26. A public company is registered and receives its certificate of incorporation. Six months later a creditor discovers that the declaration of compliance was signed by a person who was not entitled to sign it, and argues that the company was never validly incorporated and cannot sue on its contracts. What is the position?

A) The company is invalid, because the certificate is only prima facie evidence and may be disproved by any person who shows an irregularity in the registration
B) The company is valid only against the members, because a creditor may always challenge an incorporation on the ground that the declaration was defective
C) The incorporation cannot be challenged, as the certificate is conclusive evidence of compliance
D) The company is invalid until the Registrar corrects the declaration, and until then its contracts are binding on the promoters personally and not on the company

Correct: C difficult Certificate of incorporation

Option C is correct. Section 25 makes the certificate conclusive evidence that the requirements of the Act as to registration have been complied with, that the association is a company authorised to be registered and duly registered, and that its legal existence begins on the date of the certificate. Option A is wrong: the certificate is conclusive. Option B is wrong: the certificate is conclusive against all persons, including creditors. Option D is wrong: an irregularity before registration does not invalidate the incorporation.

27. Before Meghna Garments Ltd was formed, its promoter, Ms Ruksana, ordered Tk 900,000 worth of sewing machines 'for the company'. After incorporation, the company took delivery of the machines and used them for six months without any new agreement. The supplier now sues the company for the price. Is the company liable on the pre-incorporation contract?

A) Yes, because the company ratified the contract by using the machines, and ratification relates back to the date of the promoter's original order
B) Yes, because a promoter is always the agent of the company he is forming, and the company is liable on every contract that its promoter makes for it
C) No, but only if the supplier knew of the company's non-existence, because a supplier who knew the true position loses the right to claim from the company
D) No, as the company was not a party and mere use does not bind it

Correct: D complex Promoters and pre-incorporation contracts

Option D is correct. A company cannot be bound by a contract made on its behalf before it is formed, and cannot ratify it afterwards. It is not bound merely because it later accepts the goods; liability needs a fresh contract made after incorporation with clear evidence of intention. Option A is wrong: the company did not exist when the contract was made. Option B is wrong: a promoter is not the company's agent before incorporation. Option C is wrong: knowledge of the supplier is not the test.

28. Mr Selim, a promoter, spent Tk 600,000 on legal fees and stamp duties in forming Eastern Tiles Ltd. The articles say that 'the directors may pay the preliminary expenses of the company'. The board declines to reimburse him, and Selim sues the company on the articles. What is the position?

A) He cannot enforce the article, as it operates only between the company and its members as such
B) He can enforce the article, because the articles are a contract between the company and every person who has done work for it before incorporation
C) He can recover in full, because a promoter who has benefited the company is always entitled to be reimbursed all his expenses under the Act
D) He can recover half of the expenses, because the Act provides that preliminary expenses be shared equally between the promoter and the company

Correct: A complex Promoters and pre-incorporation contracts

Option A is correct. The promoter has no automatic right to recover his expenses. Even where the articles authorise the directors to repay them, the article is not a contract which the promoter can enforce, because the articles bind only the company and its shareholders in that capacity. Option B is wrong: the article is not enforceable by an outsider. Option C is wrong: there is no automatic right of recovery. Option D is wrong: no sharing rule is found in the Act.

29. The board of Greenfield Dairy Ltd wishes to amend the object clause of the memorandum. The company secretary lists four proposed purposes. Which one is a purpose for which section 12 allows the object clause to be altered by special resolution?

A) To enable the directors to borrow without any limit on the amount, so that the borrowing limits in the articles may be disregarded by the board
B) To restrict or abandon any of the objects in the memorandum
C) To exempt the directors from liability for breach of duty, so that they cannot be sued by the company for acts done within the scope of their office
D) To give the founders a veto over all later alterations, so that the other members cannot vary the object clause without the founders' consent

Correct: B difficult Alteration of memorandum

Option B is correct. Section 12 permits an alteration of the object clause by special resolution for specified purposes, including to restrict or abandon any of the objects specified in the memorandum. Option A is wrong: s 12(e) lists this purpose. Option C is wrong: s 12 does not list this purpose. Option D is wrong: s 12 does not allow an entrenching veto.

30. The memorandum of Rahim Garments Ltd limits it to manufacturing garments. The directors, with the unanimous approval of all the members at a general meeting, cause the company to buy a passenger ferry service. A supplier of the ferry now seeks to enforce the contract. What is the effect of the transaction?

A) It is valid, because unanimous approval of all the members cures any defect in the powers of the company and makes the purchase binding on it
B) It is voidable at the option of the company, which may either affirm the purchase or treat it as cancelled once it learns that the purchase was irregular
C) It is void as outside the memorandum, and not even unanimity can ratify it
D) It is valid for the part of the price that the company can pay out of the profits, because the memorandum limits only the use of the share capital

Correct: C complex Memorandum, articles and ultra vires

Option C is correct. Acts beyond the powers given by the memorandum are void. Such an act cannot be ratified by the members, even by a unanimous resolution, whereas acts beyond the articles but within the memorandum can be ratified. Option A is wrong: an ultra vires act is void. Option B is wrong: an ultra vires act is not merely voidable. Option D is wrong: no partial validity exists.

31. Under the articles of Hera Pharma Ltd, the directors may not borrow more than Tk 20m without a resolution of the members. The directors borrow Tk 35m from a bank without any resolution, for a purpose that is within the objects clause of the memorandum. The members now wish to approve the borrowing. What is the position?

A) The borrowing is void for ever, because anything done beyond a limit in the articles is ultra vires and cannot be ratified by any resolution
B) The borrowing can be ratified only if the court confirms it, because a limit in the articles may be waived solely by an order of the court
C) The borrowing is valid without any ratification, because articles are only internal rules and cannot restrict a transaction that is within the memorandum
D) The members can alter the articles and ratify the act

Correct: D complex Memorandum, articles and ultra vires

Option D is correct. If an act is within the powers given by the memorandum but contrary to a provision of the articles, the members can change the articles and ratify the act, since an act beyond the articles but within the memorandum can be ratified. Option A is wrong: this is not an ultra vires act. Option B is wrong: no court order is required to ratify. Option C is wrong: the act does need ratification by the members.

32. The directors of Skyline Education Ltd delivered a copy of the prospectus to the Registrar for registration on 1 July. The prospectus was circulated to the public on 15 October, a period of 106 days later. What is the legal effect and the consequence?

A) It is deemed not delivered, so the fine under section 138 applies
B) It is valid for a period of one hundred and eighty days, so the issue on 15 October is lawful and no penalty arises for the company or the directors
C) It is valid, but the company must deliver a further copy within seven days of the issue, and only a failure to do so is an offence under the Act
D) It is void, and every subscriber is entitled to the return of his money with interest, but the directors cannot be fined under the Act in any event

Correct: A difficult Prospectus

Option A is correct. No prospectus may be issued more than ninety days after the date on which a copy is delivered for registration. If so issued, it is deemed to be a prospectus a copy of which was not delivered, and the company and every knowing party are punishable with a fine of up to Tk 5,000 (s 138). Option B is wrong: the limit is ninety days. Option C is wrong: no seven-day cure exists. Option D is wrong: the Act imposes a fine, not just a refund right.

33. A prospectus of Unique Hotels Ltd contains an untrue statement about the company's contracted bookings. A director, Mr Farid, authorised the issue of the prospectus. He cannot prove that the statement was immaterial or that he believed it to be true. What is the maximum penalty to which he is exposed under section 146?

A) Six months' imprisonment only, because a director who did not himself make the statement can be punished only by a short term of imprisonment
B) Two years' imprisonment, a fine of Tk 5,000, or both
C) A fine of Tk 5,000 only, because imprisonment is available under the Act solely against the promoters and not against the directors of a company
D) Five years' imprisonment and a fine of Tk 50,000, because misstatement in a prospectus is treated as the most serious company offence under the Act

Correct: B complex Prospectus

Option B is correct. Every person who authorised the issue of a prospectus containing an untrue statement is punishable with imprisonment up to two years, or a fine up to five thousand taka, or both, unless he proves that the statement was immaterial or that he had reasonable ground to believe it was true. Option A is wrong: the maximum is two years or Tk 5,000, or both. Option C is wrong: imprisonment is available against persons who authorise the issue. Option D is wrong: the Act's penalty is lower than this.

34. Sunrise Power Ltd is a public company with a share capital. It has issued no prospectus but has filed a statement in lieu of prospectus, and its directors have paid the money due from them on shares. No declaration by a director or the secretary has been filed. Can the Registrar issue the certificate of commencement of business?

A) Yes, because filing the statement in lieu and payment by the directors are all that the Act requires, and a declaration is a mere formality
B) Yes, but only after the minimum subscription is raised, because a company without a prospectus must in all cases raise a minimum before commencing
C) No, because the declaration by a director or the secretary is still missing
D) No, because a public company can never obtain a certificate without issuing a prospectus to the public in the manner that the Act prescribes

Correct: C complex Commencement of business

Option C is correct. A public company with a share capital that does not issue a prospectus obtains the certificate if a statement in lieu has been filed, the directors have paid the money due on their shares, and a declaration by a director or the secretary has been filed that the second condition is met. Option A is wrong: the declaration is a condition. Option B is wrong: a no-prospectus company is not tied to minimum subscription. Option D is wrong: a statement in lieu is an alternative to the prospectus.

35. Rainbow Textiles Ltd issued a prospectus. The minimum subscription has been raised and no money is repayable for failure to obtain stock exchange recognition. Every director has paid the application money on his shares, but two directors have not yet paid the allotment money. A director's declaration has been filed. May the certificate of commencement be issued?

A) Yes, because the directors' payment on application is enough, and the allotment money is payable only after the company starts its business
B) Yes, because the declaration of a director that the conditions are met is conclusive and the Registrar cannot look behind it for any purpose
C) No, because the company must in addition obtain the written approval of the High Court Division before the certificate may be issued to it
D) No, as every director must pay both application and allotment money

Correct: D difficult Commencement of business

Option D is correct. One condition for the certificate is that every director has paid the money payable on application and allotment for the shares taken up by him. The default of two directors on allotment money prevents the issue of the certificate. Option A is wrong: both sums are required. Option B is wrong: the declaration must be true; it is not conclusive. Option C is wrong: no court approval is a condition.

36. The prospectus of Delta Shipping Ltd states a minimum subscription of Tk 12m. Applications for Tk 12.5m are received, but only Tk 500,000 has been paid in cash, the rest being payable by instalments. The directors propose to allot the shares. Under section 148(2), may they do so?

A) No, as cash paid is below 5% of the minimum, which is Tk 600,000
B) Yes, because the applications exceed the minimum of Tk 12m and the Act asks only that the total of applications exceed the minimum stated
C) Yes, because the 5% test applies to the total of the applications of Tk 12.5m, which would be Tk 625,000, and part may be paid later
D) No, because the Act requires that the whole of the minimum subscription be paid in cash before any shares may be allotted to applicants

Correct: A complex Minimum subscription

Option A is correct. No allotment may be made unless the stated minimum is raised and at least 5% of that amount has been paid in cash. Five percent of Tk 12m is Tk 600,000, and only Tk 500,000 has been received. Option B is wrong: 5% of the minimum must be paid in cash. Option C is wrong: the test applies to the minimum, not the total applications. Option D is wrong: only 5% in cash is required.

37. Which of the following must the memorandum of an unlimited company state under section 8?

A) Its name ending in 'Limited', the registered office address, the objects, and a clause that the liability of its members is limited to their shares
B) Its name, registered office address, and objects
C) Its name, the registered office, the objects, and a clause under which every member undertakes to contribute a stated sum if the company is wound up
D) Its name, the registered office address, the objects and the amount of share capital, since share capital is a compulsory item in every memorandum

Correct: B complex Memorandum, articles and ultra vires

Option B is correct. Section 8 requires the memorandum of an unlimited company to state its name, the address of its registered office, and the objects of the company (with the territories, except in the case of trading companies). It need not state that liability is limited. Option A is wrong: unlimited companies have no limited-liability clause. Option C is wrong: the guarantee undertaking is for guarantee companies. Option D is wrong: share capital is stated only if the company has one.

38. The private company Karim Textiles Ltd is being incorporated. Which of the following documents are among those listed in the manual as submitted to the Registrar with the memorandum and articles? (Select THREE.)

Multiple response
A) A certificate of commencement of business
B) Notice of situation of registered office (Form VI)
C) Declaration of compliance (Form I)
D) A prospectus
E) A statement in lieu of prospectus
F) Particulars of directors, manager and managing agents (Form XII)

Correct: B, C, F difficult Registration and incorporation documents

Option A is wrong: A private company does not need a certificate of commencement. Option B is correct: this statement is accurate ("Notice of situation of registered office (Form VI)"); basis: Form VI is listed. Option C is correct: this statement is accurate ("Declaration of compliance (Form I)"); basis: Form I is listed. Option D is wrong: A private company need not file a prospectus. Option E is wrong: A private company need not file a statement in lieu of prospectus. Option F is correct: this statement is accurate ("Particulars of directors, manager and managing agents (Form XII)"); basis: Form XII is listed.

39. Section 6 sets out the memorandum of a company limited by shares. Which of the following must it state? (Select FIVE.)

Multiple response
A) The address of the registered office
B) The objects of the company and, except for trading companies, the territories
C) That the liability of the members is limited
D) The amount of share capital and its division into shares of a fixed amount
E) The name, with 'limited' as the last word
F) The names of the first directors

Correct: A, B, C, D, E complex Memorandum, articles and ultra vires

Option A is correct: this statement is accurate ("The address of the registered office"); basis: The registered office is required. Option B is correct: this statement is accurate ("The objects of the company and, except for trading companies, the territories"); basis: The objects and territories are required. Option C is correct: this statement is accurate ("That the liability of the members is limited"); basis: The limited liability clause is required. Option D is correct: this statement is accurate ("The amount of share capital and its division into shares of a fixed amount"); basis: The share capital and shares are required. Option E is correct: this statement is accurate ("The name, with 'limited' as the last word"); basis: The name must end in 'limited'. Option F is wrong: The first directors are named in the articles, not required in the memorandum.

40. The memorandum and articles of association differ. Which of the following statements are correct? (Select FOUR.)

Multiple response
A) A rule in the articles contrary to the memorandum is invalid
B) The memorandum is the fundamental charter, while the articles are rules for internal management
C) The articles override the memorandum where the two conflict
D) Articles can be altered by special resolution, while the memorandum can be altered only after adopting prescribed formalities
E) Acts beyond the memorandum are void and cannot be ratified, while acts beyond the articles can be ratified
F) The memorandum regulates only the relations among the members themselves

Correct: A, B, D, E complex Memorandum, articles and ultra vires

Option A is correct: this statement is accurate ("A rule in the articles contrary to the memorandum is invalid"); basis: The memorandum prevails. Option B is correct: this statement is accurate ("The memorandum is the fundamental charter, while the articles are rules for internal management"); basis: The memorandum is the charter. Option C is wrong: this statement is not correct ("The articles override the memorandum where the two conflict") because The memorandum prevails over the articles. Option D is correct: this statement is accurate ("Articles can be altered by special resolution, while the memorandum can be altered only after adopting prescribed formalities"); basis: The formalities for alteration differ. Option E is correct: this statement is accurate ("Acts beyond the memorandum are void and cannot be ratified, while acts beyond the articles can be ratified"); basis: Ultra vires acts cannot be ratified. Option F is wrong: The articles regulate the relationship among members; the memorandum defines the company's powers.

41. A copy of the prospectus of Everest Foods Ltd must be delivered to the Registrar. Which of the following are correct? (Select FOUR.)

Multiple response
A) It must be delivered at least thirty days before it is published
B) The copy must be delivered on or before the date of publication
C) It may be issued at any time after delivery, however long afterwards
D) It must state on its face that a copy has been delivered for registration
E) It must be accompanied by the written consent of any named auditor, legal adviser, banker or broker
F) It must be signed by the directors or proposed directors, or their agent

Correct: B, D, E, F difficult Prospectus

Option A is wrong: The Act does not require thirty days' advance delivery. Option B is correct: Delivery on or before the date of publication is required. Option C is wrong: It must not be issued more than ninety days after delivery. Option D is correct: this statement is accurate ("It must state on its face that a copy has been delivered for registration"); basis: The statement on the face is required. Option E is correct: this statement is accurate ("It must be accompanied by the written consent of any named auditor, legal adviser, banker or broker"); basis: The consents are required. Option F is correct: The prospectus must be signed by the directors or proposed directors.

42. Section 12 permits the object clause to be altered by special resolution for particular purposes. Which of the following are among them? (Select FOUR.)

Multiple response
A) To amalgamate with another company or body of persons
B) To sell or dispose of the whole or part of the undertaking
C) To remove the supervision of the Registrar over the company
D) To carry on the business more economically or efficiently
E) To enlarge or change the local area of operations
F) To enable directors to exceed the borrowing limits fixed by the articles

Correct: A, B, D, E complex Alteration of memorandum

Option A is correct: this statement is accurate ("To amalgamate with another company or body of persons"); basis: Amalgamation is listed. Option B is correct: this statement is accurate ("To sell or dispose of the whole or part of the undertaking"); basis: Sale of undertaking is listed. Option C is wrong: Removal of the Registrar's supervision is not a purpose under s 12. Option D is correct: this statement is accurate ("To carry on the business more economically or efficiently"); basis: Economy and efficiency is a listed purpose. Option E is correct: this statement is accurate ("To enlarge or change the local area of operations"); basis: Changing the area of operations is listed. Option F is wrong: Borrowing limits are not a purpose under s 12.

43. The nature and content of a prospectus are examined. Consider each statement. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. A prospectus is an invitation to the public to subscribe for shares or debentures.   Yes

2. A document inviting deposits from the public can be a prospectus.   Yes

3. A private company must file a prospectus with the Registrar before it starts business.   No

4. A prospectus must state the number of shares fixed by the articles as the qualification of a director.   Yes

5. A prospectus issued without delivering a copy to the Registrar is punishable by imprisonment of up to two years.   No

Correct: Y, Y, N, Y, N complex Prospectus

(1) Yes: the statement "A prospectus is an invitation to the public to subscribe for shares or debentures" is correct under the Act and the manual. (2) Yes: The definition includes notices, circulars or advertisements inviting deposits. (3) No: A private company need not file a prospectus. (4) Yes: the statement "A prospectus must state the number of shares fixed by the articles as the qualification of a director" is correct under the Act and the manual. (5) No: Section 138 provides a fine of up to Tk 5,000.

44. A public company seeks the certificate of commencement of business. Consider each statement. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. For a company that issued a prospectus, the minimum subscription must have been raised.   Yes

2. For a company that issued a prospectus, every director must have paid the money due on application and allotment.   Yes

3. A declaration by a director or the secretary must be filed that the conditions are met.   Yes

4. A public company that has not issued a prospectus must also have raised the minimum subscription.   No

5. A private company must also obtain the certificate before commencing business.   No

Correct: Y, Y, Y, N, N difficult Commencement of business

(1) Yes: the statement "For a company that issued a prospectus, the minimum subscription must have been raised" is correct under the Act and the manual. (2) Yes: the statement "For a company that issued a prospectus, every director must have paid the money due on application and allotment" is correct under the Act and the manual. (3) Yes: the statement "A declaration by a director or the secretary must be filed that the conditions are met" is correct under the Act and the manual. (4) No: It needs a statement in lieu, payment by directors and a declaration. (5) No: the statement "A private company must also obtain the certificate before commencing business" is not correct; a private company may commence immediately.

45. Powers and acts of a company are tested. Consider each statement. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. An act beyond the powers in the memorandum is void.   Yes

2. An act beyond the memorandum cannot be ratified even by a unanimous resolution of the members.   Yes

3. An act within the memorandum but contrary to the articles can be ratified by the members.   Yes

4. A provision in the articles prevails over a contrary provision of the memorandum.   No

5. The object clause may be altered by special resolution for specified purposes, such as enlarging the local area of operations.   Yes

Correct: Y, Y, Y, N, Y complex Memorandum, articles and ultra vires

(1) Yes: the statement "An act beyond the powers in the memorandum is void" is correct under the Act and the manual. (2) Yes: the statement "An act beyond the memorandum cannot be ratified even by a unanimous resolution of the members" is correct under the Act and the manual. (3) Yes: The members can alter the articles and ratify the act. (4) No: the statement "A provision in the articles prevails over a contrary provision of the memorandum" is not correct; the memorandum prevails. (5) Yes: the statement "The object clause may be altered by special resolution for specified purposes, such as enlarging the local area of operations" is correct under the Act and the manual.

46. The position of promoters and pre-incorporation contracts is considered. Consider each statement. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. A company cannot be bound by a contract made on its behalf before it was formed.   Yes

2. After formation, the company may ratify a contract made on its behalf before its formation.   No

3. A company is bound merely because it accepts the goods or services under a pre-incorporation contract.   No

4. A promoter has an automatic right to recover his preliminary expenses from the company.   No

5. A promoter may become one of the first directors of the company.   Yes

Correct: Y, N, N, N, Y complex Promoters and pre-incorporation contracts

(1) Yes: The company is non-existent when the contract is made. (2) No: It cannot ratify a contract to which it could not have been a party. (3) No: Liability needs a fresh contract after incorporation. (4) No: the statement "A promoter has an automatic right to recover his preliminary expenses from the company" is not correct; the promoter has no automatic right. (5) Yes: the statement "A promoter may become one of the first directors of the company" is correct under the Act and the manual.

47. Mr Azad, acting for a company yet to be formed, signs a contract in the name of 'Sunrise Foods Ltd (to be incorporated)' to buy a bakery oven for Tk 3m from Oven House. Sunrise Foods Ltd is incorporated a month later and uses the oven, but the supplier is not paid. Oven House sues the company for the price. The company says it was not in existence at the date of the contract. What is the position?

A) Not bound, as a company cannot ratify a pre-incorporation contract
B) The company is bound, because it accepted the benefit of the oven by using it and so ratified the contract entered into on its behalf
C) The company is bound, because a contract signed in the name of a company before incorporation is binding on the company from incorporation
D) The company is bound, but only if Azad was a director or the promoter at the date of signing, since a promoter is the company's agent

Correct: A complex Promoters and pre-incorporation contracts

Option A is correct. A company cannot be bound by or adopt a contract made before its incorporation, as it was not a party. Azad may be personally liable to Oven House. Only a new contract after incorporation can bind the company (Kelner v Baxter, Natal Land v Pauline Colliery). Option B is wrong: a company cannot ratify a pre-incorporation contract. Option C is wrong: the company was not in existence to be a party. Option D is wrong: a promoter is not an agent of a non-existent principal.

48. Mr Bashir, the promoter of Eastern Hotels Ltd, bought land for Tk 4m and, after forming the company, sold it to the company for Tk 7m through a nominee. He did not disclose his interest, and the board consisted of his nominees. The company later learns the facts after the land fails to produce the expected revenue. What remedy is available to the company?

A) The company has no remedy, because a promoter owes no duty to the company before it comes into existence and may sell at any price
B) It may rescind the sale and recover its money, or claim the secret profit of Tk 3m from the promoter
C) The company may recover only the difference between the price and the market value, and never rescind after taking possession of the land
D) The company may sue only the nominee who signed the transfer and may not claim anything from the promoter who stood behind him

Correct: B complex Promoters and pre-incorporation contracts

Option B is correct. A promoter stands in a fiduciary position and must disclose any profit made from a sale to the company to an independent board or the members. For non-disclosure, the company may rescind or recover the secret profit (Erlanger v New Sombrero Phosphate). Option A is wrong: a promoter owes fiduciary duties. Option C is wrong: rescission is available, subject to limits not applicable here. Option D is wrong: the promoter is liable for the secret profit.

49. A company's memorandum contains an objects clause permitting it to 'manufacture and sell jute bags'. The board decides to invest Tk 50m in a real estate development and signs a contract with a builder, who knew the company's objects. The members did not approve. The company later refuses to pay. Is the contract binding?

A) Yes, because the directors have wide powers of management and the contract is binding on the company so long as they acted honestly
B) Yes, because the members can ratify the contract by ordinary resolution, which makes it valid from the date on which it was made
C) No, it is ultra vires the objects clause and void, and cannot be ratified by the members
D) Yes, but only against the directors personally, because the company cannot be liable for acts that its objects do not authorise

Correct: C difficult Memorandum of association and ultra vires

Option C is correct. An act outside the objects in the memorandum is ultra vires and void (Ashbury Railway Carriage v Riche), and neither the board nor the members can ratify it. The builder, who knew the objects, has constructive notice. Option A is wrong: directors cannot enlarge the objects. Option B is wrong: ultra vires acts cannot be ratified. Option D is wrong: the contract is void; personal liability depends on a separate warranty of authority.

50. A company's objects are to 'carry on the business of a hotel and restaurant'. The directors, acting honestly, buy a delivery van for the business at a fair price. A creditor of the company says that buying vehicles is not mentioned in the objects and the purchase was ultra vires. The seller wants to enforce the sale. What is the position?

A) The purchase is void, because the objects clause must expressly authorise every kind of transaction that the company wants to enter
B) The purchase is valid only if the members ratified it in a general meeting within a reasonable period of its being made
C) The purchase is voidable at the option of the company, because the directors had no express authority from the memorandum
D) The purchase is valid, because it is reasonably incidental to the objects and so is within them

Correct: D complex Memorandum of association and ultra vires

Option D is correct. Acts reasonably incidental to or consequential on the stated objects are intra vires even if not expressly stated (Attorney-General v Great Eastern Railway). A van for the business is such an act. Option A is wrong: an incidental act is permitted. Option B is wrong: no ratification is needed for an intra vires act. Option C is wrong: the act is within power, so the company cannot avoid it.