The old law required a company to state its objects, and anything outside them was void as ultra vires. The Companies Act 1997 abolished that trap.
Section 17 — capacity and powers
Subject to this Act and to any other law, a company has, both within and outside the country —
(a) full capacity to carry on or undertake any business or activity, do any act, or enter into any transaction; and
(b) for those purposes, full rights, powers, and privileges.
Three phrases carry the weight. “Full capacity” — no objects clause is needed and none is implied. “Any business or activity” — the company is not confined to a stated purpose. “Both within and outside the country” — a Papua New Guinea company may trade abroad without any special authority in its constitution.
The constitution may contain a provision relating to the capacity, rights, powers or privileges of the company only where the provision restricts the capacity of the company or those rights, powers and privileges.
A constitution can narrow what the company may do — a joint venture vehicle confined to one project, a trustee company confined to trustee business, a subsidiary confined to holding a single asset. It cannot widen anything, because section 17(1) has already given the company everything.
Section 31 says the same from the other side: the constitution may contain matters the Act permits it to contain, and other matters the company wishes to include — but capacity provisions must be restrictive.
Section 18 — validity of actions
No act of a company and no transfer of property to or by a company is invalid merely because the company did not have the capacity, the right, or the power to do the act or to transfer or take a transfer of the property.
The fact that an act is not, or would not be, in the best interests of a company does not affect the capacity of the company to do the act.
Section 18(1) does not limit sections 142, 143, 147 and 148. So although the transaction stands:
- Section 142 — a shareholder, director or entitled person may seek an injunction restraining the company from conduct that would contravene the Act or the constitution;
- Section 143 — a shareholder or director may seek leave to bring a derivative action in the company’s name;
- Section 147 — a shareholder may bring a personal action against a director for breach of a duty owed to the shareholder; and
- Section 148 — a shareholder may seek an order requiring a director to act.
And a director who causes the company to exceed a restriction in its constitution breaches section 114, which requires directors not to act or agree to the company acting in a manner that contravenes this Act or the constitution.
Why the Act works this way
Under the old objects doctrine, a person contracting with a company had to read its memorandum, decide whether the transaction fell within the objects, and bear the loss if it did not. That put the risk of the company’s internal arrangements on the outsider. The 1997 Act moves the risk inside the company:
| Question | Answer under the Act |
|---|---|
| Does the company have power to do this? | Always yes, subject to other laws — s 17(1) |
| What if the constitution restricts it? | The act is still valid — s 18(1). The remedy is internal: ss 142, 143, 147, 148, and s 114 against the directors |
| Must an outsider read the constitution? | No — s 20: no constructive notice from registration or availability for inspection |
| What if procedures were not followed? | The company generally cannot assert that against an outsider — s 19, unless the outsider knew or ought to have known |
Where the company’s freedom really does stop
“Subject to this Act and to any other law” is not decorative. Real limits come from four places.
- The Act’s own gateways. A distribution, a buy-back, a redemption, financial assistance and an amalgamation all require the board to be satisfied of the solvency test. A major transaction requires a special resolution.
- Other statutes. A foreign enterprise needs certification under the Investment Promotion Act 1992; banking requires authority under the Banks and Financial Institutions Act 2000; a public offer of securities engages the Capital Market Act 2015. Licensing statutes for mining, petroleum, forestry, fishing and the professions all apply in their own terms.
- Land. A company may hold land only as the land laws allow, and customary land is subject to its own regime.
- The directors’ duties. Capacity is not permission. The board must still act in good faith and in what it believes to be the best interests of the company under section 112, and with the care and diligence required by section 115.
Because capacity is unlimited by default, a restriction only exists if someone puts it in the constitution — and it binds the directors, not the outside world. Joint venture partners who want a company confined to one project should therefore back the constitutional restriction with a shareholders’ agreement, and consider the section 89 unanimous agreement machinery.
Sources
- Companies Act 1997 — ss 17–20, 31, 89, 110, 112, 114, 115, 142, 143, 147, 148
- Investment Promotion Act 1992
- Banks and Financial Institutions Act 2000
- Capital Market Act 2015
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.