Restricted businesses and powers
33. (1) A company must not
(a) carry on any business or exercise any power that it is restricted by its memorandum or articles from carrying on or exercising, or
(b) exercise any of its powers in a manner inconsistent with those restrictions in its memorandum or articles.
(2) No act of a company, including a transfer of property, rights or interests to or by the company, is invalid merely because the act contravenes subsection (1).
Section 33(2) seems to authorize a corporation to act in contravention of its own memorandum, presumably so long as those actions are in good faith and in the best interests of the corporation (without having read case law on it, this is my best guess). There appear to be both internal and external aspects to this provision, in addition to concerns of uncertainty.
The internal aspect is that the corporation itself can reap the rewards from acts that are done in good faith to benefit the company. If a director enters into a contract to perform a type of business that is banned by the company memorandum, and the company makes a ton of money off of it, why should that act be found invalid? Certainly very few individuals who have an interest in the company would not wish to have that profit.
Similarly, if a person contracts with a company in the above circumstances, and both parties benefit from the contract, there seems no benefit to either side to find the act invalid.
My major concern here is a matter of uncertainty and public policy. First, the public likely has an interest in being able to know and control the types of business that companies are engaged in. If corporations are allowed to seek profit in contravention of their articles, there is little certainty to the public that a company is doing what it says it is doing. This is particularly concerning if the company is, for instance, a green energy developer – we probably wouldn’t want them engaging in coal mining. Secondly, if mere contravention of the articles is not grounds for invalidity of a corporate act, what is? Case law will provide insight here, but a fundamental uncertainty cannot be escaped. Finally, if corporations are able to act outside of their articles, what is the point of having them in the first place? If a corporation’s self-imposed constitution is not binding, it is no wonder corporations do not feel bound by other sorts of behavioural codes.
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