Background
An early illustration of this principle is to be found in Hutton v West Cork Railway Co (1883) 23 Ch D 654, where the English Court of Appeal held that the paying of a gratuity to employees prior to their dismissal was an improper exercise of the powers of the company, because the company was no longer a going concern, and thus stood to obtain no benefit (and no furtherance of its objects) through the payment of the gratuity; as Bowen LJ memorably remarked: "there are to be no cakes and ale except such as are required for the benefit of the company." (The decision itself is reversed by statute).
Any transaction which the directors enter into which is outside the powers of the company (and thus outside the scope of their authority) may nonetheless be ratified by the shareholders of the company, and will thereby be binding upon the company, see for example under English law, Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd Ch 258.
Read more about this topic: Interest Of The Company
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