Company Law - Capacity, Powers, and Validity

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Insiders (in Company Law)

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Directors, shareholders, and certain other persons within the company.

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Outsiders (in Company Law)

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Any legal persons that transact or otherwise deal withthe company.

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Flashcards on Company Law lecture notes, focusing on capacity, powers, validity of company actions, and the ultra vires doctrine.

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20 Terms

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Insiders (in Company Law)

Directors, shareholders, and certain other persons within the company.

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Outsiders (in Company Law)

Any legal persons that transact or otherwise deal withthe company.

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General Rule (Capacity to Transact)

The company has the same capacity to transact as any other legal person.

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Effect of General Rule (Outsiders)

An outsider may rely upon the transaction as enforceable against the company and enforce it accordingly.

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Exception to the General Rule

If an outsider knows that a representative may not enter into the transaction for the company, the outsider may not enforce the transaction.

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Statutory General Rule

The company has the capacity to transact in its own best interest or otherwise.

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Grantham and Rickett on Capacity

The law in general invests all persons with capacity to make bargains and to deal with their property.

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Ultra Vires (Common Law)

Acts undertaken by the company beyond the scope of its capacity were void.

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Limitations on Company Capacity

Limitations on the company's capacity are of no effect against those dealing with the company.

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CA 93, s 16(1)(a)

A company has full capacity to carry on any business or activity, do any act, or enter into any transaction.

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CA 93, s 17(1)

No act of a company is invalid merely because the company did not have the capacity, the right, or the power to do the act.

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CA 93, s 18(1)

A company or a guarantor of an obligation of a company may not assert against a person dealing with the company that the Act or the constitution of the company has not been complied with.

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CA 93, s 19

A person is not affected by, or deemed to have notice or knowledge of the contents of, the constitution of a company merely because the constitution or document is registered.

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Lord Slade's Basic Rule

A company only has the capacity to do those acts which fall within its objects as set out in its memorandum of association or are reasonably incidental to the attainment or pursuit of those objects.

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Lord Slade on Notice

If a person dealing with a company is on notice that the directors are exercising the relevant power for purposes other than the purposes of the company, he cannot rely on the ostensible authority of the directors.

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Lord Browne-Wilkinson on Good Faith

A third party dealing in good faith with directors is entitled to assume that the internal steps requisite for the formal validity of the directors’ acts have been duly carried through.

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Lord Browne-Wilkinson on Capacity

A transaction is beyond the capacity of the company is a nullity and wholly void.

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Ultra Vires Actions

Transactions which the company has no capacity to carry out.

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Westpac Banking Corp v New Zealand Guardian Trust Co Ltd

Distributions made by the receivers to shareholders with assets not sufficient to meet the claims from all the first-ranking debenture stock holders.

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Justice Greig on Companies Act 1993

Modified the doctrine of ultra vires which had become an impediment to the operation of companies.