Ultra vires activities are actions taken by members of a corporation but are not covered by their corporate constitutions and by-laws. The term is derived from a Latin phrase that means beyond the powers.
These activities go beyond the scope of the powers granted to the corporation and are therefore, subject to third party lawsuits when discovered. These third parties could be the shareholders, consumers or other entities belonging to the same industry.
Basically, companies that are incorporated adhere to their by-laws that state the reasons why they exist and the type of business they’re engaged in. In short, they’re limited to the rules they created and doing actions outside of that is considered an ultra vires activity.
Ultra vires activities are some of the common causes for shareholders to file lawsuits against corporations. For investors, companies engaging in acts outside of what they’re supposed to do can put a risk to their investment. If they see the act being done continually, shareholders may decide together to file a lawsuit to protect their investment and to force the company to stop its unauthorized actions.
Consumers and other businesses can also file lawsuits against companies engaged in ultra vires activities. This is possible when they find out, for instance, that the company has taken actions such as partnering with business sectors outside of its industry.
In the United States, common ultra vires activities done by corporations include political and charitable contributions; loans to officers and directors; pensions, bonuses, job severance payments and other fringe benefits; acquisition of shares of other corporations; and entering into partnerships.