What is an objects clause and how far does it limit a company\u2019s actions?<\/p>\n
Under S31 of the Companies Act 2006, a company may include an objects clause in their memorandum of association, this will set out the business activities the company aims to pursue. In theory, this should restrict the company to only those business activities, resulting in any other activities being ultra vires and therefore void (Lowry, 2012).<\/p>\n
However, there is a direct conflict to this rule, found in S39 of the Companies Act 2006, which states that the validity of a company\u2019s acts cannot be called into question for lack of capacity by reason of the company\u2019s constitution.<\/p>\n
The key differentiation is that S31 is a limitation on the power of directors using their authority to bind the company, whereas S39 removes the limitation on the company to bind itself (Rolled Steel).<\/p>\n
S40 further diminishes the effects of S31, in that a director\u2019s power to bind the company is deemed free from limitations if they are dealing with somebody who is in \u2018good faith\u2019, in other words, they are not aware that the proposed transaction falls afoul of the company\u2019s objects clause. Overall, it is evident that objects clauses have minimal effect on limiting a company\u2019s actions.<\/p>\n
Lowry, J., Reisberg, A., (2012) Pettet\u2019s Company Law: Company Law & Corporate Finance. Fourth Edition, Pearson Education Limited<\/p>\n
Rolled Steel Products (Holdings) Ltd v British Steel Corp [1986] Ch 246<\/p>\n
Companies Act 2006<\/p>\n","protected":false},"excerpt":{"rendered":"
A consideration of the effect of a company’s objects clause on their actions, analysing whether the object’s clause in practice has an effect.<\/p>\n","protected":false},"author":1,"featured_media":1938,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[28],"tags":[],"yoast_head":"\n