Ultra vires

Ultra vires, Latin for "beyond the powers," is a legal doctrine stating that corporations cannot act beyond the purposes for which they were incorporated.

Caveat: why the rest of this writeup doesn't matter too much

Nowadays, ultra vires is a pretty useless doctrine, at least in the United States. Most articles of incorporation state that the corporation is being formed for "any and all lawful purposes," or list a few primary purposes with the "any and all" clause tacked on the end. (Before this was legally possible, corporate lawyers would load up articles of incorporation with every conceivable purpose for a corporation up to mining cheese on the moon.)

This means that it's impossible for a corporation to go beyond its purposes, unless the person handling the incorporation is dumb enough to put a limited purpose in the articles. And since most people starting a corporation are at least smart enough to get a lawyer or read a business law book, that rarely happens, except when you have a close corporation with tyrannical shareholders who don't want the directors doing too much with their money.

Ultra vires occasionally comes up in states that restrict the powers of corporations. In some places, for instance, corporations cannot enter partnerships or make contributions to a non-profit organization. But most such restrictions carry separate civil or criminal penalties, so ultra vires is unnecessary to enforce them.

There are also a few places, Japan being one of them (see this node), where corporations still have to have a more specific purpose than "everything." Of course, the aforementioned trick of listing every conceivable purpose is one possible solution under such regimes. Japanese companies also have the option of ending their purpose statement with "...and all purposes incidental to the above."

The mechanics of the doctrine

So a corporation can't go beyond its purposes. What does that practically mean?

Many olde English common law courts applied a dramatic form of ultra vires: any such act of a corporation was legally void. As if James Earl Jones showed up over your shoulder and said "That contract was never made. And I... was never here." Like many bits of English jurisprudence (powder wigs and the Statute of Frauds come to mind), this was rather silly, since it gave corporations an easy out from their obligations.

Many of the English courts figured this out, and applied an estoppel theory to force corporations to follow their contracts even if the deal was ultra vires. This view was codified in many parts of the U.S. during the 20th century, and included in the Model Business Corporation Act of 1950.

So where does that leave ultra vires? The more recent MBCA revisions suggest that ultra vires can be applied:

1. When the corporation or its shareholders sue former directors, to recover damages
2. When shareholders sue directors, to get an injunction against an ultra vires act
3. When the state's attorney general wants to dissolve the corporation (see: corporate death penalty)

Practically, however, ultra vires is dead in the United States, and any corporation careless enough to run afoul of the doctrine (by putting an unnecessary restriction in their articles of incorporation) probably deserves what they get.

Sources

• Hamilton, The Law of Corporations In A Nutshell (5th ed., West 2000)

Ul`tra vi"res (?), [Law Latin, from L. prep. ultra beyond + vires, pl. of. vis strength.]

Beyond power; transcending authority; -- a phrase used frequently in relation to acts or enactments by corporations in excess of their chartered or statutory rights.

© Webster 1913.