from the director who breach his fiduciary duties by entering into the contract which is outside from the company’s capacity.

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