Purposes and powers: Overview, definition, and example
What are purposes and powers?
Purposes and powers refer to the stated objectives and the legal authority granted to an organization, entity, or individual under an agreement, charter, or governing document. Purposes describe the goals or activities the entity is established to pursue, while powers outline the rights and abilities granted to the entity to achieve those objectives. These provisions ensure that the actions taken by the organization or individual align with their defined scope of authority.
For example, a corporation's purposes might include conducting business in a specific industry, while its powers might grant it the authority to enter into contracts, own property, and borrow funds to achieve its goals.
Why are purposes and powers important?
Purposes and powers are important because they define the scope of an entity’s activities and authority, ensuring clarity and compliance with legal requirements. For organizations, these provisions prevent actions that exceed their legal capacity (ultra vires acts), reducing risks of liability or invalidity.
For businesses and individuals entering into agreements, understanding the purposes and powers of the other party ensures that the commitments made are valid, enforceable, and within the entity's authority.
Understanding purposes and powers through an example
Imagine a nonprofit organization’s governing document states that its purpose is to promote environmental conservation. Its powers include the authority to raise funds, enter into contracts with conservation partners, and acquire land for preservation. These provisions ensure the organization’s actions are consistent with its mission and legally supported.
In another example, a company’s articles of incorporation specify that its purpose is to engage in the manufacturing and sale of consumer goods. Its powers include the ability to enter into supplier agreements, hire employees, and secure loans to fund operations. This allows the company to operate within a clear and lawful framework.
An example of a purposes and powers clause
Here’s how a purposes and powers clause might appear in a corporate charter or agreement:
“The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the laws of [State]. The Corporation shall have all powers necessary or incidental to the achievement of its purposes, including but not limited to entering into contracts, acquiring and disposing of property, borrowing funds, and engaging in other activities permitted by law.”
Conclusion
Purposes and powers define the objectives and authority of an entity, ensuring that its actions are lawful and aligned with its foundational goals. For organizations, these provisions provide a framework for operations and protect against actions that exceed legal authority. For external parties, such as business partners or stakeholders, understanding an entity’s purposes and powers ensures clarity and confidence in their dealings. Clearly defined purposes and powers foster accountability, compliance, and effective governance.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.