Legal Effects of Obligations Undertaken Beyond the Scope of Corporate Purpose and Managerial Authority in Joint-Stock and Cooperative Companies

Abstract

The legal consequences of obligations undertaken beyond the scope of corporate purpose or managerial authority constitute a significant issue in company law because they involve a direct tension between internal corporate governance and the security of transactions with third parties. This study examines the legal nature and effects of acts performed by directors beyond the limits of corporate purpose or managerial authority in joint-stock and cooperative companies, with particular emphasis on Iranian law and a comparative analysis of French and German legal approaches. The research adopts a descriptive-analytical and comparative method and focuses on the distinction between the company’s legal capacity, the scope of directors’ internal authority, and their external representative power. The findings indicate that treating every unauthorized or ultra vires act as invalid is incompatible with the requirements of modern commercial transactions and may unjustifiably transfer the risk of internal governance failures to third parties. A more coherent approach requires a distinction between internal and external legal effects. Under this model, restrictions arising from the articles of association, internal resolutions, or managerial instructions should primarily operate within the relationship between directors and the company, while transactions concluded with bona fide third parties should generally remain binding. Directors who exceed their authority may nevertheless incur internal liability for resulting losses. The study also finds that cooperative companies require specific rules because of their member-oriented and participatory structure, although the principle of protecting transaction security should still apply. The article concludes that Iranian law, particularly the rules governing directors’ powers, would benefit from clearer statutory differentiation between internal managerial limitations and external representative authority, stronger protection of bona fide third parties, recognition of apparent authority, and more explicit rules governing directors’ liability in both joint-stock and cooperative companies.