Corporate Capacity & Authority (New)

Part 2 – Incorporation & Registration

With the enactment of the Companies Act 2014, private companies limited by shares (“CLS”) will have the same capacity to enter into contracts as natural persons.

This is one of the significant innovations in the Act. It means that for the CLS, the doctrine of ultra vires – a feature of company law since Victorian times – is abolished.

The doctrine of ultra vires is not abolished for any other form of company (for example PLCs and DACs).

So, in practice, the CLS will no longer have an Objects Clause, and therefore, no boundaries that it can go beyond unlawfully. The relevant section provides that a company “shall have full and unlimited capacity” to carry on and undertake any business activity, do any act, or enter into any transaction.

The Board of Directors may nominate one of their number to be the one who has authority to bind the company in any and all contracts. If the Board chooses to do so, it must notify the CRO. The Registrar of Companies then registers this authorisation.

That person is known, from that time, as the registered person.

If the Board revokes that authorisation, the Act continues to regard the registered person as having the authority to bind the company – “unless and until” the company notifies the CRO of its decision.

In both situations there is a prescribed form, which must be completed.

When the Act speaks of a registered person’s entitlement to bind the company, it is concerned with that person’s ability to enter into transactions on behalf of the Board with third parties. The registered person does not usurp any power of management of the company, which is exercisable by the Board. Nor does the registered person have any ability to exercise a power, which must be exercised by the shareholders at a general meeting.

Care must be taken in ascertaining who the registered person is. The new rule of thumb should be to consult the CRO, rather than to assume that someone with a title like managing director or CFO is the registered person (Section 39(6))

The idea of a “registered person” is not a new one in Irish company law, but it is something that few companies have ever done. Companies have been able to register such a person since 1973, by virtue of the EC (Companies) Regulation of that year (S.I. 163 of 1973). It is thought that the Companies Act 2014 will make it a more common practice.

The Companies Act 2014 deems that the Board and any registered person each have authority to exercise any power of the company and to authorise others to do so.

The Act seeks to state this clearly (Section 40(1)) in an attempt to prevent any questions from arising as to whether a transaction fails to bind a company because of an alleged lack of authority on the part of the person who exercised the company’s powers.

Section 40 subsections (2) to (9) are new provisions that elaborate on and qualify this rule.

A company may empower any person to be its attorney.

This is regardless of anything in its constitution. It may be done by writing under the company’s common seal.

The attorney can execute deeds or do any other thing on the company’s behalf, whether inside or outside the State.

Any such deeds bind the company as if they were done under the company’s common seal.

This section (Section 41) is a restatement of section 40 of the Companies Act 1963.