information:classification
Companies

That decision was accepted as correct but modified in Ashbury Railway Carriage and Iron Co Ltd v Riche (1875) LR 7 HL 653. In that case the company had the objects clause "to make and sell, or lend on hire, railway-carriages". But then the directors gave out a loan to build railways in Belgium. The House of Lords held, simply, the act was ultra vires and consequently void. This policy was thought to protect shareholders and creditors, whose investments or credit would not be used for an unanticipated purpose by disobedient directors. However, it soon became clear that the ultra vires rule restricted the flexibility of businesses to expand to meet market opportunities. Void contracts might unexpectedly and arbitrarily hinder business. In an attempt to circumvent the rule, companies began to draft ever longer objects clauses, often adding an extra provision stating all objects must be construed as fully separate, or the company's objects include anything directors feel is reasonably incidental to the business.