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Ultra vires activities are any type of business activity or action that is taken by a corporation, but is not sanctioned by the regulations outlined in the company charter. Depending on the circumstances, ultra vires activities can lead to legal action on the part of shareholders. At the same time, ultra vires activities can also be the cause for the initiation of lawsuits by third parties, such as consumers or other entities within the same industry.
Essentially, ultra vires activities would encompass any type of action that is considered outside the scope of the stated purpose and function for the corporation. All companies, as part of their Articles of Incorporation and other founding documents, address the issues of why the company exists and what type of business operation the corporation will undertake. When the company chooses to go outside these defined limits, this opens the door for both investors and others to take issue with the actions, even going so far as to file a lawsuit against the corporation.
Ultra vires activities are one of the most common reasons for shareholder lawsuits. When corporations choose to engage in actions that are outside the company charter, this can easily be seen as a threat to the integrity of the investment that shareholders have made in the company. If shareholders do feel that the action or actions will harm both the company and the investment over the long term, they may choose to band together into a shareholder lawsuit to force the company to cease and desist in the unauthorized activities.
At the same time, ultra vires activities may also result in legal issues from other quarters. Depending on how far the actions are outside the charters and other founding documents, third parties may choose to file suit against the corporation. This would be especially true if it was felt that the activities were taking the company into business sectors that were outside the industry where the main function of the company was found. Both consumers and other businesses that feel the ultra vires activities are inappropriate for some reason could choose to file a lawsuit.
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