Corporate Capacity and the Ultra Vires Rule Under Nigerian Law

ABSTRACT

Any act of a company outside the Memorandum and Articles of Association of the company or the statute(s) creating the company is Ultra Vires. Traditionally, such acts are VOID and neither the company nor third parties derive any benefits from such transactions.

Attempts to moderate the harsh consequences of the Ultra Vires Rule have failed to yield results that satisfy all the parties in corporate practice.

The result is that the Ultra Vires Rule is dreaded by many. As a follow-up, the company, a potential instrument for investment and development, is equally dreaded by investors and/or creditors or third parties dealing with the company.

This thesis investigates the Ultra Vires Rule and corporate capacity in theoretical and practical terms against the background of connected matters, with a view to arriving at recommendations for further reforms that will attain the best of results for Nigeria.

This work strives to contribute immensely in ridding the dangerous propensities relative to investors and creditors of the company, as to corporate capacity and the Utra Vres Rule. This should render or make companies a more attractive medium for doing business to be fully, freely, and fearlessly embraced by all for speedier development.

The research is basically doctrinal, based on available literature on the subject, and establishes among other things that the Ultra Vires Rule otherwise called, the doctrine of limited capacity of companies, does not serve the interest of justice or the best interest of all the parties to corporate practice. Rather, the rule is a nuisance to investors and a trap to unwary creditors or third parties. In the same vein, the concept of limited liability and the distinction between the Memorandum and Articles of Association are undesirable. Also, it is

more practicable to treat issues of company law as distinct rather than as logically following from other branches of law, says the agency.

The overall implication of the findings of the research is that the law as now obtains needs to be reformulated in line with recommendations made in the thesis to attain the best results for Nigeria.