Capacity of a Company
In considering whether a transaction entered into by a company is valid we must consider the legal capacity of the company to enter into a transaction and the powers or authority of the directors to effect the transaction.
According to section 19(1)(b) of the Companies Act 2008 a company has all the legal powers and capacity of an individual. The power and capacity is however limited to the extent that they
– Can be exercised by a juristic person or
– Are limited by the companies MOI
The legal powers bestowed upon a company allow the company to enter into and enforce transactions with other parties for example a company may enter into contracts, sue or be sued and may own property.
Historically companies were required to provide for an objectives clause in its founding documents. Any act of the company that fell outside of the objects clause was considered to be an act beyond the powers of the company i.e. ultra vires. Any transaction entered into was therefore considered legally invalid and hence unenforceable by either the company, shareholders of third parties. In the event that any benefits were transferred these had to be restored.