The ‘ultra vires’ doctrine and the drafting of an objects clause in modern company law : a comparative approach

Abstract

Under the Maltese Companies Act a limited liability company is still to this date required to specify its objects in the memorandum of association. An important legal consequence to this fact is the doctrine of ultra vires. In the past, the doctrine has been applied in strict terms. As formally established, by virtue of the ultra vires doctrine, any act or transaction that went beyond the stated objects of the company would be declared null and void. This would consequently leave companies and third parties without a remedy. Some legal systems have modified their laws to remove altogether the ultra vires doctrine, by granting companies unlimited capacity to act. This was the approach of many legal systems, including the UK and Ireland. The need for this change was seen as fundamental, because the intended purpose of the doctrine, that of protecting shareholders and creditors, was no longer being effectively achieved. Rather the doctrine was seen as an obsolete mechanism with many practical difficulties that no longer align with commercial realities. In Malta, despite that the doctrine is not applied as strictly as before, the Maltese Companies Act still has embodied within it the ultra vires doctrine and there can be situations where disputes can occasionally arise. In this study, a comparative analysis of the legal systems of Malta, UK and Ireland is conducted, with the aim of providing practical recommendations on how the Maltese Companies Act can be amended. This study concludes that the ultra vires doctrine and the requirement of an objects clause in the memorandum of limited liability companies no longer remain a need in this day and age. Rather this study suggests that Malta should, similar to foreign jurisdictions, remove the obligatory requirement of specifying the objects in the memorandum, to overall simplify and enhance company law.