The Scope Of The Authorized Business And Duties To Other Constituencies

AuthorJames D. Cox/Thomas Lee Hazen
ProfessionProfessor of Law at Duke University/Professor of Law at the University of North Carolina, Chapel Hill
§ 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
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