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There are four recurring themes throughout company law: a company is a separate legal entity, the majority normally rules, Directors have a fiduciary relationship with the organization and that ultimate control rests in the general meeting. The majority of 'conflict' in company law derives from the attempt to balance these basic principles with the interests of shareholders, creditors and other stakeholders.
Third parties were often unable to sue companies in contract because of the ultra vires rule pertaining to the objects clause - which specifies the business the company can carry on and the legal powers of the company - in the Memorandum of Association. When the rule applied it made any contract which was caught by the rule void and the creditor could receive no restitution.
This was justified by the rule of constructive notice. This holds that since the Memorandum is a public document all parties are deemed to have had the opportunity to read it prior to committing to a transaction. Moreover the rule protected the shareholders' capital from acts undertaken by Directors purportedly on the company's behalf.
The immediate result was increasingly long objects clauses as companies strove to include any business they might wish to carry on, or power they might wish to exercise, together with catch-all clause permitting the company to carry on any business which the Directors thought fit: Bell Houses Ltd v City Wall Properties Ltd .
An aligned problem is that of Directors acting outside their authority. This may not be deliberate. ...
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