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The object of section 3.04 is to do away with the ultra vires doctrine. This long-discredited concept is based on the fiction that third parties dealing with corporations have constructive notice of limitations on corporate purposes and powers appearing in articles of incorporation. In the heyday of the ultra vires doctrine, innocent third persons or not-so-innocent corporations could have corporate acts and contracts declared void or unenforceable on the ground that they were beyond the corporate purposes or that the corporation had no power to enter into the transaction. Ballentine, "Proposed Revision of the Ultra Vires Doctrine," 12 Corn. L.Q. 453 (1927).

Courts developed a number of equitable doctrines to prevent unjust results. Section 3.04(a) directly attacks the problem by providing that, "except as provided in (b), the validity of corporate action may not be challenged on the ground that the corporation lacks or lacked power to act." Consequently, it is not necessary for a third person to check corporate articles for limitations on corporate purposes or powers; not, except as provided in subsection (b), can a corporation avoid an obligation on the ground that the obligation is beyond its purposes or powers.

Under subsection (b) a suit may be maintained by a member in a derivative proceeding, or a director, or the attorney general against a corporation to enjoin an act where a third party has not acquired rights in regard to the transaction. For example, if a corporation is about to enter into a binding commitment in violation of its articles, a proceeding could be brought to enjoin the corporation if a third party had not acquired any rights. A third party with prior actual knowledge of the limitation in the articles cannot acquire any rights.

If a corporation has entered into or completed an ultra vires transaction, a proceeding can be brought against the present or former directors, officers, employees, or agents who caused the corporation to act in violation of limitations contained in its articles. In such a situation a third party who had acquired rights could enforce the ultra vires action even though it violated a specific provision of the articles. However, a director approving such a contract would be liable if the director breached his or her duty of care or loyalty. The amount of money damages, if any, for violation of this section is left to the sound discretion of the courts. Similarly the circumstances in which an injunction will issue is left to judicially developed equitable principles.

Moreover section 3.04 does not deal with the authority of power of a corporation to sell, transfer or otherwise convey assets held in charitable trust or subject to a reversionary or other interest.
SOUTH CAROLINA REPORTERS' COMMENTS

This section is somewhat similar to the formerly applicable statute, Section 33-3-104 of the South Carolina Business Corporation Act. This new nonprofit statute differs from the Business Corporation statute. In the Business Code, an individual shareholder has the power to directly (not derivatively) bring an action to try and stop an action. However, all parties affected by the action must be joined. The court instead of giving injunctive relief may award damages (either to the corporation or the third party to the transaction). Under this section of the Nonprofit Act, a member of a nonprofit corporation has no right to bring a direct attack against a proposed action. The claim may only be brought derivatively. If an action has been accomplished and the members believe that the directors or others in charge have done something wrong, have acted "ultra vires," the members may bring a derivative action against the alleged wrongdoers.

There was consideration of adopting language more similar to the South Carolina Business Corporation Act. However, the South Carolina Business Corporation Act, as noted, provides for damage actions against the board which was viewed as undesirable in the context of nonprofit corporations. Consideration was also given as to whether the Attorney General should have authority to bring an action against directors of mutual benefit corporations as well as against directors of public benefit corporations. It was determined that the members of these corporations would have sufficient interest in the entity to adequately police any alleged wrongdoing.

There is at least one ultra vires case involving a nonprofit corporation. The Supreme Court in Deborde v. St. Michaels and All Angels Church, 272 S.C. 409, 252 S.E.2d 876 (1979), confirmed that the doctrine of ultra

In Lovering v. Seabrook Island Property Owners Assoc., 289 S.C. 77, 344 S.E. 2d 862 (Ct. Appls. 1986), aff'd. & mod. 291 S.C. 201, 352 S.E.2d 707
(1987), discussed in more detail in the Reporters' Comments to Section 33-31-302, the board of a nonprofit homeowners association levied a special assessment to repair bridges within the subdivision and renourish the beach. The Court of Appeals held that the board did not have the power to do this and the act was therefore ultra vires.
A corporation may exercise only those powers which are granted to it by law, by its charter or articles of incorporation, and any by-laws made pursuant thereto. . . Acts beyond the scope of a corporation's powers as defined by law or its charter are ultra vires.
Although not technically an ultra vires case, the court in Gilbert v. McLeod Infirmary, 219 S.C. 174, 64 S.E.2d 524 (1951), enjoined the sale of some corporation property on the basis that the sale had not been approved by a disinterested board.

Section 33-31-305. Powers of corporations created by legislative authority before 1900.

All charitable, social, and religious corporations validly created by legislative authority before 1900, or validly created before 1900 by the act of a city, county government, or other political subdivision, in addition to the powers theretofore granted them, have all the powers enumerated in Section 33-31-302, `Powers of Corporation'.
SOUTH CAROLINA REPORTERS' COMMENTS

Prior to 1900 the legislature chartered many nonprofit corporations, sometimes giving them specific or special powers. A number of charitable organizations were also chartered by cities. This section reflects that the original powers are preserved and are not modified by this Chapter 31, Title 33, except to the extent the powers were previously limited, in which case, the original powers are enhanced by Section 33-31-305. The former nonprofit statutes likewise recognized these powers, e.g. former Section 33-31-110 of the 1976 Code. There is, of course, a significant difference

Section 33-31-401. Corporate name.

(a) A corporate name may not contain language stating or implying that the corporation is organized for a purpose other than that permitted by Section 33-31-301 and its articles of incorporation.

(b) Except as authorized by subsections (c) and (d), a corporate name must be distinguishable upon the records of the Secretary of State from the name appearing upon the records of the Secretary of State of any other nonprofit or business corporation, professional corporation, or limited partnership incorporated in, formed in, or authorized to do business in South Carolina, or a name reserved, registered, or otherwise filed upon the records of the Secretary of State.

(c) A corporation may apply to the Secretary of State for authorization to use a name that is not distinguishable upon the Secretary of State's records from one or more of the names described in subsection (b). The Secretary of State shall authorize use of the name applied for if:

(1) the other corporation consents to the use in writing and submits an undertaking in form satisfactory to the Secretary of State to change its name to a name that is distinguishable upon the records of the Secretary of State from the name of the applying corporation; or

(d) A corporation may use the name, including the fictitious name, of another domestic or foreign business or nonprofit corporation that is used in this State if the other corporation is incorporated or authorized to do business in this State and the proposed user corporation has:

(1) merged with the other corporation;

(2) been formed by reorganization of the other corporation; or

(3) acquired all or substantially all of the assets, including the corporate name, of the other corporation.

(e) Except for allowing foreign corporations to file for a certificate of authority under a fictitious name as provided in section 33-31-1506, this chapter does not control the use of fictitious names.
OFFICIAL COMMENT
1. No Requirement to Include "Corporation," "Incorporated," "Company," or "Limited" in Name

While the Model Business Corporation Act requires business corporations to use the term "corporation," "incorporated," "company," or "limited," or some abbreviation thereof in their names, the prior Model Nonprofit Corporation Act did not have a similar requirement. Imposition of such a requirement for nonprofit corporations would create two classes of corporations, those formed before and those formed after the effective date of the revised Model Nonprofit Corporation Act. This problem could be solved by imposing a name requirement on all nonprofit corporations. This approach is contrary to nonprofit tradition, would not materially protect the public and would entail considerable effort and cost. Hospitals, colleges, museums, trade associations and other nonprofit institutions usually do not include the words "corporation," "company," "incorporated," or "limited" in their names. Any such addition would sound strange and, particularly in the case of the words "company," and "limited," would not provide any meaningful information. Apart from the basic question of whether any of these words convey the concept of limited liability, nonprofit corporations can effectively undercut any such name requirement by operating under a fictitious name.

2. Names Must Be "Distinguishable Upon the Records of the Secretary of State"

A corporate name must be distinguishable upon the secretary of state's records from other corporate names that appear in the secretary of state's records. This requirement is imposed: "(1) to prevent confusion within the secretary of state's office and the tax office and (2) to permit accuracy

The fact that the secretary of state files a corporation's articles of incorporation does not give that corporation the right to use the name set forth in its articles. Whether it can or cannot use the name depends on general principles of fraud and unfair competition. See American Kennel Club v. American Kennell Club, Inc., 216 F. Supp. 267 (D. La. 1963); Lincoln Center for Performing Arts, Inc. v. Lincoln Center Classics, Record Soc., Inc., 25 Misc. 2d 686, 210 N.Y.S.2d 275 (1960); McCarthy, Trademarks and Unfair Competition Section 9.2 (2d ed. 1984).

A corporation may operate under a fictitious name that is different than the name appearing in its articles of incorporation. Of course, the use of a fictitious name maybe prevented under general principles of fraud and unfair competition.

What is "distinguishable upon the records of the secretary of state" is left to the discretion of the secretary of state. This discretion may be challenged pursuant to section 1.26.

3. Consent To Use Name

Subsection 4.01(c) allows the secretary of state to authorize the use of a name that is not distinguishable upon the secretary of state's records from the record name of another corporation if that corporation consents in writing and submits a satisfactory undertaking to change its name to one that is distinguishable upon the records of the secretary of state. The undertaking should be consistent with and no broader than the requirements of section 4.01.
SOUTH CAROLINA REPORTERS' COMMENTS

The prior nonprofit statutes found in Chapter 31, Title 33 had no provisions generally regulating the names of all nonprofit corporations. (However, there were provisions giving special protection to certain nonprofit corporation names.) This section relates to the comparable Business Corporation provisions (Sections 33-4-101 through 33-1-103) which generally were applicable before the adoption of this 1994 South Carolina Nonprofit Corporation Act. Different from the South Carolina Business Corporation Act, the Nonprofit Act does not require that the company names include a designation such as "Inc." The former "assumed name" statute was repealed which might have an effect on some nonprofit corporations (see the South Carolina Reporters' Comments to Section 33-4-101 of the South Carolina Business Corporation Act). The South

Consideration was given as to whether there should be controls on what names could be used both to protect the general public and those entities who have existing names. It was noted that the former statute did give protection to certain entities, e.g., the Masons. Consideration was given as to whether the Secretary of State should be required to make a determination that any national organization had granted a right to a local organization to use a particular name. (Some states have adopted this approach.) However, the Secretary of State does not want to be involved in determining if a national organization has given permission to a local entity to use its name. For various reasons, including efficiency, it was concluded that the Secretary of State should not have the obligation to determine if the entity had received any or all required permissions to use its proposed name.

The suggestion that the incorporator (or merely the corporation) could certify on its articles that the corporation had any required permission needed to use the organizational name - e.g., that it was permissible for the new corporation to use the term "Rotary" in the name, was likewise specifically rejected.

It was further noted that even if there might be some statutory protections provided as to name usage, that most of the protections come from common law doctrine. Further, if the statute granted some limited name protection, this might be wrongly construed as preempting the common law, not a desirable result.

It is important to recognize that any nonprofit corporation may incorporate under any "grammatically distinguishable" name, regardless that the name may be deceptively similar to an existing corporate name. The protections each existing corporation has in its name are derived solely from the common law. The common law, and not this statute, sets the policy as to what names can be used in public and which do not create unfair competition or are not deceptive. Nothing in this statute shall abrogate or limit the law as to unfair competition or unfair trade practice, or abrogate from the common law, the principles of equity, of the statutes of this State or of the United States with respect to the right to acquire and protect trade names and trademarks.

Section 33-31-402. Reserved name.

(a) A person may reserve the exclusive use of a corporate name including the corporate name of a foreign corporation or its corporate name with any change required by section 33-31-1506, by delivering an application to the Secretary of State for filing which shall set forth the

(b) The owner of a reserved corporate name may transfer the reservation to another person by delivering to the Secretary of State a signed notice of the transfer that states the name and address of the transferee.
OFFICIAL COMMENT

Considerable effort is often expended in finding an appropriate name for a nonprofit corporation. Under the Model Act those forming a nonprofit corporation, after determining that a particular name is available, can reserve that name for a nonrenewable one hundred twenty-day period. The one hundred twenty-day period should be more than sufficient to form the corporation.

The ability to reserve a name is available to any person and is not dependent on any particular intent or purpose. The person reserving the name may transfer the reserved name to another person by delivering to the secretary of state a signed notice of the transfer stating the name and address of the transferee.

While a name reservation is not renewable, after the initial reservation period has lapsed, any person, including a person who held the prior reservation, may reserve the name.
SOUTH CAROLINA REPORTERS' COMMENTS

This section is essentially the same as the formerly applicable statute, Section 33-4-102 of the South Carolina Business Corporation Act. Like the South Carolina Business Corporation Act, this section requires that the "application must set forth the name and address of the applicant and the name proposed to be reserved." This language is not included in the Model Nonprofit Act.

Section 33-31-403. Registered name of a foreign corporation.

(a) A foreign corporation may register its corporate name, or its corporate name with any change required by Section 33-31-1506, if the name is distinguishable upon the records of the Secretary of State from the name appearing upon the records of the Secretary of State of any other nonprofit or business corporation, professional corporation, or limited partnership incorporated in, formed in, or authorized to do business in this State, or a name reserved or registered upon the records of the Secretary of State.

(1) setting forth its corporate name, or its corporate name with any change required by Section 33-31-1506, the state or country and date of its incorpora- tion, a statement that the foreign corporation is not, and has not done business in South Carolina, and a brief description of the nature of the activities in which it is engaged; and

(2) accompanied by a certificate of existence, or a document of similar import, from the state or country of incorporation current within sixty days of delivery, duly authenticated by the official having custody of the corporation records in the state or country under whose law it is incorporated.

(c) The name is registered for the applicant's exclusive use upon the effective date of the application.

(d) A foreign corporation whose registration is effective may renew it for successive years by delivering to the Secretary of State for filing a renewal application, which complies with the requirements of subsection (b), between October first and December thirty-first of the preceding year. The renewal application renews the registration for the following calendar year.

(e) A foreign corporation whose registration is effective may qualify thereafter as a foreign corporation under that name or consent in writing to the use of that name by a corporation thereafter incorporated under this chapter or by another foreign corporation thereafter authorized to transact business in this State. The registration terminates when the domestic corporation is incorporated or the foreign corporation qualifies or consents to the qualification of another foreign corporation under the registered name.
OFFICIAL COMMENT

Section 4.03 allows a foreign corporation that is not qualified to transaction business in a state, to register and thereby reserve its name. In effect, section 4.03 allows a foreign corporation to reserve the right to qualify its name if it subsequently decides to do so. Even if a foreign corporation reserves its name, it may be precluded from using its name in the state under unfair competition or similar concepts. See Official Comment to Section 4.01.

A foreign corporation may renew its registered name yearly. Thus, the registration provisions of section 4.03 allow perpetual renewal while the reservation provisions of section 4.02 allow a single 120-day reservation

A foreign corporation may only register its real corporate name or its corporate name with any change required by section 15.06. A foreign corporation that wishes to register a fictitious name may do so by incorporating an inactive domestic or foreign subsidiary using the desired fictitious name.
SOUTH CAROLINA REPORTERS' COMMENTS

This section is comparable to the formerly applicable section, Section 33-4-103 of the South Carolina Business Corporation Act. A few grammatical modifications have been made to the Model Act format. In addition, different from the Model Act, the South Carolina law requires that in filing the applica- tion, the foreign corporation must include a statement that it is not doing business in South Carolina, and that the application must be accompanied by a certificate of existence or a document of similar import current within sixty days of delivery, duly authenticated by the official having custody of the corporation records in the state or country under whose law the foreign corporation is incorporated.

Section 33-31-404. Name change filing requirement when real property owned.

(a) When either a domestic or foreign nonprofit corporation which owns real property in South Carolina changes its corporate name by amendment of its articles, by merger, or reorganization, the newly named, surviving, acquiring, or reorganized corporation must file a notice of that name change in the office of the register of mesne conveyances of the county in this State in which the real property is situate. If there is no such office in that county, a notice of name change must be filed with the clerk of court of the county in which that real property is situate.

(b) The filing must be:

(1) by affidavit executed in accordance with the provisions of Section 33-31-120 and containing the old and new names of the corporation, which affi- davit also may describe the real property owned by that corporation; or,

(2) by filing a certified copy of the amended articles or articles of merger; or

(3) by a duly recorded deed of conveyance to the newly named, surviving, acquiring, or reorganized corporation.

(c) the affidavit or filed articles must be duly indexed in the index of deeds.

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