Understanding Ultra Vires Acts
Ultra vires acts are any actions that lie beyond the authority of a corporation to perform. These actions fall outside the powers that are specifically listed in a corporate charter or law. It can also refer to any action that is specifically prohibited by the corporate charter. Generally, the term comes from a Latin phrase that means ‘beyond the power’—the opposite of which is ‘intra vires,’ meaning ‘within the powers.’ This term is widely used within the legal profession.
Unpacking Excessive Use of Power
When a corporation or another entity performs acts that exceed their granted authority, these actions can be classified as ultra vires. Such acts cannot be legally defended and render the corporation vulnerable to lawsuits from employees or other stakeholders.
Corporations have a variety of legal documents and directives that outline permitted actions, which may include a ‘memorandum of association.’ Primarily used in Europe, but not commonly in the United States, the memorandum serves alongside the ‘articles of association’ as a constitution for a company. Together, these documents outline the conditions under which the organization may operate and interact with shareholders. Similarly, the ‘articles of incorporation’ define a company’s nature, purpose, and organizational structure.
Ultra vires acts are not confined to corporations alone. If government bodies act beyond the scope of their legal powers, their deeds can also be deemed ultra vires.
Inspirational Examples of Ultra Vires Actions
-
Breaching Corporate Procedures: Say a company’s constitution specifies a distinct procedure for appointing directors. If board members are added or removed without adhering to those specified procedures, this would be considered an ultra vires act.
-
Misuse of Resources: Imagine individuals within a company using resources outside their legal authority. This can include actions like accessing company bank accounts for personal use or transferring ownership of company assets without proper authorization.
-
Government Overreach: When government entities operate beyond their legal bounds (as defined by constitutions or other legal documents), these actions, known as ultra vires, may face legal repercussions.
In all these examples, actions taken beyond sanctioned powers are not just problematic; they also open up the entities involved to potential lawsuits and undermine the trust and structure in an organization’s governance.
Related Terms: corporate charter, memorandum of association, articles of association, shareholders, intra vires
