The object clause of the memorandum of the company contains the object for which

the company is formed. An act of the company must not be beyond the object clause
otherwise it will be ultra vires and therefore, void and cannot be ratified even if all
the member wish to ratify. This is called the doctrine of ultra vires. The expression
ultra vires consists of two words: ultra and vires. Ultra means beyond and
Vires means powers. Thus, the expression ultra vires means an act beyond the
powers. Here the expression ultra vires is used to indicate an act of the company,
which is beyond the powers conferred on the company by the objects clause of its
memorandum. An ultra vires act is void and cannot be ratified even if all the
directors wish to ratify it. Sometimes the expression ultra vires is used to describe
the situation when the directors of a company have exceeded the powers delegated
to them. Where accompany exceeds its power as conferred on it by the objects
clause of its memorandum, its not bound by it because it lacks legal capacity to
incur responsibility for the action, but when the directors of a company have
exceeded the powers delegated to them. This use must be avoided for it is apt to
cause confusion between two entirely distinct legal principles. Consequently, here
are restricting the meaning of ultra vires objects clause of the companys
memorandum.
Doctrine of ultra vires has been developed to protect the investors and creditors of
the company. This doctrine prevents a company to employ the money of the
investors for a purpose other than those stated in the objects clause of its
memorandum. Thus, the investors and the company may be assured by this rule that
their investment will not be employed for the objects or activities which they did not
have in contemplation at the time of investing their money in the company. It
enables the investors to know the objects in which their money is to be employed.
This doctrine protects the creditors of the company by ensuring them that the funds
of the company to which they must look for payment are not dissipated in
unauthorized activities. The wrongful application of the companys assets may result
in the insolvency of the company, a situation when the creditors of the company
cannot be paid. This doctrine prevents the wrongful application of the companys
assets likely to result in the insolvency of the company and thereby protects
creditors. Besides the doctrine of ultra vires prevents directors from departing the
object for which the company has been formed and, thus, puts a check over the
activities of the directions. It enables the directors to know within what lines of
business they are authorized to act .
The action/transaction may be reviewed in two the position under common law and under the companies
Act 1965. According to Company Law :
Business/Company that Ultra Vires acts are invalid
In Ashbury Railway Carriage and Iron Company Ltd v. Riche, (1875) L.R. 7 H.L. 653., In this
case, the objects of the company as stated in the objects clause of its memorandum, were to make and sell,
or lend on hire railway carriages and wagons, and all kinds of railway plaint, fittings, machinery and
rolling stock to carry on the business of mechanical engineers and general contractors to purchase and sell
as merchants timber, coal, metal or other materials; and to buy and sell any materials on commissions or as
agents. The directors of the company entered into a contract with Riches for financing a construction of a
railway line in Belgium. All the members of the company ratified the contract, but later on the company
repudiated it. Riche sued the company for breach of contract.

Neither the company nor the third party could enforce such a transaction. See:
Ashbury Railway Company v Riche (1875); Re Jon Beauforte (1953). The doctrine
was developed to protect the investors of the company ie its members as well as
its creditors, who could rest assured that their money would be applied only for
the purposes stipulated in the objects clause. The operation of the ultra vires
doctrine has been modified in Malaysia as a result of s.20 of the Companies Act
1965. By s.20(1), no act or purported act of a company, and no conveyance or
transfer of property to or by a company shall be invalid by reason only that it is
ultra vires. Thus, by virtue of this section, ultra vires transactions are valid and
binding upon the company. However, it cannot be said that the ultra vires
doctrine is not applicable altogether in Malaysia. Companies are still expected to
act within the scope of the objects clause as can be seen from s.20(2). By s.20(2)
(a), any member of the company or debenture holder secured by a floating
charge on the companys property or the trustees for such debenture holders
may take proceedings against the company to restrain the company from doing
any ultra vires act, or conveyance or transfer of any property to or by the
company. Section 20(3) provides that the court may allow compensation to the
company or other party for loss suffered as a result of granting the injunction. By
s.20(2)(b), the issue of ultra vires may be relied upon by the company or any
member in proceedings against the present or former officers of the company. By
s.20(2)(c), the issue of ultra vires may be relied upon in any petition by the
minister to wind up the company. It may therefore be concluded that in Malaysia,
completed transactions remain valid as between the company and the third
party and either party may sue the other upon it. The doctrine of ultra vires is no
longer applicable against third parties only in respect of completed transactions.
However, as mentioned above, uncompleted transactions may be stopped on
grounds of ultra vires. Further, the present and former officers of the company
may be made liable to the company for the ultra vires transactions. In addition,
the company may also be wound up by the minister. This serves to protect the
investors of the company, ie the members and the creditors. Thus, the rationale
behind the ultra vires doctrine still remains intact, and, while the doctrine may
have lost some of its importance it is still applicable in Malaysia to the extent
discussed above.