The sphere of third party protection in ultra vires

Abstract

The principle of independent legal personality of a company creates risks for third parties. It should be noted that most of these risks emerge in dealing with third parties. One risk could be “ultra vires”, because directors may trade with third parties in the position of “ultra vires”. By taking different approaches, different sanctions for these violations could be proposed. The position of English law was to support the company at the beginning, and this led to the invalidation of the transaction. This approach was moderated by the passage of time and through different methods. The 2006 Company Act considered the “support of the third party” approach with the consequence of eliminating outer effect of ultra vires, creating the trading stability and establishing internal cost of company. In Iranian law, due to deficiency of statutory provisions, different sanctions based on divergent views are provided. It is due, mainly, to the lack of a clear distinction between capacity of the company and its directors’ powers. In Commercial Draft Bill 1391, It can be observed that the continuation of the dispute is foreseeable.

Keywords

• the ultra vires
• protection of company
• protection of third party
• théorie inopposabilité
• stockholders theory
• shareholders theory