Corporate Capacity

This chapter examines the ultra vires doctrine, under which the capacity of companies used to be limited by the objects stated in their memorandum. This doctrine could be justified through a concession style argument as well as through contractual analysis. The doctrine, however, proved unsuitable for the operation of commercial organizations. These organizations need flexibility, and the law adapted to the requirements of organizational action and now mandates that all non-charitable companies have unlimited capacity. The chapter then analyses the recent recommendation for companies to set themselves a purpose discouraging them form making the generation of financial return their primary objective. It argues that the programmatic statement of a corporate purpose is likely to bring about only cosmetic changes. If there is a desire for wider aims to be integrated into corporate decisions these would have to be institutionalized. This can be achieved, for example, by identifying a board member to represent these interests on the board.