The Scope Of The Authorized Business And Duties To Other Constituencies

• Author: James D. Cox/Thomas Lee Hazen
• Profession: Professor of Law at Duke University/Professor of Law at the University of North Carolina, Chapel Hill
• Pages: 52-63

§ 4.1 Purposes and Powers

At common law, a corporation had the powers enumerated in its purpose

clause as well as the implied powers necessar y to the accomplishment of its

purpose. If a corporat ion engaged in conduct not authorized by its express

or implied powers, the conduct was deemed ultra vires and void. With

the decline in the concession theory of corporations and the universal

recognition of the serious inequities t hat accompanied sanctioning

ultra vires acts, courts over time interpreted corporate powers broadly.

Legislatures also addressed these concerns by authorizing a corporation’s

ar t ic l es to br o ad ly en a bl e t he c or po r at io n t o en ga g e i n “ a ny la wf u l pu r po se ”

and by limiting t he relief and sanctions available for ultra vires acts.

Corporate purposes and corporate powers, although often con-

fused, are fu ndamentally dif ferent. A purpose clause properly refers

to a statement describing the business the corporation is to conduct.

The stated purpose or object of a corporation, for insta nce, may be “to

manufacture textiles” or “to conduct a retail shoe busi ness and to buy,

sell, and deal in all k inds of shoes.” The term “corporate powers,” on

the other hand, refers to methods t he corporation may use to achieve its

purpose. The retai l shoe company, for instance, must have the power to

contract and the power to borrow money.

Even though many corporate statutes still require that a “purpose

clause” (or, as it is sometimes called, “specific object clause”) be included

in a corporation’s charter, modern corporate statutes introduce a good

deal of ec onomy here by perm itting the articles of in corporation si mply

to authorize the corporation to engage “in any lawful purpose.” And

states following the Revised Model Business Corporation Act do not

even require a statement of the corporation’s purpose or object.1

A statement in a corporation’s charter of its objects or purposes or

powers has the practical effect of defini ng the scope of the authorized

corporate enterprise or undertak ing. Second, the statement both confers

and limits the officers’ and directors’ authority by impliedly excluding

activities that are not in furt herance of the stated purposes.

§ 4.2 Sources of Corporate Powers

Because the corporation is a creation of state statutes, it is reasonable

to inquire as to the source and extent of its powers. Corporations

have express and implied powers. The express powers are enumerated

52 | C C  G: C  L

cox85509_04_c04_p051-064.indd 52cox85509_04_c04_p051-064.indd 52 6/28/12 9:16 AM6/28/12 9:16 AM