Scrap the long winded Objects Clause
by Mehvish Muneera Ismail
Associate, at Haidermota & Co.
Nike, Inc. states in its charter that its purpose is "to engage in any lawful activity for which organizations may be organized…" 1
The purpose of this paper is to recommend that most2 companies in Pakistan be dispensed with the requirement of having an objects clause in their Memorandum of Association (the “Memorandum”).
The importance of the objects clause in Pakistan is such that it “defines the sphere of the activity, a company can venture into …”3 This has resulted in detailed and often unrelated powers being enumerated in the Memorandum with valiant and imaginative attempts to circumvent the ultra vires4 rule.
A brief history
The aftermath of the Ashbury decision resulted in a phenomenon, which continues to play a part in the earnings of many a legal counsel in Pakistan, popularly known as the ‘exhausted list syndrome’. The Memorandums contained ‘a profusion of all the objects and powers that the ingenuity of [company] advisors could dream up’7. As the courts found a way around the exhaustive lists of objects, distinguishing between powers to be used in furtherance of objects and those ancillary to the same8, drafters started inserting ‘independent objects’9 clauses specifying that each of the object clause was to be construed and interpreted as a separate object, not to be treated as ancillary to each other. At roughly the same time, ‘subjective objects’10 clauses also surfaced, adding language to the effect that any business which in the view of the directors of the company was beneficial would also be authorized.
The gradual death of the ultra vires rule
Other jurisdictions have gone further and enacted provisions granting full capacity to corporations, allowing them the contractual capacity of natural persons. These include: Canada, which introduced the same under Section 15(1) of the Business Corporations Act as early as 1985; New Zealand via Section 16 of the Companies Act 1993; Hong Kong, which borrowed the language of the New Zealand statue via its Companies (Amendment) Ordinance 19972; and Australia, which under Section 124(1) of the Corporations Act 2001, gave its companies “the legal capacity and powers of an individual both in and outside this [Australia’s] jurisdiction.”13
It is however conceded that some exceptions will have to be created, such as in cases of charitable organizations, etc. It is also suggested that banks and financial institutions will need to be specially addressed; a simple certificate of incorporation may suffice for its incorporation, however, it would be important to review, on a policy level, the ambit of powers such institutions should lawfully have.
Mehvish Muneera Ismail is an associate at Haidermota & Co. and holds an LLM from Cambridge University. Comments may be directed to firstname.lastname@example.org
1 Nike, Inc., Restated Articles of Incorporation, art. III. In the United States of America, the laws of most states simply require corporations to limit themselves to lawful activities. The only three states that do not have such language are Minnesota, North Dakota and Vermont. Minnesota and North Dakota both allow incorporation for ‘any business purpose or purposes…’
2 Excluding banks, financial institutions and charitable organizations, etc.
3 Adamjee Insurance Company Ltd. V. Muslim Commercial Bank Ltd, 2003 CLD 463
4 An action or transaction, though it may not be illegal, which is beyond the scope and powers of the company specified within the objects of its Memorandum, is ultra vires.
5 As per Jessel, M.R. in the Flitcroft case, (1882) 21Ch D 519 at pp. 533-34, C.A. See: Avtar Singh, "In Defence of Ultra Vires", (1971) 2 SCC (Jour) 25
6 (1875) LR 7 HL 653
7 P Davis, Gower’s Principles of Modern Company Law, (London: Sweet and Maxwell) 1997, at pp. 203-204. See: Paul J. Omar, Powers, Purposes and Objects: The Protracted Demise of the Ultra Vires Rule, Bond Law Review, Vol. 16 , Issue 1.
9 Paul J. Omar, pp. 103-104
10 Paul J. Omar, p. 105
11 Certain exemptions remain, such as under the Companies Act, 2006 (United Kingdom) charitable companies are still subject to the common law, meaning that they may be afforded some greater protection.
12 Abandoning Ultra Vires, Hong Kong Lawyer, May 1997.
13 See Leah Watterson, Pursuing profit, productivity and philanthropy: the legal obligations facing corporate Australia, <http://www.allbusiness.com/legal/laws-government-regulations-business/298025-1.html>.
14 (1918) AC 514
15 Relating to companies that are formed for charitable or similar purposes or wish to dispense with the word ‘Limited’ in their name.
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