TyroCity: Company Law Notes

Controls over the Management

Company Law Notes — Sun, 18 Aug 2013 05:41:42 +0000

Control over the management -by shareholders, by government, by company law Board for good governance of company. Which we know as corporate governance
Good governance in political and administration sector.
Corporate governance in corporate sector.
Control over the management is the way of application of corporate governance in company or corporation. Control is necessary for check and balance of powers role duties and jurisdiction of overall management including BOD and other stakeholders.
Corporate governance is set of process, customs policies, law and institution affecting the way of a corporation is directed administered or controlled. Corporate governance also includes the relationship among many stakeholders for which corporation is governed. The principle stakeholders are the shareholders, management and the boards of director, other stakeholders are employee, suppliers, customers, lenders regulatory, the environment and the community at large.
Controls of shareholders government and regulatory is essential for check and balance of scope and power of management.
There are so many stakeholders in any company or corporation. The harmonies, accountable, fair, credible, trustworthy and responsible relationship is possible from the check and balance. The way of check and balance is controls over the management.
Controls by different stakeholders such as by shareholders, by regulatory by government and by court is necessary for the protection of rights of shareholders and customers.

Control is the way of achieving the corporate governance which includes the following key elements.

Honesty,
Trust and integrity
Accountability
Responsibility
Mutual respect
Performance oriented
Commitment to the desired goal of corporation.

The important theme of corporate governance is to ensure accountability of certain individuals in a corporation through the mechanism which tries to reduce or eliminate the principal agent problem in corporations.

The corporate governance has some eminent principles which are as follows.

Right and equitable treatment to shareholders
Interest of shareholders and other stakeholders
Role and responsibilities of the board(Management)
Integrity and ethical behavior
Transparency etc.

Corporate governance is the system of structuring operating and controlling a company in order to achieve the following objectives.

To fulfill the long term strategic goals of the owners
To consider and take care of the interest of the different stakeholders or company
To maintain good relationship to customers and suppliers.
To take account of needs of environment and local community.
To ensure proper compliance with all applicable legal and regulator’s requirements

Organization of Economic Co-operation and Development) OECD- defines- corporate governance as a system by which business corporations are directed or controlled.

Check and balance of power of management shareholders and investor’s responsibility and accountability of management and board, Transparency and disclosure respect to law and system, respect to code of conduct, equal treatment to shareholder protection of interest of various stakeholders, a effecting accounting and auditing system are basic element or ingredients of corporate governance.

Therefor control over the management is the method of ensuring right and protecting to stakeholders. The concept and legal provision about controls are directly connected with corporate governance.

But controls should be based on law, policy and grounds of reasonableness otherwise controls may lead the management toward the defunct management.

Shares and Its Types

Company Law Notes — Sun, 18 Aug 2013 05:41:42 +0000

Share is a unit or portion of capital of company.
Investments made in any company are divided in numbers of units and each of such units is called share of a company.
Section 2(n) of the Companies Act of Nepal has defined the share as the divided portion of the share capital of company.
The capital of company is divided into small parts & each part is known as share.
Boreland Trustees v. Steel Bros Co. Ltd. 1901 1 ch 297 (Company Law: 12th edi; Ashok K Bagrial P 7 )‘’A share is the interest of shareholder in the company measured by a sum of money for the purpose, of liability in the first place, and of interest in second, but also consisting of series of covenants entered in to by all shareholders inter se.’’
An interest measured by sum of money and made of various rights contained in MoA and AoA.
Vishwanathan v.East India Distilleries 1857 -27. (Company Law: 12th edi; Ashok K Bagrial P 2o7)-‘’Share is merely a bundle of rights and obligations which are regulated by the articles.’’

Nature of Shares

The shares are movable property. Shares can be transferred in the manner provided by the articles.
Section 42 of the Companies Act states that ‘’ the shares or debenture of a company may be sold or pledged like a movable property, subject to this Act as per the provisions of the Memorandum of Association and articles of association

Types of Shares

In simple word, share is a part of share capital of company.
Share is divided portion or part of share capital of company.
The types or kinds are determined on various bases. So, to say particular type is not easy. It depends on the basis of determination.
Company can issue different types of share for its capital formation. As per section 30 of the Act, the company may, by making provisions to that effect in its memorandum of association and articles of association, issue various classes of shares with different rights attached thereto. Section 18 also.
So, inherent rights and obligations determine the types of share. The types of share are based on different types of inherent rights and power of shareholders in such shares.
Such inherent rights may be rights to get dividend, right to refund invested amount in case of liquidation, right to get remaining amount after repayment of loan and other liabilities.
Section 30 of the Act gives permission to public company for issuing of shares with different rights. Types are determined by such different rights.
Generally, public company issues different types of share offering for subscription. In case of private company there is no meaning to say the types of share.
Mainly there are two types of share in practice, as per Nepalese legal provision. Which are;
- Ordinary or equity share
- preference share

Ordinary or equity shares

Equity or ordinary shares are those which actually are not preference shares, equity or ordinary shares do not enjoy any preferential rights. There is no any preference on right; by the name & nature this is ordinary type of share.
The term ‘share’ denotes ordinary share in general conversation. Ordinary share is not defined in detail in the Companies Act. Section 2 (P) of the Act defines ordinary share as a share other than a preference share. This classification is made especially for public company. In case of private company there is no such various categories of share, only the term share is enough for private company.
Though, there is no long definition of ordinary or equity share in our company Act, but it is understood that all shares other than preference shares are ordinary or equity share.
The shareholders of ordinary shares are entitled to get dividend from the net profits of company after the fixed dividend on preference share has been paid – up.
So, there is no preference for ordinary share, ordinary means ordinary.
If there is no profits remain after paying the dividend on preference share, ordinary shareholders will receive no dividends.
Therefore, this type of division of ordinary & preference share is based on the factor of priority of receiving dividend and getting back of capital.
Similarly, ordinary shareholders will get back their capital only after repaying the capital of preference shareholders, when company goes for winding –up.
For the purpose of dividend and repayment of capital, the ordinary shares rank after the preference shares. Generally, the rate of dividend is not fixed in ordinary share. In ordinary share dividend may vary from year to year depending upon profit balance sheet of the company. If huge profit, there is higher dividend, if no profit, there may be no dividend. The board determines the rate of dividend for ordinary shareholders on the basis of profit as per defined legal procedures.
There are so many ways to obtain the ordinary or equity shares. On the basis of such obtaining ways, ordinary share again can be divided in following types;

Promoter Share

When the promoters of company do accept to subscribe some quantity of share at the time of formation or incorporation by mentioning the same in MoA & AoA, these types of shares are known as promoter shares of company.
The share of promoters, subscribed at the time of incorporation, is the promoter share.
The term promoter is defined in section 2(i) of the companies Act, as per this definition “promoter means a person who, having consented to the matters contained in memorandum of association & articles of association to be furnished in the Office for the incorporation of a company, signs the same in the capacity of promoter.’’
The person who promotes the company by taking particular quantity of share is the promoter and such promoters’ share is promoter share.
Promoter shares are allotted in the name of promoter and promoters never pay premium value to subscribe share.
Promoter shares cannot be sold mortgaged or pledged unless the first general meeting held and entire call amount on share is fully paid. – sub section 2 of section 42 of the Act.

Primary share

After incorporation of a company, public company can invite general public to join the company as its share member as an invitation to offer for purchasing its share, such share is allotted or primary share.
Allotted or primary share is that the company makes selling or distributing process at first and makes an invitation for subscribing from issued shares.
Public company have to publish the prospectus to invite public to subscribe its shares (section 23 (1) ), but a private company cannot invite or call on public to subscribe its shares. Section 10 (c). Private company mange the allotment privately as per MoA & AoA or unanimous agreement.
Public company cannot call for more than 50% amount of face value of share with application section 27(3). Therefore, we see the primary share of 100 rupees in practice, but such restriction will not apply for those companies, which are in operation previously by publishing audited fiscal statement of last 3 years.( provision of section 27 (3))

Right Shares

No separate definition of right share in Act.
But legal provision about right shares is mentioned in section 56(5) ,(6), 7, 8 & 9.
Certain preemptive rights to existing shareholders.
In case of increase in share capital of company.
The shares issued with such preemptive right to only the existing shareholders.
Existing shareholders have 1st right to subscribe.

Existing shareholders are given pre- emption at favorable price as per the numbers of their shares.

Bonus Share

A share, which is issued as an additional share to existing shareholders by capitalizing the surplus from the profit and reserve fund of company.
Section 2(q) of Act—‘’bonus share means a share issued as an additional share to shareholders, by capitalizing the saving earned from the profits or the reserve fund of a company ,and the term includes the increase of paid –up value of a share by capitalizing the saving or reserve fund.’’
Issuing bonus share is the means of capitalizing profit or reserve fund instead of distributing cash dividend to company’s shareholders.
It must be issued to the company’s shareholders. Section 179(1) (2).
It has to increase the paid- up capital of company.
It has to capitalize the profit or reserve fund & should not be issued from revaluation of existing other property of company. Section 56 (10).
Special resolution of G.M. & information to CRO is the most for issuing bonus share. Section 179 (1) (2) & 83 (e).

Debenture Share

Debenture is credit obtained by company.
Sometime, in some situation, company can convert its debenture in to shares. Such shares are known as debenture shares.
If there is such provision on MoA & AoA, if there is agreement between debenture trustee & company, if such matter is published in prospectus, at these situations company can issue debenture share.
The terms ‘debenture’ and ‘debenture trustee’ are defined in section 2( s) and 2(t) respectively.
Section 34 includes the provisions relating to debenture. Similarly sub section 4 of section 35 is related with conversion of debenture into debenture share.

Premium Shares

Shares having some additional price more than face value of shares.
Definition is in 2 (z 2) of Act— value in excess of its face value.
Legal provision in section 29.

Forfeited Shares

Sometime there may be a situation where company has to forfeit the shares on the grounds of nonpayment of installment on time.
Legal provision- Section 53(3)

Preference Share

The preference shares are those which have preferential rights than ordinary shares.
Section 2 (o) of Act defines preference share.
Types of share should be mentioned in MoA of company. Section 18(f).
Section 65 states about preference shares of company. Especially section 65 (2) mentions the grounds of issuing the preference shares, by that preference shares can be easily understood.
A preference share must have following preferential rights; a) a preferential right as to the payment of dividend b) a preferential right as to the repayment of capital.
Preference may be on; dividend, rate of dividend, repayment of share amount in the situation of liquidation, having voting right or not, redeemable or non-redeemable after certain period of time and if redeemable redeemed with premium or not etc.
Types of preference shares are; 1). Cumulative and non-cumulative 2).Participating and non- participating 3) Convertible and non- convertible. 4). Redeemable Preference shares.
Cumulative preference shares are those which are assured of dividend every year even if there are no profits in a particular year.
Non-cumulative preferences are those which are assured of dividend only in the situation of profit.
Participating and non- participating preference share; in such shares, shareholders are entitled to participate to surplus profit or surplus assets. Surplus profit means the balance of profit which is left after paying the fixed amount of dividend. Surplus assets means the balance of assets which is left after paying back both the preference and equity shareholders. Voting right also may be basis of participating or non- participating. The participating shareholders participate in both surplus profits and surplus assets. But in non-participating share, shareholders are not entitled to participate. If Mo A is silent about this, it is presumed that all shares are non-participating preference share.
Convertible and non- convertible shares; Convertible preference share can be converted in to equity shares within a certain period, non- convertible cannot be converted into equity shares.
Redeemable preference shares are those the amount of which can be paid back to the shareholders. The capital raised through issue of redeemable shares can be paid back to the shareholders by the company to such shareholders. Company can issue such shares only if it has been authorized by MoA & AoA. Section 65 (5).

Articles of Association (AoA)

Company Law Notes — Sun, 18 Aug 2013 05:41:42 +0000

AoA is another important document needs at the time of incorporation of company.
AoA and Articles of Incorporation (AoI)are same.
AoA regulates the way in which a company’s internal affairs are managed.
(Ashbury Rail Carriage & Iron Company V. Riche 1875 LR 7 HL 653) - “ the articles defines the duties, rights, and powers of governing body as between themselves and company at large, and the mode and the form in which the business of the company is to be carried on, and the mode and form in which changes in internal regulations of company may from time to time, be made.’’
Rules and Regulations for governing body of company or management.
AoA is subordinate to the memorandum.
Rules & Regulations do not exceed provisions of memorandum.
“The Articles of Association are the internal regulations of the company and are for the benefit of shareholders’’( Guiness v. Land Corporation of Ireland 22 ch. D. 349)
Thus, AoA is the collection of rules & regulations, framed for the internal management of the companies.
Section 20 of the Nepalese Companies Act has mentioned about meaning of AoA and matters to be included in AoA.

Amendment of MOA and AOA

There are some special legal provisions relating to amendment of MOA and AOA in the Companies Act 2063 BS.
Generally, a company shall not alter the conditions contained in its memorandum except in the cases, in the mode and to extent for which express provision made in the Act
There are some prescribed conditions for amendments in MOA and AOA in Section 21 of the Companies Act 2063 B.S.
Generally, there may be following conditions of changes in MoA & AoA
- Change in Name
- Change in objects
- Change in Procedures

Change in Name

By special resolution, Section 21(3) - any company can amend its name by adopting a special resolution to that effect at its general meeting and make an application, accompanied by the prescribed fees, for prior approval of the office and if the office gives approval to amend the name as per application so received, the name of the company shall be amended.

So, prior approval of the authority is most for the amendment of name.

Change in Objects

The object’s clause can also be altered but the alteration is subject to a number of restrictions.

These restrictions are for the protection of the interest of the shareholders and creditors.

As per the determined process of sec 21(1) of the companies Act 2063 B.S. the general meeting of a company can amend the MOA and AOA by adopting a special resolution

Special Resolution

Special resolution is most for amendment, except the change in name, in other change giving the information of amendment is sufficient.

As per the legal provision stipulated in section 21(2)- The Company shall give information of amendment made to MOA and AOA to the office within 30 days and the office shall record the same and give information thereof to concerned company within 7 days after receipt of such information.

Restriction on Amendment

On the following basis;

As mentioned the basis in section 6 of Nepalese Company Act ‘power to refuse to register’.
The company cannot amend the objects clauses or name as a routine affair.

Change in Name or objects is necessary for the following purpose;

To conduct its business more economically or efficiently.
To attain its main purpose by new or improved means.
There is only limited scope for change. That is to conduct the business efficiently. The business must be same as before e g. Pharmaceutical Company cannot change objects to carry the business of real state.
For the attainment of the objects.
for the improved means of conducting business.
enabling the company to take advantage of new scientific discoveries and inventions.
to enlarge or change the area of operation
to make changes number of shareholders, capital of company, shares, etc.
to make change in status of company i.e. conversion private to public & public to private company.
to restrict or abandoned any objects specified.
to sell or dispose the whole or any part of undertaking.
to amalgamate with any other company or body of person.
to adopt the new process and procedures mentioned in AOA regarding meeting notice,
to carry on some additional or convenient business under the existing circumstance. e.g. School level company converted in to college and school both or in college only.
In a Public company shareholder has right to challenge in court for amendment within 21 days of that change (Section 21(4)), otherwise it is automatically activate.

Change in Procedures

AOA is related to procedures. The amendment is possible regarding the various procedural aspects.
Section 148 - private company which has no annual general meeting, if they passed the unanimous agreement.

Debenture

Company Law Notes — Sun, 18 Aug 2013 05:41:42 +0000

The term debenture may be defined as a certificate of loan issued by a company which creates an indebtedness of the company. The companies have to borrow the money for their extension or developments.
The companies’ loan requirement may not be met by a single money lender. The loan may have to be split into several units. The most usual form of borrowing loan by a company is issue of debenture. The public is invited to lend money for a fix period at a declared rate of interest to be paid on such money.
Debenture is a credit obtained by company.
Debenture certificate is the special document of proving the loan of company.
Debenture is one of the ways of capital formation of a company.
C.B. Gower has defined debenture as; debenture is a name applied to a certain types of document evidencing an indebtedness which is normally charged, but not necessarily, secured by a charge over property (Davis Paul L, Gower’s Principle of Modern Company Law 4th edition.)
“Debenture is a document given by a company as an evidence of debt to the holder arising out of loan and most commonly secured by a charge’’. Tophan, Topham’s Company Law 13th P. 168
Debenture itself is not a loan but it is an evidence to secure the loan.
Section 2( s )of the Companies Act has defined debenture as ‘’ any bond issued by a company whether putting its assets as collateral or not’’.
The term relating to debenture “debenture trustee ‘’ has been defined in section 2 (t) as a body corporate undertaking the responsibility for the protection of interest of debenture holders at the time of issuance of debentures by a company.’’
Procedures of issuing debenture have been clearly mentioned in section 35 of the Companies Act of Nepal.
Debenture may be converted in to share ( section 35 (4))
Types of debenture
Redeemable debenture; There is a fixed time frame for redeemable debenture. After expiration of a certain time frame company will pay back the loan amount and the debenture will be redeemed.
Irredeemable or perpetual debenture; There is no already fixed time frame to pay the loan amount. This may be for a long period. The loan amount may be repaid only on any contingency event.
Registered Debenture; There are the debentures which are registered in the name of a particular person and are payable to him. The name of registered holder is placed on the debenture certificate and the company’s register of debentures.
Bearer Debenture; these are the debentures which are payable to the bearer (the holder of debenture).
Convertible and nonconvertible debenture; Convertible in to shares and nonconvertible in to shares.

Transfer of Share

Company Law Notes — Sun, 18 Aug 2013 05:41:42 +0000

The shares of a company are movable property and can be transferred in a manner prescribed by concerned law and articles of association of company.
The transferability of shares is one of the significant advantages of company form of organizations.
Section 42 of the Companies Act of Nepal specifically declares that the shares or debentures of a company may be sold or pledged like a movable property subject to this Act , MoA & AoA.
So, as a matter of fact, it is right of every shareholder to transfer his/ her share. However the manner of transfer may be prescribed by MoA, AoA and respective law.
The MoA & AoA of company can make some preconditions, but cannot absolutely restrict the right of member to transfer there share.
In absence of any restrictions, in the AoA , MoA & law the shareholder has an absolute right to transfer his/ her shares.
Share is a special type of movable property; it is not like gold, furniture and cash etc. Therefore, there are some special laws to regulate transfer procedure viz; the Companies Act 2006, The Securities Act, BAFI Act, NRB Act 2058 B. S. etc.
Transfer of share will be furnished only by fulfilling the prescribed procedures of such special laws.
There are so many ways of transfer of shares from one to another. The share transfer deed document and will paper are the means of voluntary transfer of shares. Non voluntary transfer court order i.e. order of distribution in partition case ( ansa mudda)
As per legal provision of section 42(1) of the Nepalese Companies Act “the shares or debenture of a company may be sold or pledged like a movable property subject to this Act, MoA & AoA.
As per section 42 (2) of this Act the promoter share of a company, other than a private company which has not borrowed loan from any other company, shall not be entitled to sell or pledge any share held by him until the 1st general meeting of company is held and a call on the share issued in his name is fully paid up.
Section 43 of the Companies Act states about the procedures of the transmission of shares or debentures of company. As per this section if any share or debenture is sold, the buyer thereof shall make an application to registered office of the company with a copy of deed and share or debenture certificate. In compulsory transmission there will be order of court. Than the company cross off the name of transferor and enter the name of transferee shareholder debenture holder in the register within 15 days after making of such application. But if any prevailing law on securities provides that no deed of transfer is required for transfer the title, such deed is not required to be produced along with the application to be so made.
The grounds to refusal have been mentioned in section 44 of the Companies Act. As per this legal provision in following circumstances company can refuse to record the transmission; A) If a call on share has not been paid up. B) If the transmission is contrary to the articles of association of company and the agreement concluded between the shareholders. The information regarding transmission will be provided to both transferor and transferee from the date of application.
Section 55 of Nepalese Companies Act states about the ownership of share or debenture. As per this legal provision, if a dispute arises about the ownership of any share or debenture issued by any company, the person whose name is registered in the share or debenture register of company shall, unless otherwise proved, be regarded as the owner of such share or debenture.
Section 45 of the Companies Act describes the other circumstances where the share or debenture may be transmitted by operation of law. Circumstances may be the death or insolvency.
Process of transfer; a) the shareholders should be registered in the Stock Broker’s Office at first. b) Joint application with deed of transfer with original share certificate.
Transfer in case of private company; a) Board decision, b) deed c) application d ) information providing for record to the CRO d) fulfilling the prescribed process of record by CRO.
Restriction on transfer ; by making provisions in AoA & consensus agreement in case of private company section 10 (d) 42(2) section 145(1) (b), if there is no entitlement, as per legal provision such as section 42(2) of Act.
The case of Lun Karan Das Chaudhary V. NRB( A collection of some important precedents of commercial case; part 4 S.No. 42 p. 290) . The transfer of share should not be restricted by making some conditions of contract.
There must be a valid authority or entitlement on share to transfer the share. A person who has no authority or entitlement, such shareholders cannot make a valid transfer of shares. Thus transfer of shares by the husband of a lady shareholder without her authority was held to be void and transferee got no rights by such transferred share.( John Tinson & Co. v. Surjeet Malhan , AIR 1997 SC 1411).

Modes of Winding – up

Company Law Notes — Sun, 18 Aug 2013 05:41:42 +0000

Winding – up

A company comes into existence by a legal process and –when for any reason, it is desired to end its existence; it must again go through the legal process.
Company is an artificial person which is created and ended by law. The process to end the company is related with winding up or liquidation or dissolution of company.

In the words of the professor LCB Gower,
Winding up of a company is the process whereby its life is ended and its property administered for the benefit of its creditors and members. Liquidator is appointed and he takes the control of the company collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their rights.

Incorporation is a birth winding up is process of death – both are fulfilled by due process of law and legal formalities.
All assets and liability are brought to close and converted in to cash form for the distribution purpose.
Winding up and dissolution of company is not same thing. A company is said to be dissolved when it ceases to exist as corporate entity. Winding up only proceeds towards the dissolution.
Winding up is the process by which the dissolution of the company is brought about.
At the end of the winding up, the company will have no assets or liability, and it will therefore be simply a formal step for it to be dissolved, that is for its legal personality as a corporation to be destroyed.
The legal entity of company remains in between winding up and dissolution process.
In winding up the company as does not cease to exist; only its administration is carried on through the medium of a liquidator. The property of company still belongs to the company.
Winding up liquidation have been taken in same meaning but dissolution is different.

Modes of Winding up or Liquidation

Basically there are 4 modes of winding up under Nepalese law;
Voluntary winding up
Compulsory winding up
Liquidation by the order of the court.
Cancellation of Registration or deregistration, striking off registration

Voluntary winding up

By adopting special resolution.
In the situation of solvency

Voluntary liquidation starts from special resolution adopted by the company in its general meetings.

As per Section 126(1) of the Companies Act of Nepal the, shareholders of the company may liquidate the company either by adopting the special resolution in general meetings or subject to the provisions contained in MoA and AOA and consensus Agreement.

As per subsection 2 of section 126, the requirements or procedures of voluntary liquidation are as follows.

If the company is able to pay its debts or other liabilities.
There must be solvent company.
There must be declaration in writing of directors to pay the debts and liabilities.
Adoption of special resolution by general meeting and submission in Authority within 7 days, section 126(3)
Appointment of liquidator and Auditor.
Pre-approval from central Bank in case of Banking Sec 76(1) of BaFI Act

Compulsory winding up or liquidation

If any company is declared the insolvent at that situation, such company must be liquidated or wound-up.
that is the situation of compulsory winding up or liquidation.
such liquidation is executed only by the court’s order
Though company law of Nepal recognizes and regularized the compulsory liquidation, the proceedings of compulsory liquidation have been mentioned in detail in Insolvency Act 2063. No procedure under Insolvency Act is started without the permission of court. Court means commercial bench by notification in Nepal Gazette.
Section 4 of Insolvency Act describes the situation to apply for the proceedings of insolvency;
- The company itself which is in insolvent condition.
- The creditors who has invested at least 10% of total credit to the company.
- The shareholders, who has subscribed at least 5% shares of the company.
- The debenture holders who has subscribed at least 5% debentures of company.
- The liquidator appointed for liquidation of company.
- Concerned Authority or regulatory.
- Insolvency Act, sections 4(2), 4(3), 5 etc.

Liquidation by Court’s Order
Sec 139(4) (f) of the Companies Act 2063

If company is carried on or is likely to be carried on as to be prejudicial to rights and interest of any shareholders of the company, shareholder may apply before the court for appropriate order as remedy. At this situation, If court for liquidating the company.

Dissolution by cancellation of registration or deregistration

the company registrar office may cancel the registration of company on the following grounds. Section 136 of the companies Act 2063
- In a situation of failure to commence the business.
- In a situation of default in submitting the report, for three consecutive financial years
- If he company registrar office has a reasonable grounds to believe that company is not carrying on its business or the company is not in operation.
- Restoration of registration; section 137(a) (b) of the Company Act.

Powers functions duties and liabilities of liquidators

Power to take into custody and control the property of company (section 130 of the Companies Act)
The liquidator shall, mutatis mutandis exercise and perform all the powers and duties as of liquidator under the prevailing law of insolvency. Section 131(1) of Nepalese Company Act
The duties of liquidator are as follows - as per Section 131(2) of Nepalese Company Act
- To prepare and submit books of account to the company registrar office in every 6 months.
- To inform the shareholders of company about progress on the liquidation proceedings in every 6 months.
- To obtain and recover all the properties or amounts required to be obtained and recovered on the behalf of the company and repay and discharge the debts and other liabilities of all the creditors of the company.
- After completion of above acts, to call general meeting of shareholders and present therein a proposed report and return on the distribution of the company to the shareholders.
- To make payment of the amounts to the shareholders, if the shareholders holding at least 75% of the paid up share capital consent proposed report as referred to clause(d)
- To appoint or retain necessary employees
- To submit the final report after completion of liquidation proceeding
- Announcement of cancellation

Capital and its Types

Company Law Notes — Sun, 18 Aug 2013 05:41:42 +0000

The term capital cannot be defined in one sentence or one line. The meaning of capital may vary. It depends on the different situation or context. Generally the meaning of capital is real value of property. So, capital has different meaning according to context.
In simple word, the term capital denotes a particular amount of money with which, a business is started.
In the case of company, the term share capital refers to amount raised by the issue of shares.
Actually, the real value of business is capital.
C. B. Gower ‘’ with the normal business capital is a simple name given to the ‘net worth of business’, the amount by which the value of assets exceeds the liabilities.
By this definition only value of assets which exceeds the liabilities is the capital.
So, what is net worth?
As per Section (2 z 3) of the Companies Act 2063 of Nepal ‘’ net worth means the assets of a company remaining after deducting the paid up capital, reserve, fund or free reserve of whatever designation to which shareholders have right or all other liabilities other than goodwill, if any, of the company as well as loss provisions, if any, from the total assets of the company for the time being.
Capital is highly important to run a company on the basis of limited liability.
Creditors always recover their debt from only the capital of company, not by the shareholders individually or personally.
So, company laws in every state have prescribed a guideline regarding capital raising or formation and its maintenance of limited liability of company.
Mainly, there are three ways to raise capital for company.
By issuing shares
By issuing debenture
By accepting other types of loan
One of fundamental or basic source of capital in company is Share.

Share Capital

Share capital is an important source of company to raise a fund or capital.

By the phrase it is clear that share capital is the capital raised by issuing the share.
Share + capital=share capital.

If so, what is share?

Share is certificate representing a unit ownership in a company.
A share is the interest of shareholder in the company measured by a sum of money, for the purpose of liability in first place and of interest in second, but also consisting series of mutual covenants entered in to by all shareholders (Farwell J in Borland’s Trustee v. Steel Brothers, 1901, 1 Ch 279)
Section 2 (n) of the Companies Act 2063 BS states that share is divided portion of share capital of a company.
Share capital is equity of company. Share capital generally refers the nominal value of all share issued by company.
Every company should mention its share capital in its MoA & AoA.
Share capital refers to the amount of company raised by the issuing of shares.
Issuing of share is mandatory legal provision as per section 18(1) e, f, g, h, i of the Companies Act 2006 of Nepal.
As per these legal provisions;
- The figure of authorized capital of company, the figure of share capital to be issued by the company and the figure of capital undertaken to be paid by promoters must be mentioned in memorandum.
- Similarly, types of shares, inherent right in such shares, value and numbers of shares , restriction (if any) on purchase of shares, promoters’ shares (undertaken to subscribe for the time being) & terms of payment of share amount must be mentioned in MoA.
The CRO will take certain fees on basis such share capital amount as registration fees of company.
The person who has ownership in share of company is known as shareholder of company.
As per section 2(r) of the Companies Act, Shareholder means a person having ownership in the share of company.
According to section 2(n) Share means the divided portion of share capital of a company.
According to Robert R. Pennigton (Pennigton’s Company Law 6th ed p. 136) –Share Capital is amount contributed by shareholders to company’s resources.
The received amount for the price of share is share capital.
The amount contributed by shareholders is main capital of company. Such share capital is the real property of company, not a loan, but property.
Share capital is not refunded until company is liquidated.
The company is not allowed to distribute dividend from such share capital, can distribute only from profit.
There is statutory provision relating to prohibition on purchase by company of its own share.
Section 61(1) of the Companies Act , No company shall purchase its own share (buy- back) or lend money against security of its own share except in particular conditions prescribed by the company Act.
Company is not a creditor and debtor of its own.
So, share capital is fixed capital of company.
The desired goal or nature of business of company determines the share capital of company.
The share capital is depended upon the nature of particular company. For example; Private company, public company, Banking Company, Insurance company, Company as school.
Companies expect profit not sharing company should mention share capital in MoA & AoA in the form of Authorized Capital \ Issued Capital \ Paid up capital.
The share capital is divided on different value units or shares.
So, price value of each share is mentioned in share certificate.

Types of Capital

There are so many types of share capital in the companies.
Basically, The Companies Act 2006 (2063 B. S.) of Nepal has determined following types of share capital.

Authorized Share Capital or Nominal Capital
A

uthorized share Capital is sum of money which is mentioned in MoA as the authorized capital of company.
It is nominal or registered capital of company.
It is maximum amount which a company is authorized to raise by issue of shares and upon which company pays the registration fees of company.
Either the full amount or part of full amount can be issued whenever needs to rise.
Total nominal value of shares which is mentioned in memorandum is authorized capital.
Practically, the size of authorized capital is decorative significance for private company.
Present company Act of Nepal is silent about how much authorized capital should be mentioned in a company, but it is understood that issued & paid up capital must not exceed the authorized capital.
Paid up capital of a public company shall be a minimum of 10 million or one corer rupees. (Section 11 of Act).
So, it is clear, there is a pre-condition regarding authorized capital of a public company that public company shall have a minimum of a 10 million share capital.
No authorized capital is needed for a profit not sharing company.
No such demarcation of authorized capital for a private company in Nepal.
Life & non-life insurance company should maintain their paid up capital 25 corer & 10 corer or 250 million or 100 million respectively. It means the authorized capital of such insurance company should not be less than that figure of amount. Authorized capital of banking company is guided by BaFI Act and NRB Act.
For private company, it depends upon the business volume, nature of business or transactions e.g. vehicle trading company, vegetable trading company, Hydropower Company, constructions company , consultancy service provider company etc.
Authorized capital is maximum limitation of capital of company. So, company cannot issue share above the authorized capital, if issued it will be null & void.
As per section 18(1) (e) of the companies Act, the authorized capital of company must be stated in MoA.
As per legal provision of section 51 (2 ) (a) of Nepalese company Act every company shall prepare the inventory regarding authorized capital and shares of the company.
Section 56 (1 )(a) &( 3) states that the company should give information within 7 days about alteration of authorized capital. If such alteration took place the MoA & AoA must be amended according to such alteration.

Issued Capital

Part of authorized capital which is offered for subscription is known as issued capital of company.
Issued capital is the portion of company’s authorized capital that can be issued to its shareholders.
It is not obligatory for the company to issue the whole of the authorized capital for subscription.
In almost situation, company need not necessary all its authorized capital, at that time company can issue lower share than its authorized capital. It depends upon business transactions of company.
The capital that will be collected from issuance of such lower share is actually the issued capital.
Public company must have 10 million paid up capital as per section 11 of the companies Act 2006 of Nepal. So, Issued capital of public company must not be below the 10 million.
As per section 18(1) (e) of the companies Act, the issued capital of company must be stated in MoA.
As per legal provision of section 51 (2 ) (b) of Nepalese company Act every company shall prepare the inventory regarding issued capital and shares of the company.
As per Section 56 (5), if a company is required to increase its issued capital to the extent of its authorized capital, it may increase by adopting an ordinary resolution at the general meeting.
Public company must have 10 million paid up capital as per section 11 of the companies Act 2006 of Nepal. So, Issued capital of public company must be maintained as per this legal provision.
As per special law, some companies such as banking companies & insurance companies must have the issued capital as stated in special law relating to such companies e.g. for insurance company and banking companies.
Private company can determine its issued capital as per the requirements of its business transactions.

Paid – up Capital

In reality, paid up capital is that type of capital which the company actually gets from the shareholders.
By the name, it is understood that paid up capital is the capital which is paid by the shareholders in company.
The paid amount by the shareholders for share is paid up capital of company.
Paid up capital is the amount that has actually been paid – up by shareholders.
The paid – up Capital must be paid by the shareholders, otherwise it is treated as unpaid amount to the company. Like dues.
Public company must have 10 million paid up capital as per section 11 of the Companies Act 2006 of Nepal. So, paid- up capital of public company must be maintained as per this legal provision. Private companies can manage its paid up capital as per its necessity, nature & volume of business transaction.
As per section 18(1) (e) of the Companies Act, the paid-up capital of company must be mentioned in MoA. Private company can mention the paid up capital as per their needs, no any legal instructions for private companies.
As per legal provision of section 51 (2 ) (c) of Nepalese company Act every company shall prepare the inventory regarding paid-up capital and shares of the company.
As per Section 56(1)& (5),every company can make alteration on its share capital by adopting a special resolution in general meeting. It means the paid up capital of company may be altered, if altered, the MoA & AoA must be amended as per section 56(2) of the Companies Act.

Other Types of Capital

Subscribed Capital

Subscribed capital is the amount of share capital which the shareholders have subscribed or agreed to subscribe.
The subscribed capital should be described in balance sheet of company.
Sometime the issued shares of a public company may not be sold or subscribed. The part of issued capital which has been actually taken up or subscribed for the public is the subscribed capital. Which the shareholders have actually subscribed or agreed to subscribe. All issued capital may not be subscribed or agreed to subscribe. So, subscribed capital is the capital which is actually subscribed or agreed to subscribe.
The entire issued capital may be agreed to subscribe or subscribed by public in case of a reputed company because of has lot of good will, but in case of very unpopular or unsound companies the subscribed capital may be less than issued capital.
The subscribed capital is not mentioned in MoA & AoA, it is mentioned only in balance sheet of company.
Though there is no clear provision regarding subscribed capital in Nepalese companies Act, but the concept of subscribed capital is accepted by this Act. That can be found by reading of respective sections of chapter 4 of the Companies Actg. the provisions relating to alteration & reduction of share capital, mentioned in section 56 & 57 of the Companies Act.

Reserved Capital

The capital of a company which can be generated by issuing of share in particular event, if the board feels necessary. The reserved capital is collected from the remaining part of issued capital which is not called for payment or subscribed before.
The reserved capital is the part of issued capital of a company, which the company has not issued but that is the amount within the issued capital. From such part of issued capital, if the board feels necessary, the board can collect the reserve fund from that part of issued capital only in the event of liquidation or insolvency of company.
There will not be provision of reserve capital in all companies. As per the legal provision of section 53(7) of the Companies Act 2063 “ a company which has been making profit for a period of 3 consecutive years or more may , by a special resolution adopted at its general meeting, determine that a call may not be made in respect of certain portion of its share capital not call in expect in case of liquidation or insolvency of company.’’ Such uncalled capital is reserve capital of company.

Stages of Incorporation of Company

Company Law Notes — Sun, 18 Aug 2013 05:41:42 +0000

Incorporation is the first process of giving existence or birth of company.
Registration or establishment of company is incorporation.
Incorporation is creation of a legal person by registration of a company with existing law.
A legal person is created artificially by law and contributed as a legal personality from the process of Incorporation.
A company is an artificial entity created by law for the purpose of carrying on any objects such as business, sports research, education charity etc. But commonly companies are formed for the purpose of conducting business.

Basically, there are 4 stages of forming of a company;

Promotion
Incorporation or registration
Capital subscription
Commencement of Business

In case of private company it needs to go through the 1st two stages only, as soon as it receives the certificate of incorporation and it can commence the business.

Private company cannot invite public to subscribe the shares.

Private company must arrange the capital privately, not publicly.

But a public company having a share capital has to go through all 4 stages. Only then it is formed and commences its business.

Promotion

Promotion is the 1st stage of formation of a company. It is the discovery of business opportunities. First of all idea of carrying a business which can be profitably undertaken is conceived either by a person or by a group of persons who are called promoters.
After conceiving the idea the promoters make detail investigations to find out the weakness and strong points of idea to determine, the amount of capital, and to estimate operating expenses and probable income.
When promoters are satisfied to that idea they come in one place and form a company through incorporation process.
Preliminary contracts or pre incorporation contracts may be the documents of arrangement before incorporation or at the phase of promotion. Section 17 of the Companies Act.
Such contracts are generally entered into by promoters to acquire some property or right for and on behalf of the company to be formed.
Promoters have been defined in section 2(i) of Act. Promoters are the persons who incorporate the companies.

Incorporation
The second stage is incorporation of company. All process relating to filing the application to CRO & getting incorporation certificate come under the stage of incorporation.

Capital Subscription
Third stage is capital subscription

Private company can commence business immediately on receipt of certificate of incorporation
But public company commences business after capital subscription stage first among the promoters and second for public.
Through capital subscription public company makes necessary arrangement for raising capital
Invite public for subscription

Commencement
Commencement of business is the 4th Private company can commence business immediately but public company after issuing prospectus and receiving the business commencement certificate. Section 23 and 63.

Incorporation or Registration of Company
(Chapter 2 Section 3, 4, 5, 6 and 7 of the Nepalese Company Act )

Essential documents for Registration of Company are:

Application
Citizenship/ID certificate
MOA 2 copies
AOA 2 copies
Promoter’s agreement (if necessary etc.)
Unanimous Agreement (if necessary etc.)
Approval letter from regulatory, (if necessary etc.)

Corporate Criminal Liabilities (CCL)

Company Law Notes — Sun, 18 Aug 2013 05:41:42 +0000

Corporate Criminal Liabilities ( CCL)

Criminal liabilities of company
Criminal liabilities of Directors

Criminal liability of company is corporate criminal liability, criminal liability of directors also.
The concept of corporate criminal liability is an established concept of developed corporate world.
A company may be liable for criminal offences where an offence is committed by its directing mind. In such cases it is the duty of state to prove that illegal acts were committed and mens rea must be shown to exist. Mens rea can be in form of intention to criminal act or knowledge that the act was unlawful.
It is very difficult to accuse a company of possessing guilty mind, because it has no personal mind or conscience. But sometimes it is expedient to make companies liable to penalties for wrongful acts by attributing to as company, the wrongful acts and thoughts of human beings who are identified with company.
Certain offences cannot be committed by a company such as bigamy. Where imprisonment is necessary a company is a non-human entity cannot commit murder.
a company cannot be testified in person in court for such crimes. That is why, companies should not be held able to commit a wide range of criminal offences. Usually white color crimes fall under corporate crime.
The intention of company can be derived from the intention of its officers and agents.
The basis of imposing liability to company is its independent legal personality. Living persons have mind with knowledge or intention. They have their hands to carry out their intentions. The mind of natural person which directs his acts on behalf of company is the mind of company.
In criminal law, perpetrator of the crimes must be a natural person .But in some condition or moral statute, the legal person are also considered to having the capability of committing crimes,.
The term corporate crime ,white color crime , organizational crime, occupational crime and insider trading or dealing are often used interchangeable. Although close in meaning, those experiences do not suggest the same thing. But it has been taken as same thing in practice.
Occupational crime implies completely different category of crimes.
Occupational crimes, generally, do not refer to crimes committed by corporate entity, instead they refer to those crime committed by corporate employee not in favor of corporation.

Therefore, corporate crimes are in form of fraud, forgery tax evasion, bank and financial fault and default, misuse of foreign exchange, misrepresentation, fund embezzlement, cheating in government contracts, antitrust in purchasing and sales, activities against health and environmental safety, illegal international transaction insider dealing or trading and other statutory offences which are taken place to create potential criminal exposure for a corporation as well as for those who are involved to perform it.

A corporate misbehavior is considered as corporate crime.
CCL is known as an enterprises liability.
Directors and employees are also a legal person distinct from the company; legal liabilities are in a sense of vicarious liability.

The traditional view was that a corporation could not be guilty of crime, because criminal guilty required intention and a corporation no body that could be imprisoned. The courts refused to corporate criminal liability but modern view is that when the criminal act requested, authorized or performed by the board of directors ,an officer or another directors, an officer or another person having responsibility person having responsibility for formulating policy or high level administrator having supervisory responsibility over the subject matter of the offence acting within the offences acting within the scope of his employment.

Challenges of CCL

Failure to identify or prove corporate intent or malice.
Procedural difficulties to prosecute against a company (accused should be personally present at trial but corporation/ companies cannot present in a criminal trail)
Corporation has no soul and no body.

Theory of CCL

The endorsement of CCL is the development of 20th century – Judicial development, influenced by the “sweeping expansion” of common law principles. The majority of theories of CCL are typical of common law development .They have been constructed on a case- by –case basis.

Principally, a company has ‘’no soul to be dammed and no body to be kicked” but practically, corporation are liable on following basis;

Vicarious liability
Personal liability for breach of statutory duty
Personal liability on the basis of attributing to company the conduct and state of mind of an individual.

Other doctrines or theories have been emerged to held corporations criminally liable. Which are as detailed below.

Agency theory
The agency theory is based on the premises of 2 elements of crime Actus reus and Mens rea. Corporations are purely incorporeal legal entities, they do not possess any mental and only way to connect intent to a corporation is to consider the state of mind of employees. Though companies do not have intention someone within company must have it and the intention of this individual is supposed as the part of the company’s intention, due to the agency relation between company and employees such intention leads to the criminal activities. But the employees must be acting within the scope of employment, the employees must be acting for the benefit of corporation, the act and intent must be imputed to the corporations for making liable the company for the acts of its employees.

1. Vicarious theory/Liability
This is most important thought of CCL

Normally a person is not liable in criminal law for the acts of another. Vicarious liability is an exception of this rule and it is regarded as the constructive liability. Vicarious theory has utilitarian value in extending liability to wrongs committed by lower level officials and employees. However the reasonableness of imposing liability on a corporation has derived on benefit from such acts.

Vicarious liability by ratification, by blood relationship, by special relationship –master and servant , principal and agent, employee and employer.

2. Identification Theory
Under this theory , a company is reasonable for a criminal act of the persons who are directing mind or will of company. The persons who direct and control the company, have committed an offence in course of company’s business such person is treated in law as being the company, company takes responsibilities for those with decision- making authority over matters of corporate policies rather than implementing policy.

The breach of statutory duty by company
This is the doctrine which makes company criminally liable. This occurs where the statutes or regulations make corporation liable The companies Act(Consumer Acts)

Alternative methods for the establishment of CCL
The identification theory is found to be inadequate to deal with the reality of decision making in many modern and big company. That is why some significant principles have been introduced in corporate criminal jurisdictions which are;

Aggregation doctrine
Reactive corporate fault theory
Corporate Menes Rea doctrine

CCL in Nepalese Law

Constitutional provision
- Right to freedom article 12 (3)(f) proviso part
- Right to environment and health-Article 16(1)
- Right to property Article- 19(2) proviso
- Others -The Companies Act 2063 Specially Section; 159(1) (2),160(a-Z1),161(a-k),162,163 of Nepalese Company Act etc.

The Securities Act 2063BS;
– Sections 91,94,95,96,97,98,99,100,101,102,103 etc.

The Muluki Ain (Country Code)
– Chapter of cheating and chapter of Baki Natirneko etc.

Draft of Criminal Code 2067 BS
– Sec 30 “criminal liability for offense committed by a body corporate to be of the doer of the act or who causes to act to be done’’.

CIAA Act 2059,Corruption Prevention Act 2059

Nepal Food Act 2023
– Inferior quality product, adulterated food produce import, sale etc. Sections 5(1), 5(2), 5(3) and 5(4) etc.

The Foreign Exchange Regulation Act 2019
– Punishment for directing mind of body corporate

The Bank and Financial Institution Act 2063
– Sections 70, 71,48,74,35 etc.

Consumer Protection Act 2054

Sections 7,9,10,18 etc.
Inferior quality
Adulterated food
Harmful to health
Any service, production

The Nepal Rastra Bank Act 2058
Sections 95,96,99,100 and 101etc.

The Property Tax Act 2047
Sec 7,24(1),26 etc.

The Revenue Leakage Investigation and control Act 2052
– Evasion &Avoidance of tax

The Foreign Employment Act 2064

The Money laundering Prevention Act 2064

Chapter -2

The Income Tax Act 2058

Section 120,123,127,&128etc.

The Securities Act 2063
– Section 5(f), section 74 Section 101/ chapter 8& 9

Related Cases regarding CCL

Tesco Supermarkets ltd V. Nattrass 1972AC,153 H.L (Find and read)
Bhopal Gas Leak Disaster case (Find and read)
C Metha V. Union of Indian and Shree Ram Food and Fertilizer Industries AIR 1987 (Find and read)
In Nepalese judiciary practice there is no any significant observation which is directly related with CCL.
But some observations of Supreme court of Nepal such as Surya Sharma Dhungel v. Godabari Marble Industries,Thaneshower Acharyaet.et.al V. Bhrikuti Paper Industries are somehow related with the liability of maintaining non polluted environment and environmental safety by enterprises.

Features of Company

Company Law Notes — Sun, 18 Aug 2013 05:41:42 +0000

The most distinguishing features of company are as follows;

1. Separate Personality or Distinct Personality or Legal Personality

Company will have separate legal personality after its incorporation.
Other enterprises like Partnership, Proprietorship have no separate legal personality.
Personality different and distinct than shareholders or member.
Distinct personality is the main feature of company. Other features are the outcomes of this main feature.
No material existence but separate personality.
Section 7 of the Companies Act 2063 B.S – “Company to be body Corporate”.
An autonomous and corporate body with perpetual succession.
Company may acquire, hold, sell dispose of, or otherwise deal any movable and immovable property like an individual.
Company may sue and be sued like an individual.
Company may enter in to a contract and exercise the rights and perform the obligation as referred to in such contract.
Different than shareholders/ members after its incorporation.
Common seal.
The concept of separate or distinct personality originated from these cases in different time
Saloman V. Salomon and Co. at the end of 19th century ( See; Company Kanoon of Bharat Raj Upreti)
Piush Raj Pandey v. Tax Office Kathmandu(D.No 1857,NLJ 2040,) (See; Company Kanoon of Bharat Raj Upreti)
Bijaya Kumar Dugar V. Industrial Promotion Board (D.No 7401 NlJ 2061) (See; Company Kanoon of Bharat Raj Upreti)
Abdul Hok V. Das Mal (1910 19 IC 595) (See; Company Law of Ashok K Bagrial)
Lee and Lee’s Air Farming ltd (1960 3 All E.R.420) (See; Company Kanoon of Bharat Raj Upreti)
Company has a legal entity distinct from and independent of its members.

2. Limited liability

One of the important advantages of company is that liability of its member’s is limited.
The creditor can recover their money only from company, not from individual behind the company.
Shareholders are not liable to pay the debt personally dues. This is very limited liability nature of company’s shareholders. Only, company is liable to pay not the shareholders.
Actually limited liability for only its shareholders /members, not for the company.
The shareholders are only liable for the value of their share.
Shareholders liability is limited within the extent of maximum value of their shares amount.
If any shareholder paid the nominal value of its share his liability is nil. But in the proprietorship and partnership firm they are not free from this liability they are individually liable.
Section 8 of the Companies Act.

3. Perpetual Succession (Permanent Existence)

Section 7(1) of the Companies Act 2063 states about this feature.
-A company shall be an autonomous and corporate body with the perpetual secession after its incorporation.

Company shall carry on all of its activities and transactions by its name. (Section 10 (a) of the Companies Act)

Natural persons have age and certain period for fix time but no for company.
Company cannot be ended without fulfilling legal procedure determined by law.
Without dissolution company cannot die.
C.B.Gower: “The death of members leaves the company unmoved. Members may come and go but the company can go on the forever.’’ (Davies Paul L, Gower and Davies’ Principle of Modern Company law 7th Edition, Sweet& Maxwell London)

During the World War- II,
All members and their employers of one American Private Company, were killed by a bomb while they were in a general meeting, but court declared that company can survive even in this situation. Not even a hydrogen bomb could have destroyed a company.

K/g meat suppliers (Guildford ) ltd. Re 1966
(Ashish Adhikary & Sudeep Gautam; Business Law in Nepal p.no 269)

Perpetual succession leads stability and long life to a company as compared to other forms of business organization.

In Re Neel Tedman Holding Pvt. Ltd Only two members were killed in a road accident, the Company was held could operate even after their death. (Ashish Adhikary & Sudeep Gautam; Business Law in Nepal)

Only the shares are traded with due the process, not the company –sec 42(1) (2)
Corporate life of company never ends without following particular legal formalities.
Even One Man Company cannot be ended after the death of the shareholder. It can end by the legal procedures.
Incorporated Association

Section 2(a) &3, 4, 5,6&7 of the Nepalese Company Act

Common Seal
Sec 26

Transferable Share
as movable property
Sec 42, 43

Capacity to sue and being sued
Sec 7(3) of the Company Act

(Bed Krishna Shrestha v. Govinda Krishna Shrestha; Kanoon Bibarnika, 2041,Year 2 p. 13)

Legal capacity to enjoy property right
Sec 7(2) of Nepalese Company Act
Purshotam Aacharya v. Boris Bar & Restruant pvt. Ltd (NLJ 2044 p.934 Decision No. 3206)
Management of representatives
Sec .86, 87 of Nepalese Company Act
“Board of Directors are the brains and the only the brains of company, and does act only through them’’ Bates V. Standard land 1910 2 Ch. 408 at p.16
Registered Office
Section 4 , 5,6 & 10(a) & (b) of Nepalese Company Act

Development of Company Law in England

Company Law Notes — Sun, 18 Aug 2013 05:41:42 +0000

Development of Company Law in England

It is argued that The Development of Company Law was started from England.
The terms separate personality; limited liability and perpetual succession were developed in England before 17th
England is the birth place of development of company law.
The word ‘corporations’ are not novelties. Corporations were known as institutions since very ancient date.

Development of Company Law in England

First Phase: Before 1720 AD

Even in ancient period there were a lot of institutions having separate legal personality in England. These institutions were incorporated through the Crown Charter.
There were some institutions in trade or business sector. Such institutions were known as “Guilds of Merchant’’.
“Guilds of Merchants” were not actually legal personality but some guilds of merchant were recognized by the crown charter. Such guilds of merchant had legal personality as modern company, but the word company had not used for such guilds of merchant.

Use of the term ‘Company’

The traders, who generally traded in abroad, used the word ‘company’.
East India Company was established in 1600A.D to provide trade monopoly in India.
There was no clear distinction between unincorporated partnership and incorporated company.

Second Phase: 1720 to 1825 AD

First Company Act: In 27 April 1720, the Bubbles Act 1720 was enforced to prevent the cheating in the name of company. This Act prohibited the companies of not having royal charter.
Enterprises such as banking, insurance, irrigation, canals construction and water supply were permitted to be incorporated in the form of company.
Deed of settlement was developed by lawyer presently known as Memorandum of Association.
The term limited liability, separate personality were developed.

Third Phase: After 1825 to 1855 AD

Trading Company Act 1834.
Companies could be incorporated without Charter.
Chartered Company Act 1837
Joint Stock Company Act 1844 differentiated between Partnership and Joint stock Company.
Limited liability Act 1855.

Modern Company law: 1855 to present time

Limited liability Act was repealed by the new Act named Joint Stock Company Act 1856.
The term MOA, AOA, Capital are defined clearly
Companies Act 1862
Companies’ Winding- Up Act 1890
Directors Liability Act 1890
Companies Act 1965
Companies Act 1989
Companies Act 2006

Prospectus of Company

Company Law Notes — Sun, 18 Aug 2013 05:41:42 +0000

Any document, described or issued by a company includes any notice or circular, authentic advertisement inviting deposits from the public.
Document inviting offers to the public for the subscription or purchasing of shares, debenture or securities.
Elements of prospectus;
A valid invitation to the public.
The invitation must be to subscribe or purchase shares or debenture of company.
The invitation must be made by or on behalf of the company.
Only the commercial advertisement is not prospectus.
Section 2 ( m) and 23 & 24 of Nepalese Company Act to know the concept, features and importance of prospectus.