Law And Lawyers
The Ultra Vires of a company.
Introduction:
An act which is get beyond the powers given by the memorandum and article of association is void and is also known as ultra vires of the company. In corporate law, ultra vires describes acts attempted by a corporation that are beyond the scope of powers granted by the corporation’s memorandum and articles of association or in a clause in its Bylaws, in the laws authorizing corporation’s formation, or similar founding documents. Acts attempted by a corporation that are beyond the scope of its charter are void or voidable.
In administrative law, an act may be judicially reviewable ultra vires in a narrow or broad sense. Narrow ultra vires applies if an administrator did not have the substantive power to make a decision or it was wrought with procedural defects. Broad ultra vires applies if there is an abuse of power or bad faith or a failure to exercise an administrative discretion acting at the order of another or unlawfully applying a government policy. Either policy may entitle a claimant to various prerogative writs, equitable remedies or statutory orders if they are satisfied.[1]
The memorandum of association of a company often simply called the memorandum usually includes the document that governs the relationship between the company and the outside. It is one of the documents required to incorporate a company in the United Kingdom, Ireland and India, and is also used in many of the common law jurisdictions of the Commonwealth.[2]
The term articles of association of a company, of an American or Canadian Company, are often simply referred to as articles. The Articles are a requirement for the establishment of a company under the law of India, the United Kingdom, Bangladesh and many other countries. Together with the memorandum of association, they constitute the constitution of a company.
It is a duty of directors that they are aware of the contents of the constitution of their company. This is partially stated in section 35(3) of the Companies Act 1985:
‘It remains the duty of directors to observe any limitations on their powers flowing from the company’s memorandum’.[3]
This will be put even more strongly when the review of company law presently being undertaken by government is completed. The White Paper ‘Modernizing Company Law’ contains a number of draft provisions which it intended should be included in a future Companies Act. Amongst these there is set out in a schedule a statement of what are termed ‘general principles by which directors are bound’. The first of these principles is stated in the following terms:
A director of a company must act in accordance with:–
(a) The company’s constitution and
(b) Decisions taken under the constitution or by the company or any class of members, under any enactment or rule of law as to means of taking company or class decisions and must exercise his powers for their proper purpose.[4]
The effect of the memorandum and articles of association
As incorporated in Bangladesh under the Companies Act 1994 subject to the provisions of this Act, the memorandum and articles, when registered, bind the company and its members to the same extent as if they respectively had been signed and sealed by each member, and contained covenants on the part of each member to observe. All provisions of the memorandum and of the articles of association are as follows:
- “The Act” means the Companies Act. 1994, as adopted in Bangladesh and ordinance means the Trade Organization Ordinance, 1961 or any other statutory enactment for the time being in force.
- “Executive Committee” means the Executive Committee for the time being of the Company.
- “The Office” means the Registered Office for the time being of the Company
- “The Register” means Register of Members to be kept pursuant to Section 31 of “The Act”.
- “The Registrar” means the Registrar of Joint Stock Companies of Bangladesh.
- “Office Bearer” means 9 office bearers, i.e., the President, the Senior Vice President, Vice President, the General Secretary, the Joint secretary, the Organizing secretary, the Treasurer and the Joint Treasurer.
- “Month” means Calendar month.
- “Year” means Calendar Year.
- “In Written” and “Writing” includes printing, lithography and other modes of representing or reproducing words in a visible form.
- “Published” means circulated amongst the members of the Association.
- “Vacancy” the term shall include all vacancies occurring, for any reason, after the announcement of the results or the bi-annual election, which is not a “temporary absence’.
- “Temporary absence” means unauthorized absence from attending up to 3 consecutive meetings without a temporary leave of absence.
- Words importing the singular number only, include the plural number and vice-versa.
- Words importing the masculine gender also include the feminine gender.
- Words importing persons includes corporation.
- ‘Members’ means registered firms, companies, corporate bodies or juristic persons only.[5]
Power and functions of the executive committee
The Management of the business and affairs of the Association shall be vested in the Executive Committee who will be considered as Trustees of the Association in respect of the properties of the Association and power & functions of the Executive Committee shall be :-
To look after the business of the Association and to take all possible measures and steps to promote the popularity of the Association with a view to achieving its aims and objectives and to increase the status and dignity and honor of the Association and members thereof.
To make, add, improve, repeal such rules, Bye-laws, code of conduct and Regulations for the association and or its Regional Sub Committees as the Executive Committee may consider expedient for the proper working of business of the Association subject to the approval at a General meeting as per clause.
To enter into any agreement upon such terms and conditions as the Executive Committee may deem desirable for working in conjunction with any other trade organization with similar objectives and goals.
To create any sub Committee of the Association which may be permanent or temporary or for a special purpose as the Executive Committee may deem necessary and to appoint Executive Committee members to such sub-committees and accordingly to fulfill the aims and objectives of the Association.
Such a Chairman shall be a shareholder/director/partner of the member entity as the case may be. The Chairman shall be empowered to form a standing committee in order to facilitate the Executive
All decisions of the Chairman and or the regional Standing Committee shall be subject to the approval of the Executive Committee and such decisions of the Chairman and or the regional Standing committee must be forwarded within one week in writing in order for it to be approved by the Executive Committee.
To delegate, subject to such conditions as they think fit, any of their powers to any committees or Sub-committee.
The Executive Committee shall keep the members fully informed about their activities.
To approve Organizational structure, salaries and relevant terms and conditions of employment of staff as and when it deems fit.
To recruit, appoint, dismiss, terminate, remove or suspend to take any disciplinary action against any member of the staff of the Association.
To meet, the working expenses of the management establishment, charges and salaries of the staff of the Association.[6]
Meeting of the Executive Committee
The executive committee shall meet at least once in 60 days period as may be notified by the General Secretary under the direction of the President.
The President or in his temporary absence the Senior Vice president and in his temporary absence Vice President and in his temporary absence Vice President 2 will preside over all meetings of the association. In the absence of all the above mentioned office bearers, The Executive Committee shall elect amongst its members to fill such post during the period of temporary absence.
The regular meeting of the executive committee shall require at least 7 days written notice, served by the General Secretary under the direction of the President but, emergency meeting can be held with at least 24hrs. The President will ensure holding of the regular Executive Committee meeting. As a whole, it is the responsibility of the executive committee to make such regulation as they think proper in regard to holding of the meetings of the Executive Committee and for the transaction of the business at such meetings.
The quorum for Executive Committee meeting shall be at least one third of The Executive Committee members present in the meeting. The Members present shall wait for an hour more beyond the appointed time and if the requisite Quorum is still not achieved, the President shall adjourn the meeting.
The President with consent of the majority of the members present may also adjourn any meeting of the Committee from time to time and place to place. At all such adjourned meetings, members of the Executive Committee actually present shall form a quorum and shall transact no business other than the business left unfinished from the meeting from which the adjournment took place.
If a scheduled Executive Committee meeting does not take place in conforming with clause (VII.A), one or more committee members can put forward a written petition to the President to call such meeting, which is to be held within next 7 days time, or as an alternative, the General Secretary will serve notice for holding such meeting immediately after and by following such proposed agenda that has been determined by the members of the Executive Committee, number of which equals to a quorum at the least.
If any Executive Committee member absents him from three consecutive meetings of the Committee or from all the meetings of the Committee for a continuous period of three months, whichever, is longer without leave of absence from the committee, he shall cease to be a member of the Committee and his post shall be deemed to have fallen vacant.
The proceedings of all the meetings of the executive committee to be circulated among the Executive Committee members within 15days from the date of the meeting and such proceedings to be recorded in the MINUTES BOOK of the association preserved at its registered secretariat.
No resolution duly passed at a meeting of the Executive Committee shall be amended, altered or rescinded at a subsequent meeting of the Executive Committee held within twelve months of the date on which resolution was adopted, unless two third of the total number of members of the Executive Committee vote for a change and the Agenda containing the proposal was duly circulated.[7]
All acts done by any meeting of the Committee or by a sub-committee shall notwithstanding any defect in the appointment of any member of the Committee or persons acting as aforesaid or any of them having been disqualified, be deemed valid as if every such person had been duly appointed and so qualified to be a member of the Committee provided that nothing in this Article shall be deem to give validity to acts done by a person after the appointment of such person has been shown to be invalid by a competent authority.
Accounts and Audit
All moneys on account of daily collection and other subscriptions realized by the Association shall be deposited in a Bank approved by the Executive Committee. Withdrawals shall be made by means of cheque under the joint signatures of any two office bearers from among the President, the General Secretary and the Treasurer. The following functions shall also be performed strictly;[8]
A) Proper Account Books shall be preserved in the registered secretariat of the association corresponding to the subject mentioned hereunder;
(i) Detailed record of receipt and expenditure for all monetary transactions and of matters for which such transactions took place, and
(ii) Detail of all the assets and liabilities of the association.
B) Association shall issue its own money receipt against all payment received and compulsorily deposit the same in the Bank account of the association. The Association shall pay all dues against acknowledgement receipt all dues over Tk. 50,000.00 shall be paid through cheque unless for any special reason if it is necessary to make payment in cash, then the approval of the Executive Committee must be taken.
C) The Treasurer shall prepare the Annual Balance Sheet and Income and Expenditure of Accounts and as per Companies Act, have it examined and audited by qualified auditors. Such audited accounts report shall be placed at the Annual General Meeting for approval.
D) The Executive Committee shall circulate, free of cost, the Annual Balance Sheet, Audited report for Income & Expenditures, final audit report and Annual report of the Executive Committee, at least 14 days prior to the Annual General Meeting, among all members of the association eligible to attend such meeting.
F) The first Auditors shall be appointed by the Executive Committee, thereafter Auditors shall be appointed by the Annual General Meeting on such remuneration as may be decided upon.[9]
Annual General Meeting
The first General Meeting of the Association shall be held at such time not being less than one month and not more than three months after the incorporation of the Association and at such place, time and date as the Executive Committee may determine in accordance with Section.83 of the Companies Act 1994. For holding Annual General Meeting of the Trade Association in accordance with the Companies Act, 1994 the following rules shall be applicable :-
A. Annual General Meeting shall be held compulsorily once in every calendar year and such time being not more than 15 months after holding of the last preceding general meeting and shall specify the meeting as such in the notices calling it.
B. At least 14 days notice shall be served for an Annual General Meeting entitled to pass ordinary resolution, specifying the place, date and hour of the meeting and shall be circulated to all the members along with the statement of business to be transacted in it. Non receipt of such notice by any member shall not invalidate the proceedings at such meetings.
C. If the Scheduled Election gets postponed or examination of accounts could not be completed by the auditor, whatever the case may be, the Annual General Meeting must convene stating proper explanation of such failure.
D. The quorum for the Annual General Meeting shall be at least one tenth members of the General Body present in the meeting. If the requisite quorum is not complete the attending members shall wait for an hour more beyond the appointed time and if the requisite quorum is still not formed, the meeting shall stand adjourned to the same day in the following week at the same time and place and at such adjourned meeting if a quorum is not formed within one hour from the time appointed for the meeting, members present shall form a quorum.
E. The Annual General Meeting will transact the following business:
- Confirmation of the minutes of the last Annual general meeting.
- Adoption of the Annual Report of the Association.
- Passing of the Audited Accounts of the Association.
- Introduction of the newly elected Executive Committee.
- Selection of Auditor and fixing of his remuneration
- Miscellaneous with the permission of the Chair
For failure to take reasonable steps to hold the Annual General Meeting as per mentioned rulings, the concerned members of the officiating Executive Committee shall be disqualified to be a candidate in the election for Executive Committee of the Trade Association for the next six years.
F. The President and in his absence, the Senior Vice-President and in his absence the Vice-President-01 and in his absence Vice-President-02 shall preside over the Annual General Meeting .If the President, the senior Vice-President or both the Vice-Presidents are not present, the Members present shall elect one from amongst themselves to act as Chairman of the Meeting.
G. The President may, with the consent of the Members present, adjourn the meeting from time to time and from place to place but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place.
At any Annual General Meeting unless a poll is demanded by any Member a declaration by the President that the resolution has been carried and an entry to that effect in the book of the proceedings of the Association shall be conclusive evidence of the facts, without proof of the number or proportion of the votes recorded in favor or against the resolution.
If a poll is demanded in the manner aforesaid, the same shall be taken in such a manner as the Chairman may direct and the result of the poll shall be deemed to be the resolution of the meeting on which the poll is demanded.[10]
Conclusion
Finally I would like to conclude that on the face of it appears absolutely straightforward that the memorandum and articles are a contract between the company and the members and also between the members themselves. Thus a company can enforce an article giving it the right to make calls on unpaid shares against a member, a member can enforce an article giving him voting rights against the company, and a member can enforce an article giving pre-emption rights on a sale of his shares against another member. This is usually referred to as the statutory contract or the section 14 contract. A notice may be served upon any member either personally or by sending it through the Registered Post at such members registered address. Any notice sent by post shall be deemed to have been served at the time when the letter containing the same would be delivered in the ordinary course of post. The Executive Committee shall provide a common seal for the Association. The seal shall be deposited with the President and shall never be affixed to any document except with the prior authority of the Executive Committee and signed by the President, provided that any instrument bearing the seal of Association and issued for a valuable consideration shall nevertheless be binding on the Association. Every representative present in person at a meeting of the Association and qualified to vote shall have one vote. Every question submitted to a meeting of the General Body, Executive Committee or any other Committee of Association shall be decided, unless unanimous, by a majority of the members present in person and voting at such meeting.
References :
Bradley, A.W. and Ewing, K.D.,Constitutional and Administrative Law (Pearson, 2003).
The Ultra Vires Doctrine in a Constitutional Setting: Still the Central Principle of Administrative Law [1999] Cambridge Law Journal Vol. 58 129).
Robert W. Hamilton. The Law of Corporation 4th Edition, 1996 West Group.
W.H.S. Jones, 1936, A history of St Catharine’s College, Cambridge University Press.
Memorandum of Association (MOA) & articles of association under the Companies Act 1994.
Under the law prior to the 2006 Act, in the event of any inconsistency between the memorandum and the articles, the memorandum usually prevailed: see Ashbury v Watson (1885).
Resolution of the Council of the International Bar Association of October 8, 2009, on the Commentary on Rule of Law Resolution (2005).
Thomas (January 12, 2008). “How to survive an Audit”.
Shareholder Meetings, AllBusiness.com, October 26, 2004.
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Online References
[1] The Ultra Vires Doctrine in a Constitutional Setting: Still the Central Principle of Administrative Law [1999] Cambridge Law Journal Vol. 58 129).
[2] Bradley, A.W. and Ewing, K.D.,Constitutional and Administrative Law (Pearson, 2003).
[3] Robert W. Hamilton. The Law of Corporation 4th Edition, 1996 West Group
[4] W.H.S. Jones, 1936, A history of St Catharine’s College, Cambridge University Press,pg-414
[5] Memorandum of Association (MOA) & articles of association under the Companies Act 1994.
[6]Under the law prior to the 2006 Act, in the event of any inconsistency between the memorandum and the articles, the memorandum usually prevailed: see Ashbury v Watson (1885) 30 Ch D 376.
[7] Resolution of the Council of the International Bar Association of October 8, 2009, on the Commentary on Rule of Law Resolution (2005).
[8] http://www.pmhut.com/how-to-survive-an-audit. Retrieved December 13, 2009
[9] Cutting, Thomas (January 12, 2008). “How to survive an Audit”.
[10] Shareholder Meetings, AllBusiness.com, October 26, 2004
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