Limits on Corporate Power under Ethiopian Law: Does the Ethiopian Commercial Code Recognize the Doctrine of Ultra Vires?

Abstract

It is normally expected that companies to act within the contours of predetermined purposes as stipulated in the purpose (object) clause of memorandum of association. Any attempt to go beyond the scope of the delineated purposes is ultra vires. In accordance with the classic doctrine of ultra vires a dealing or a transaction which is beyond the legitimate power of company is devoid of legal effect. In Ethiopia however it is not clear whether the Commercial Code recognizes the doctrine of ultra vires or not. The Ethiopian Commercial Code simply states that business organizations cannot engage in unpermitted ventures. If this prohibition is taken as ultra vires, then its possible effect has to be determined. Nowadays in advanced systems the doctrine of ultra vires has been dwindling. The Ethiopian Commercial Code appears not in line with the global trend. The article attempts to expose the on-going global development on corporate ultra vires, and suggests the Ethiopian law to reconsider its stance by aligning with the changing global business milieu. After brief discussion on the rationale behind limitation of the contours of corporate powers expressed in the purpose clause of memorandum of association, this article explores the possible effects of ultra vires transactions in Ethiopia by applying doctrinal research methodology.