Company Corporation

A Company Corporation is a legally recognized organization created by stakeholders, shareholders, or individuals to carry out business operations. Company Corporation can own assets, incur liabilities, and enter into contracts on its own because it is a distinct legal entity from its owners. By offering shareholders limited liability, corporations shield their private assets from business debts. They are governed by corporate law and can be private, public, or non-profit organizations, each with a distinct function.

Meaning and Definition of Company

Literally, the term company means a group of persons to associate for achieve some common objective such as business, charity and research etc. It is a voluntary association of persons formed to run business activities for fulfilling the objective of earning profits by collecting capital and selling shares. The company Act, 2063, Sec. 2(a) states that “A company shall denote the company which is incorporated in accordance with this Act.” “A company is an association of persons united for common object.”

It is legal entity. According to Laurence C.B. Gower “A company as an association of a number of persons for common objective that objective normally being the economic gain of its member.” According to Chief Justice Marshal “A person artificial, invisible, intangible and existing only in the eyes of law. Being a mere creation of law, it possess only those properties which the charter of its confers upon it either expressly or as accidental to its very existence.” Thus, ‘Company’ means an association of a number of persons formed for some common purpose and registered according to law relating to company.

Classification of Company

Public Company

The Company which can purchase and sale share and debenture in open market is called the Public Company. The minimum seven promoter are required but not limitation for maximum shareholders. Public company can establish another company.

Private Company

Private Company has not minimum requirement of Promoter. One man also can establish private company. Maximum limitation of members of Private company is 101. Private company can not sale and purchase share or debenture in open market.

One-man Company

A company registered by a one-man is called the One-man company. Such company is perfectly regarded to have separate entity as distinct from its shareholder.

Government Company

Where Government secured majority Share of Company that is called government Company. It is not part of State but a legal entity. The company Act 2063 has not incorporated legal provisions relating to government Company.

Foreign Company

Foreign Company is that which is established and operated in other country. To carry out any transaction foreign company must be registered at local country.

Chartered Company

The company which is incorporated under the seal of head of State is called the chartered company. Such Company established by special Charter. BBC and East India Company are the example of Chartered Company

Holding/ Parent Company

A Company Which Controls another Company is called the Holding Company. Holding Company means a company having control over subsidiary Company. Company can holds other company by control management or more than majority share.

Subsidiary Company

A Company controlled by the holding company is called subsidiary company. If ‘A’ Company purchase 51 percent share of ‘B’ Company in this case; ‘A’ company is holding Company and ‘B’ Company is subsidiary Company.

Listed Company

A Public Company, which listed the shares at Stock exchange market, is called listed Company.

Formation and Incorporation of Company

• Incorporation of a company means formation of company according to law.
• The section 3 of company Act, 2063 makes following provisions relating to the incorporation of company.
• Any person who wants to undertake any enterprise with motive of earning profit may establish one man company personally or joint stock company along with others.
• Beside that; According to Sec.166 of Company Act 2063 profit non-distributed company also can be established.
• According to Company Act,2063; there must be at least seven promoters and one Core paid up capital to establish a public company.
• In case of a private company; Any Person can establish private company and membership must not exceed 101 shareholders.
• Private or Public company must be registered in Company Registrar office of Nepal.
• For the purpose of registration of company, following documents including necessary fees and an application should be submitted in office of Company Registrar.
• Memorandum of proposed company.
• Articles of Association or Regulation of company.
• Contract papers, if any agreement has been reached among Promoters before incorporation of public company.

Registration of Company

An official procedure of registration of company is called the incorporation of Company.
After completed necessary procedure, The office of Company Registrar registered company and issues certificate of registration.
Registration may be denied in following circumstances:

• If company has already been registered with same name.
• If name of a company is not good from the point of view of the social welfare, courtesy and good conduct.
• If objective of proposed company is against the existing law and public interest.
• If any of pre-requisites, for registration of company, are not fulfilled according to Company Act.
• According to Sec. 6(2) of Company Act,2063, Registrar should send notice about refusal of registration within 15 days.

Memorandum of Association

Memorandum of association is basic and fundamental document which contained the objectives and structure of company. Following matters are stated in the memorandum of association;

• Name and address of Company
• Objectives and functions of company
• Figure out authorized, paid capital and Share Capital
• Restriction of purchase and transfer of shares
• Numbers of shares which are promoters have under taken
• Types of shares and values of shares
• Terms and conditions of payment of share amount
• Provisions relating liability about limited shareholders
• In case of private company maximum number of shareholders
• Others necessary particulars etc.

Articles of Association

Articles of association is another important document of company which contained the set of rules and by-laws, regulation for general administration of company. Following matters are stated in the Articles of association;

• Procedure for calling AGM and Process of GM
• Numbers of Directors and Terms and conditions of Directors
• Provisions relating to record keeping of meetings
• Minimum numbers of share for appointed Directors
• Qualifications of Independent Directors
• Provisions regarding numbers, term of office, qualification and appointment procedure of Directors
• Rights and duties of Board of Directors
• Authorities of Board of Directors
• Provisions relating to shares and transfer of share
• Provisions relating to alteration of Share
• Appointment of Company Secretary
• Provisions regarding to remuneration, allowance and facilities of Directors
• Quorum of meeting of Board of Directors
• Provisions relating to company’s seal and use of seal of company
• Matters dealing with raising loan and debenture
• Provisions regarding to merger of company
• Any specific matters that is to be required under existing laws
• Any other required matters etc.

Prospectus of Company

Prospectus of company is most important document in relation to collect capital and sale and purchase of share and debentures.
This document invites public at large to invest any company through share and debenture.
Particulars of prospectus;

• Capital and other matters of company
• Major transaction of Company
• Financial position, general administration and management of Company
• Time and place for inspection of financial report of Company
• Time of publishing notice of share allotment
• Remuneration, allowance and facilities of Directors
• Others required matters etc.

Share and Share Capital

Any company needs funds to operate it’s business. For that company has authorized capital and Paid capital beside that company can collects the capital through public share and debenture. Generally Share capital collect through secondary capital market. Process of purchase and sale of share defined by memorandum of association and article of association of company. Public company invites public at large to apply for subscription of its shares. A share certificate is title of share of shareholders. After purchase the share of any company, the shareholder become the members of that company.

Borrowing Power-Debentures

• Only the capital received by issuing share may not meet the requirement of any company. Loan is another means to collect the capital for company.
• When any public company intends to borrow considerable sum of money, such company can issues debentures to the public general. But private company can not sell debentures through open invitation.
• Debentures means an instrument of debt issued by company with or without creating security over its assets.
• Debenture is an instrument of debt given under company seal according to prescribed format and contains of contract for repayment of loan at specific time limitation with interest at fixed rate.
• Company can not issues debentures unless and until commence the business and issued capital is fully paid up.
• Matters relating to terms and conditions of repayment period and interest of loan governed by deed or agreement between parties.
• Shareholders and debenture holders must be register as prescribed formant.
• Each company shall manage the shareholder and debenture holders register with required matters.
• Generally, a company can not issue or sale its share at discount. But after passed the special resolution through general meeting of company can issue discount share for specific conditions .

Meetings of Company

Meeting of company is that, where the persons relating to company gather together and pass decision by discussing the matters in respect of agenda, future plan, Policies and strategy of company.
Board of Director can get legitimacy to run the company from meeting of shareholders.
Role of company meeting is most important in day to day affairs and management of Company.
The company Act, 2063 provides only two types of general meetings.
Annual General Meeting
Special General Meeting

Annual General Meeting

AGM means Annual gathering of persons relating to company to discuss and pass decision in relating reports, election of board members, auditor and adopt policy and strategies of company.
AGM of company is held within one year from the date of receiving certificate of commencement of business and than after AGM shall arrange every year within six months of expiry of fiscal year of company.
Agendas of AGM are;

• Board’s report and election of boards of director’s
• Balance sheet,
• Distribution of profit,
• Appointment and remuneration an Auditor,
• Policy and rule making matters etc.

Special General Meeting

All General Meetings other than AGMs are called Special General Meeting. SGM is called in a special situation when an urgent decision has to be taken.
Generally, SGM call for special resolutions and agendas.
SGM may be called by :

• By the Board of Directors: In case of a necessity, the board can call SGM.
• By the Auditor: In case of any defects in the account Auditor request to board for SGM. If the board does not call the meeting, the Registrar’s office can call SGM on the request of Auditor.
• By shareholders: 10% of paid up capital shareholders or 25% of the total number of shareholders can call SGM by disclosing the special cause.

Board Meetings

• Meeting of Board of Directors has importance role to operate and manage the company
• Time of meeting of Board of Directors
  In case of Private Company as per Articles of Association
  In case of Public Company at least six times in year
• Attendance of Board of Directors
• Quorum of Board of Directors
  At least 51% of total numbers of board of directors
• Chairman’s vote to be decisive
• Minute of Board of Directors
  Minute of meeting means record book which is contained presence of members, agenda of discussion and decision of meeting.
• Decision of Board of Director does not to be illegal

Minute and Resolutions of Company

Literally term “minute” means a record of a meeting.
Minute of meeting is official record of matters talk about and decision taken at meeting.
Minute of Company is written summary of the points discussed at meeting of Company for the purpose of record of decision.
Minute of General Meetings & Board Meetings are official record of Company

Minute Process:

• Discussion over an agenda
• Passed in accordance with the law,
• Simple or Special majority.
• Record of process is called a minute.

The following matters must be included in the minutes:

• How to notice of General Meeting was published?
• How many shareholders were presented?
• Present percent of shareholders out of total numbers?
• What were the decisions made?
• If the poll has been made, what was result?
• Such minutes either shall have to sent to shareholders within 30 days or publish in national newspaper.
• Resolution is the proposal for deciding at the meeting of company.
• Basically, there are two types of resolution i.e. Ordinary resolution and special resolution.
• An ordinary resolution is other than special resolution.
• Ordinary resolution is passed majority of votes in fovour of it and Special resolution must be passed by two third majority of shareholders.
• In other words, if the resolutions require only majority vote to pass it is called an ordinary resolution and require 2/3 majority is called special resolutions.
• Special resolutions are;
  Increment of authorized capital
  Reduce of Share capital and Change it
  Change of name & objective
  Amendment of Memorandum and Articles of company Merger
  Purchase of own share and Sell share in discount
  Liquidation of Company etc.

Auditing of Company

• Every company, whether private or public, has to audit accounts of its affairs. Every Company must have an audit report by a registered Auditor.
• All the actual information of company can be obtained from the audit report which prepared by Auditor.
• The audit report should be submitted to shareholders including profit and loss account, cash flow and balance sheet through the Annual General Meeting.
• Audit report can mention matters about income, achievement, objectives fulfillment and financial status of Company.
• Auditor is most important position in company who is appointed by AGM among the certified auditors.
• Company Act, 2063 section 110-119 provides the provisions, regarding appointment, removal and duties of an auditor.

Rights and Duties of Auditor

Rights of Auditor

• Right to get remuneration
• Right to demand account of Company
• Right to ask clarification
• Right to certify audited documents
• Right to request for legal & technical advice
• Right to observe or test all documents
• Right to call the SGM
• Right to table necessary agenda at SGM

Duties of Auditor

• Submit audit report
• To affix signature
• To perform duties with care

Dissolution and Winding up of Company

• Being a legal entity, company incorporated by law and dissolved by law. And dissolution of company is formal procedure of ending of legal status of company.
• The dissolution of company means the formally stopping the transaction or by ending of legal status of company.
• It is equivalent to death of company and it is also called the winding up of company
• After dissolution of company, the management of company will take over by official receiver who is known as liquidator.
• Generally company can be dissolved by liquidation/winding up and deregistration.
  Voluntary liquidation
  Compulsory Liquidation
• By liquidation/ winding up of company
• Liquidation of company is one mode of dissolution of company. After the completion of liquidation process company come to an end.
• Voluntary Liquidation
  Voluntary liquidation of company may commence after the special resolution passed by General Meeting of company as per the memorandum, article of association and unanimous agreement.
• Compulsory Liquidation
  Compulsory liquidation of company is a process which is commence without willingness of shareholders. Such process will start after the insolvency of company. Process of liquidation defined by Insolvency Act, 2006
• By Deregistration of Company
  If company fails to start business as per the objective of company and unwillingness to continue the company; promoters can request to deregistration of company to Office of Company Registrar.

Frequently Asked Questions (FAQ)

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