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Ultra Vires Doctrine: Where Is It Today?

The laws comprising the field of business law today are different than they were even just years ago. Those educated in the field of business law may have come across an old doctrine known as the “ultra vires” doctrine. This doctrine stood for the proposition that a corporation must act within its scope or they will not be held accountable. Therefore, if the corporation were taken to court and accused of wrongdoing, the corporation could attempt to raise the ultra vires defense, and state that what they did was outside the scope of their corporation, and they should be off the hook. In essence, the corporation would point to the plaintiff and say that the plaintiff knew exactly what the scope of the business was and that they should have never agreed to do the business. In many instances, the defense proved to be successful, and the corporation was allowed off the hook.

Ultra vires proved a great defense for corporations, but it has gone away over time. The main reason this has occurred is that it became near impossible to specifically define the scope of business of a corporation, in essence making it a guessing game. Many states today have outright banned the ultra vires defense by providing a statute stating that a business can outright act outside of its scope. The guessing game ended, and the ultra vires doctrine has become all but moot now. Corporations can generally no longer raise the defense, with one major exception.

The major exception to the ultra vires doctrine is the nonprofit sector. A nonprofit company may still, in very specific situations, raise the ultra vires doctrine. However, this is a very limited exception, and courts may still frown upon it being raised as a defense.

As a business owner, there are many questions and legal strategies associated in the carrying on of your business’s activities. That is why it is important to have the right legal team in your corner with years of experience specializing in helping business owners. The Trembly Law Firm has years of experience serving a multitude of needs for all types of business owners. Call the Trembly Law Firm at (305) 431-5678 today to schedule a consultation.

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