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INTRODUCTION

In its simplest sense, a Company Act is an Act of Parliament which regulates the workings of
companies, stating the legal limits within which companies may do their business
(businessdictionary.com). Hence, Company Act is all about the law governing the starting,
management and closing down of the company. In other words, Company Act is all about
companies and hence it is important to understand what companies are.
Companies are artificial persons that are created and developed by law for the purpose of society
and government. These companies or artificial persons created by law for the purpose of
preserving in perpetual successions rights which would fail if vested in a natural person. It may
be defined as a voluntary association of natural persons and artificial entities to profit with
capital, divisible into transferable shares with limited liability, having a corporate body and
common seal. (Shukla, 2006).
The Company Act of Nepal, 2063 states that “A company shall denote the company which is
incorporated in accordance with this Act.” (Section 2 a)
The Company Act 2063 comprises of 188 sections divided into 21 chapters. This report is an
attempt of the group members to present the major concepts in the Act and how it impacts
businesses. Although each section has a large bearing on the businesses operating in Nepal, for
simplicity’s sake, the group members have focused on some major areas. The report is divided
into three major sections – Starting a company, managing the company and closing the company.

2. INCORPORATION OF COMPANY

When some persons with common objective establish and register a company, they become
promoters of the company. The process of registering the company at the authorized registration
office is called incorporation. It is the first step in providing legal status or in the process of
forming legal personality of an association. Incorporation hence puts breath and soul to a
company which is concluded by the formal registration by the Office of the Company Registrar.
Company Act 2063 describes two types of company – Public Company and Private Company.
The following are the summary of the provisions in the Act for the establishment of company:
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The Article of Association describes how the company is going to attain the objectives set forth in its MOA and carry out its activities in a well-managed manner.1. There are certain clauses that give the Office the right to refuse registration under certain grounds described in these sections. 3. The Office of Company Registrar must provide the applicant with a Company Registration Certificate if the application is made lawfully. It is the identity of the organization as it provides the name of the company. 3. Companies might be established for profit motive or for non-profit motive The process of company incorporation as given in Act is described in the section that follows: The promoters should submit an application to the Office of Company Registrar enclosing prescribed fees and documents. figures of authorized capital. Seven promoters are required to start a public company except for when another public is one of the promoters. The promoters when applying for the incorporation should submit Article of Association and Memorandum of Association. MANAGEMENT OF THE COMPANY This section of the report describes the different provisions that are present in the Company Act 2063 that govern how the company should be managed. b. These two documents are probably the most important documents that direct the company. Some matters described in the AOA are:   Procedures for general meetings The board structure and the tenure of the directors 2 . share capital and the figure to be paid nu the promoters as their contribution. Memorandum of Association and Article of Association The Memorandum of Association (MOA) describes the rationality of the existence of the company along with its objectives.a. c. address of registered office. Any person with a view of making profit wants to enterprise alone or by group in association with other shall establish a company for the achievement of one or more than one objectives as mentioned in the article of the association.

These are done through the General Meetings.1. 3. For that the owners need to get involved in the decision making process.2. Every public company needs to submit the details of AGM within 30 days including the number of shareholders present. Meetings The MOA and AOA are synonymous to the constitution of the company. Legality of the Meeting. Voting rights etc.2. An Extraordinary General Meeting can also be called by the Board of Directors or on the request of the 3 .2. which shall be followed by subsequent Annual General Meetings within 6 months of completing every fiscal year.Annual General Meeting Annual General meeting may be of two types – First Annual General Meeting and Annual General Meeting.Extra Ordinary General Meeting Every general meeting other than the first and the Annual General Meetings are called the ExtraOrdinary General Meeting. Operation of AGM. But the continuous management of the company is more important. not all can or would want to participate in the day to day management of the company. The Company Act 2063 also prescribes the procedure for call of the AGM.2. Quorum. Hence. reports of director and auditor and the decisions made by the meeting to the Company Registrar’s Office. annual financial statement. 3. It is usually called by the directors to discuss and decide about some special or urgent business which cannot wait till the next Annual General Meeting. after receiving license for operating business needs to conduct its First General Meeting within one year. However. The Company Act 2063 describes two types of general meetings: Annual General Meeting and Extraordinary General Meeting. Private companies need to submit an auditor’s verified copy of its annual financial report within 6 months from the date of completion of the Fiscal Year. They provide the direction and lay the basic foundation for operation of the company. Discussion and Decisions at the AGM.   Required subscription of shares to become a director Qualification and number of independent directors Power and duties of the board of directors etc. Every public company. they meet at certain intervals to discuss the progress the company has made. 3. as the number of the owners/shareholders can be very large.

Special resolutions are those that need two-third of the total votes to be approved.Auditor. Increment of authorized capital of the company.3. These representatives of the shareholders are called the directors. Directors and the Board of Directors As discussed earlier. The Act also allows shareholders holding 10%of the paid up capital or 25% of the total shareholders (in number) to request an Extra-Ordinary Genera Meeting to be called by following certain procedures prescribed in the Act. The board meetings in a private company will be carried out as per the 4 . has a sound mind. Extra-Ordinary General Meeting is distinct from the AGM only in the way it is called rather than the power and process. They elect their representatives who run the company on their behalf. supreme authority in the control of a company and its affairs resides by delegation in individuals known as directors who are collectively designated as the board of directors. Ordinary resolutions are those that require a majority vote to pass. Usually anyone appointed by the general meeting can be a director provided that the person is aged more than 21 years. not all shareholders can or would to get involved in the day to day management of the company. has not been declared insolvent. has not been convicted of an offence of corruption or other morally degrading offence. So. The issues that are proposed for decision are called the resolution. amendment of AOA. Directors are appointed as provided by the AOA of the company. Their tenures are as described in the AOA and for public company the tenure cannot exceed 4 years. Hence. Majorly they may be appointed by the shareholders in the general meeting through a voting process or by the promoters for the period until the first general meeting or by the board of directors as an additional director or to fill a casual vacancy or as an alternative director. change of name and objectives of the company. merger of the company with another company. conversion of private company to private company or vice versa. are some issues which are to be presented as special resolutions. liquidation of company etc. 3. Meetings are where the decisions are made. The board of directors is the apex management body of the company and provides the strategic decision to it. These decisions are usually made through democratic processes or voting. reduction of share capital. the board has to sit down for meetings to decide on the major issues concerning the company.

The liquidator assumes the power of the board of directors and runs the company unless the company is able to pay off all its debts. The liquidator shall be a licensed practitioner. 4. All meetings need to be properly documented with the use of minutes.1. the shareholders of the company. are returned back to the shareholders. by passing a special resolution can dissolve the company if it is:     Able to pay debt or any other liability Not declared insolvent Able to pay all the liabilities within one year Able to pay all the liabilities when discussing at the matter of dissolution in the general meeting The decision to liquidate a company should be accompanied by the appointment of a liquidator. the proceeds are used to pay off the debt and the remaining amount.provisions in the AOA. Winding up by the Company Registrar’s Office 5 . CLOSING DOWN OF THE COMPANY Usually companies are deemed to have an infinite life. This is called the winding up or liquidation of the company. paying to all who have claims over the assets of the company including creditors and shareholders and closing the company down.2. 4. if any. 4. A minimum of 51% of the total board members need to be present to make the meeting legitimate. Finally all the assets of the company are sold. However. Voluntary liquidation of company Unless otherwise provided by the Insolvency Act. there might be situations where the company needs to formally stop its transactions by ending the legal status. Public companies need to have a minimum of 6 board meetings in a year with the interval between any two meetings not exceeding three months. Liquidation means to sell all the assets of the company. Winding up of the company may be in the form of voluntary winding up or winding up by the Office of the Company Registrar or winding up by the court’s order.

Therefore.3. it should be able to address the actual and future needs of business. If the annual report has not been submitted to the Office regularly for 3 years or the fine  imposed by the office has not been paid.It is also called compulsory winding up or the cancellation of registration of the company. Winding up by the order of the court of law The District Court can issue an order to dissolve the company if its shareholders file a suit claiming that the company is acting against their interest. The prevailing Act has been promulgated very recently and it is necessary to observe its practices in living reality for making actual evaluation on it.  In the case of submission of application for dissolution of company by the promoters  stating that the company has not been able to start the transaction. Theoretically. CONCLUSION The Company Act is a very important document acting as a legal framework for promoting the industry and commerce which eventually impacts the national economy and development. If the Office believes that the company is not in existence any more. 5. 4. and this claim is deemed true. 6 . The Company Registrar's Office can dissolve the company in the following circumstances. as with any other act or law of the country is in its implementation. The only problem. It has been prepared on the basis of the experiences in the national as well as international markets. this Act is sound and compatible with the contemporary requirements.