296 Chapter 11Companies (2): Management, control and winding up
The members of a company can ratify unauthorised acts committed by the directors.
If this is done the authority which was lacking is supplied with back-dated effect and the
act in question is adopted as an act of the company. An ordinary resolution is needed,
unless the act was outside the company’s objects clause, in which case a special resolution
is needed. This special resolution would confer retrospective authority on the directors,
but a separate special resolution would be needed to prevent the directors from incurring
personal liability. However, neither a special nor an ordinary resolution could validate an
act which amounted to a breach of a director’s fiduciary duties. (See below on pp. 298 – 300.)Directors as agents
The directors are given the power to act as the agents of the company, and a company can
act only through its agents. Sometimes those who manage a company call themselves some-
thing other than directors. Section 250 of the 2006 Act provides that anyone who occupies
the position of a director is to be regarded as a director, whatever name they give to their
position.
When the directors act collectively they act as the board of directors. Directors must
attend board meetings (which are quite different from general meetings of the company
members). Unless the articles provide otherwise, any director may call a board meeting. A
resolution of the board of directors is not passed unless more directors vote in favour of it
than vote against it. However, many articles allow the chairman of the board of directors to
have the casting vote where the votes of the directors are equally split. (The Model Articles
for both Private and Public Companies do this.) Section 248(1) requires that minutes of
board meetings be kept, although the failure to keep minutes does not invalidate decisions
taken. The minutes do not need to be registered with the Registrar of Companies.
The articles of some companies allow a managing directorto be appointed. Such a
managing director is usually given the power to exercise the powers of the board of directors
without calling a board meeting.The objects clause
An objects clause is a clause in a company’s articles which sets out the types of contracts
which a company can make. Section 31(1) of the 2006 Act provides that, ‘Unless a com-
pany’s articles specifically restrict the objects of the company, its articles are unrestricted.’
So it is no longer necessary for a company to have an objects clause, although most com-
panies will have one in their articles.
Before the 2006 Act came into force all companies had to have an objects clause in their
memorandum of association. (Such clauses have now been transferred to the company’s
articles.) However, since 1985 a company could state that its objects were to carry on busi-
ness as a general commercial company. This meant that the company could carry on any
trade or business whatsoever. So even before the 2006 Act came into force companies could,
in effect, do away with an effective objects clause.
When a company acts for a purpose outside its objects clause the contract is said to be
ultra vires. If this contract causes loss to the company the director who made the contract is
personally liable to reimburse the company for the money lost as the director will have
breached the s. 171(a) duty to act within the company’s constitution. The members can
excuse the director from making this payment by passing an ordinary resolution.
Before the law was reformed in 1972 an ultra virescontract would be void. The current
law is set out in s. 39(1) of the 2006 Act, which states: