Chris Gayle incorporates a Company called “Big Bats Co. Ltd.” In the Articles of
ID: 433811 • Letter: C
Question
Chris Gayle incorporates a Company called “Big Bats Co. Ltd.” In the Articles of Incorporation the Company objects clause says the Company is to make and sell cricket bats; cricket gloves and cricket balls all with the logo Chris’ Big Bats”. The Company entered into a contract with the Hanover Cricket Club to supply them with cricket gears. At some time during the period of this contract. Chris wanted to the company to also supply an energy drink as he thought it helped cricketers focus longer on the pitch. So the company contracted again with Hanover Cricket Club to sell an energy drink. As a minority shareholder John is concerned the Company won’t benefit from this new contract. Please answer the following questions:
John believes it’s wrong that Big Bats Co. Ltd sells energy drinks but he can’t explain why. Can you assist John and explain whether Big Bat Co. Ltd. can sell energy drinks? Support your explanation with an example of a case and the court’s ruling in the case. (3 marks)
Explain to John the rational of the Objects Clause and who it protects. (2 marks)
Chris comes to you and wants to know how his company can sell energy drinks. Discuss two ways his company can avoid the legal doctrine identified in question(a) above (2 marks)
Explanation / Answer
1. Memorandum of Association, and, the doctrine of Ultra Vires
Objects of the firm should be mentioned in the Memorandum of Association. The objects implied or expressed determine what an organization may do. The clauses are to enable those who deal with the firm, and, the creditors to know the extent of the firm's power & authority. Subscribers know the purposes to which the money can be applied. Any act outside the objects is ultra vires.
Acts which are not part of the principal or the ancillary object clause require a sanction by a general resolution of the organization at the firm's general meeting. The organization can redraft its object clauses and pass a special resolution.
Example, Ashbury Railway Carriage & Iron Company Ltd. V. Riche (1875)
The organization was to sell, make, and, hire railway carriages. It agreed to offer Riche finance to build a railway in Belgium. This was declared Ultra Vires.
United Kindom 2006 allows for unlimited objects
The objects clauses are not applicable in all jurisdictions.
2. The clauses state the range of activities for a firm. It circumscribes the power, or, the capacity of a firm to act. The act is relevant against directors for breach of duty, for a failure to observe the limits of their constitutional power.
The act protects the shareholders who invest in an organization for the purposes listed in the objects. It also allowed the Governments to provide concessions to operate a trade. The firm cannot deploy the money into purposes other than the objects clause. Creditors can avoid transactions that are ultra vires, and, avoid such acts.
3.
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