Most Read Contributor in Hong Kong, September 2016
A proposed amendment to the Companies Ordinance contained in the Companies (Amendment) Bill 1996 will simplify the legal procedures that be taken when dealing within a Hong Kong company.
Currently a Hong Kong company may only enter into transactions to the extent that it is permitted to do so by its objects which are specified in its Memorandum of Association. Any action not in accordance with these objects is "ultra vires", ie. beyond the power of the Company. Any contracts that are ultra vires are void and unenforceable against the company.
The original idea was to protect shareholders against the management changing the nature of the business of the company. However in practice companies were incorporated with very long objects clauses in order to give wide powers to the company, thus restricting the application of the doctrine. When the ultra vires doctrine did apply the results seemed very hash on the third party who was deemed to have notice of the contents of the objects clause.
The position will be simplified by the new Ordinance so that:-
1. A company will have the capacity and the rights, powers and privileges of a natural person, in addition to what it can do by virtue of its corporate status. Accordingly, companies no longer need to have a long objects clause.
2. Any act done by a company which is not authorised by its memorandum of association is not invalid. This affords protection to third parties entering into contracts with the company. However, it does not affect the remedies which a shareholder may bring against the directors and/or the company at common law or under statute. In particular, a member of a company always has an inherent right to sue for an injunction to restrain the company and/or its directors from exceeding their powers.
3. Anyone dealing with a registered company is no longer deemed to have notice of the contents of its "public documents".
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