Turquand Rule Understand the ultra vires doctrine amp the Turquand Rule Understand and explain the legal capacity of a company and the authority of directors to represent the company Learning Outcomes ID: 686848
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Slide1
Corporate Law
Corporate Capacity, Agency & The
Turquand
RuleSlide2
Understand the ultra
vires
doctrine & the Turquand RuleUnderstand and explain the legal capacity of a company and the authority of directors to represent the company
Learning OutcomesSlide3
To protect investors and shareholders
What is
ultra vires?Literally “outside the powers”In common law ultra vires
acts were void
Company therefore not boundCompanies Act of 2008 abolishes doctrine of ultra vires externally but it is preserved internallySection 20 (1)
The
Ultra
Vires
DoctrineSlide4
An act (except if contra to Act) is not void only because:
Company did not have capacity to perform the act because of limit or restriction imposed by MOI
Directors did not have authority to perform the act
Section 20(1)Slide5
Ultra vires
doctrine exists internally within company insofar as
Directors will be liable for breach of fiduciary dutyShareholders entitled to restrain company from entering into or performing an ultra vires
contract
See Section 20(1) (b) (i) and (ii)Internal applicationSlide6
Doctrine does not apply
Shareholders may ratify any acts by company or directors that were
ultra viresShareholders have claim for damages against any person who causes company to act
ultra
vires (Sec 20(6)External ApplicationSlide7
Persons doing business with a company are deemed to have knowledge of a companies constitutional documents as they are public documents open for inspection
2008 Act abolishes doctrine of constructive notice
No one is deemed to have knowledge of company documents merely because documents filed or open for inspection
Doctrine of Constructive NoticeSlide8
However:
Person deemed to have knowledge of any provision in a MOI if Notice of Incorporation (or amendment) has drawn attention to that provision
See Sec 19(5)Slide9
What is it?
Essentially, that anyone dealing with a company can presume that the person they are dealing with has complied with internal requirements and is entitled to act accordingly
2008 Act formalises the rule in section 20(7)Provides protection to third parties dealing with companyDirectors, shareholders etc may not rely on it internally
The
Turquand RuleSlide10
(7) A person dealing with a company in good faith, other than a director,
prescribed officer
or shareholder of the company, is entitled to presume that the company, in making any decision in the exercise of its powers, has complied with all of the formal and procedural
requirements in terms of this Act, its Memorandum of Incorporation and
any rules of the company unless, in the circumstances, the person knew or reasonably ought to have known of any failure by the company to comply with any such requirement.
Section 20(7)Slide11
Company cannot act on its own
It acts through its directors
Business of copany must be managed under direction of the board of directors (section 66(1)Board has authority to exercise all powers and perform all functions of the company except as specifically prohibited by Act or MOI
Representation & authority of directorsSlide12
Board can delegate its powers to individual directors or managers
Contractual arrangement
Law of agencyRepresentation of company