Answer to Question #233085 in Management for Bob

Question

A corporation is formed for the purpose of manufacturing, buying, selling, and dealing in drugs, chemicals and similar products. The corporation, under authority of its board of purchase the land and building it occupied as a factory and store. Collins, a shareholder, sues in court to restrain the corporation from completing the contract, claiming that as the certificate of incorporation contained no provision authorising the corporation to purchase real estate, the contract was ultra vires.. Decisions?

Answer should not be less than 700 words

Answer 1

It was an argument of Collins who argued that the contract mentioned above was far and beyond ultra vires, as the said contract went beyond the set-aside powers of the board of directors who were responsible and therefore this was a clear and elaborated indication that the powers that the officers of the board of directors and other officers in the corporation were highly limited and curtailed by specific regulations. Therefore any act or omission performed by the said officers was contrary to the regulations. Hence, they were deemed to be ultra vires of the regulations and laws that regulated them. The lawsuit as constructed by the said Collins was on the grounds that the construction and building that was built on the property and the violation of the laws by the board of directors and its officers. 

While Collins believes that the contract was on the basis of violations of the laws or the board of directors acted ultra vires, the said individual did not adequately and fully provide a considered and admissible evidence to verify that the certificate of incorporation was legal or illegal. The certification of incorporation offers authority approval from the corporation’s board of directors. The incorporation certificate permitted the board of directors to legally carry out and perform any actions that are very fundamental and equally important to enhance the sole purpose of the corporation without having to clearly, logically, and explicitly highlight what specific undertakings and actions are basically allowed and what acts are not allowed. Purchase of the land and subsequently the real estate was not entirely for the purpose or reason of becoming a holder of the real estate but rather for the purpose of setting up the selling, manufacturing, and marketing of drugs as per their plan.

Whilst of the fact that the corporation did not have express, clear and specific actions, the corporation did not act out of the scope of its given powers or authority. The corporation received express approval that emanated from the board of directors to continue purchasing the land to build a factory and store. The court will, therefore, and most likely decide in favor of the corporation, which one of the general powers has conferred by statute the authority used to acquire the real estate, more especially real estate for use in conducting the business it is literally organized to carry on  the mentioned business.

In all, Collins is not able and cannot prevent the occurrence of the underlying contract.

The key argument of Collin was that the said contract went against the written permissible laws, or in other words, the contract was deemed to be ultra vires as it went against the written laws or the applicable laws. The board and the officers who were basically involved in the transactions had powers that were very much limited on the basis of the agreed articles of incorporation that provides affirm guidelines on how such kind of business can be carried out and be permissible on the face of it in any court of law.

It is my considered opinion that Collins cannot and will not prevent the occurrence of the contract from the process of being executed to the latter. The reason that forms the basis of this opinion is that the articles that guide the incorporation process do not impose limitations on the powers of the corporation (Mann & Roberts, 2019). Moreover, the issue of Collins lies with the certificate that gave birth to the process of incorporation. Collins has an issue that the certificate of incorporation does not show, mention, or make a clear indication of the interest he has in the certificate of approval from the said board of directors to facilitate purchasing the land and subsequent building. Another vital piece of information is the land itself and building for the businesses mentioned earlier to continue their operations, as they do not intend to resale it after lawful purchase of the land or hold it as an investment (Kenton, 2018).  

 

References

Kenton, W. (2018, December 13). Ultra Vires Acts. Retrieved January 29, 2019, from

https://www.investopedia.com/terms/u/ultra-vires-acts.asp.

Mann, R. A., & Roberts, B. S. (2019). Essentials of business law and the legal environment (13th

ed.). United States: Cengage.