A corporation, being a creature of law, has only the powers expressly granted by its charter and the law, those implied from the express powers, and those incidental to its existence. An act beyond these powers is ultra vires (beyond the powers). An ultra vires act is not the same as an illegal act: an illegal act is contrary to law and void, while a merely ultra vires act is one that is outside the corporation's powers but not inherently unlawful. Merely ultra vires acts are generally not void but voidable or unenforceable, and they can be ratified by the stockholders or become binding where the contract has been performed and one party has benefited, so that denying it would be unjust (the doctrine of estoppel and performed contracts). The consequences of an ultra vires act may include liability of the directors or officers who authorized it. So the key distinction is between acts that are simply beyond the powers (which can often be cured) and acts that are illegal (which are void and cannot be ratified).
A corporation cannot do whatever it wants — it can only do what its powers allow. An act beyond those powers is ultra vires.
A Corporation's Powers
A corporation is a creature of law with only:
- Express powers — granted by its charter (articles) and the law;
- Implied powers — those reasonably necessary to carry out the express powers; and
- Incidental powers — those inherent in its existence as a corporation.
An act outside all of these is ultra vires (“beyond the powers”).
Ultra Vires Is Not the Same as Illegal
A crucial distinction:
- An illegal act is contrary to law, and is void — it cannot be ratified or enforced; while
- A merely ultra vires act is outside the corporation's powers but not inherently unlawful.
So an ultra vires act is not automatically void just because it exceeded corporate powers.
The Effect of a Merely Ultra Vires Act
A merely ultra vires act is generally not void but voidable or unenforceable, and it can become binding through:
- Ratification by the stockholders;
- Performance — where the contract has been executed and a party has benefited, so that denying it would be unjust (estoppel); and
- The rule that a party who received the benefits of an ultra vires contract cannot use the ultra vires character to escape their obligation.
Consequences for Directors and Officers
The directors or officers who authorized or performed an ultra vires act may incur liability — to the corporation and, in proper cases, to third persons harmed — for exceeding the corporation's powers.
The Key Distinction to Remember
Ask: is the act merely beyond the powers, or is it illegal?
- Merely ultra vires → often curable (by ratification or performance); while
- Illegal → void and cannot be cured.
Practical Takeaways
- A corporation has only express, implied, and incidental powers — acts beyond them are ultra vires;
- Ultra vires is not the same as illegal — a merely ultra vires act is voidable/unenforceable and can be ratified or bind through performance and estoppel;
- Directors/officers who authorized the ultra vires act may face liability — but an illegal act is void and cannot be cured.
Frequently Asked Questions
What is an ultra vires act? An act beyond a corporation's powers. A corporation has only express powers from its charter and the law, implied powers necessary to carry them out, and incidental powers. An act outside all of these is ultra vires.
Is an ultra vires act the same as an illegal act? No. An illegal act is contrary to law and void, and cannot be ratified. A merely ultra vires act is outside the corporation's powers but not inherently unlawful, and is generally voidable or unenforceable rather than void.
Can an ultra vires act be validated? Yes, a merely ultra vires act can be ratified by the stockholders, or become binding where the contract has been performed and a party benefited, so that denying it would be unjust under estoppel.
Who is liable for an ultra vires act? The directors or officers who authorized or performed the ultra vires act may incur liability to the corporation and, in proper cases, to third persons harmed, for exceeding the corporation's powers.
This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.
If you have questions about your rights or options under Philippine law, our firm is available to assist. You may reach us via Viber or WhatsApp, call us at 0995 433 5550, or send an email to vivasnobles@gmail.com. We look forward to hearing from you.