Company law

Historical Background:

The credit of the concept of incorporate a company goes to British. Guilds, a group
of craftsmen started business first after the development of agriculture age.

In the evolution of the company law, company law has been institutionally
developed from England. As England sought to build a mercantile empire, the
government created corporations under a royal Charter or an Act of Parliament
with the grant of a monopoly over a specified territory. The best known example,
established in 1600, was the British East India Company, Queen Elizabeth I
granted it the exclusive right to trade with all countries to the east of Indian region.
Other Chartered corporation still in existence include the Hudson’s Bay Company
(1670), British Broadcasting Corporation (BBC) and Bank of England (1694).
Corporations at that time would essentially act on behalf of the government
integrated with British military and colonial policy, just as most UK corporations
were essentially dependent on the British navy’s ability to control trade routes.
After the revolution of 1688 the provision of formation of company under royal
charter was controlled, but constituting the company was continued without royal
charter also. Thus, in 1720 House of Commons passed Bubbles Act, 1720. It
remained for more than a century and in 1825 Bubbles Act was repealed and in
1834 the trading Company Act was enacted. Subsequently Charter Company Act
was formulated in 1837 for the formation of partnership firm. In order to regulate
and manage company business widely, Joint Stock Company Act 1844 was
enacted, but it did not grant the concept of the limited liability. Thus to regulate
limited liability concept the Limited Liability Act, 1855 was enacted, in result the
new Joint Stock Company Act 1856 was introduced with the concept of limited
liability. Subsequently, Companies Act, 1862 was enacted with a view to regulate
and maintain relation between banking sector and company business. After this
there was series of formulation and amendment of the companies act. At present
Company Act, 2006 is there in UK.

In India, Joint Stock Companies Act, 1850, at first opened the door of company’s
tradition in the colonial regime of Britain. After the enactment of the Company
Act, 1862 in England, India regulated the Companies Act, 1866, which
strengthened the important aspect of incorporation the company law such as
incorporation, regulation, and winding up of companies. This was further amended
in 1882. After the enactment of the consolidated Companies Act, in 1908 by
Britain, India followed it by the Indian Companies Act, 1913. This law continued
decades together finally legislated the Company Act, 1956 after independence. It
was considered as longest and exhaustive to deal with global trade and commerce.
However amendment were made to it in 1980, 1990 to make it more exhaustive
work of legislation with the amendment followed in 2000, 2001, 2002, 2004 and
2006. Finally, the Companies Act, 2013 is enacted (30th August, 2013) by
incorporating all the modern principles of the good corporate governance in a
consolidated and with amendment of the law relating to companies.

Likewise, in Nepal company concept was for the first time established only in
1993 B.S. (1936) under which Biratnagar Jute Mill was established in 1993
Ashadh 30. Accordingly Nepal Bank Ltd was established in 1994 under the Nepal
Bank Act, 1994 (1937). Subsequently Company Act 2007 was enacted by
repealing Act of 1993. This Act was amended in 2018 and 2019 two times and was
replaced by the Company Act of 2021. The Act of 2021 is also replaced in 2053
with incorporation of modern liberal economic principles. This Act has been
replaced by the Companies Act, 2063 (Kartik 17, 2063/3rd Nov. 2006) It is
amended for the first time in 2074 Baisakh 19.

By the historical evolution shows that both Indian and Nepali Companies laws
were guided more or less by English Company laws and their long practices.

Meaning of Company: The word company has no strictly technical or legal

meaning. The word ‘Company’ is derived from English. It generally stands for
‘friendship’ or ‘being together’

In simple terms, company denotes ‘a combination or association of more than two

persons or a group of persons to carry out a business. Now single person also can
establish a company. Above all, the company is a highly flexible form of vehicle
for carrying on business, whether for profit or not for profit. The most prominent
kind of company, usually referred to as a ‘corporation’ which is treated as a
‘juristic person’. In common law, a company is a legal person or legal entity
separate from its members and capable of surviving beyond the lives of its
members. Those who invest money into the business have limited liability for any
losses, the company makes, governed by corporate law. The largest companies and
commercial banking institutions are usually publicly listed on stock exchanges
around the world. Even single individuals also know as sole traders may
incorporate themselves and limit their liability in order to carry on a business. A
company is not only known as legal institution rather it is a legal device for the
attainment of any social or economic end and to a large extent publicly and
socially responsible.

According to the Sec. 2 (a) of the Companies Act, 2063 of Nepal, ‘company’
means a company incorporated under this Act.

Companies incorporated under the Companies Act are mostly business companies
but they may also be formed for promoting art, charity, research, religion,
commerce or any other useful purpose. The corporate device, therefore, is one
form of associated enterprise.

Thus the meaning of company can be summarized as follows:

 Company is known as a group of people working together for business.

 Company is also known as a voluntary association or organization of many
persons who contribute money or money’s worth to a common purpose to
carry out some trade or business who share the profit and loss there from.
 Company is an association or persons for carrying on commercial or
industrial enterprises.
 Company is an establishment or institution formed under law and legislation
to carry on commercial enterprises. This includes corporations, and other
associations which are usually carry on some form of economic or charitable
activity.

Types of Company:

The different forms of companies depend on the particular law of the particular
country in which they are incorporated.
In UK and other common law countries today, the most commonly addressed
companies are Chartered Companies, Statutory Companies, Registered Companies,
Private companies and Public companies, Company by guarantee etc.

The Companies Act, 2063 has specified the types of companies as the ‘private
company, public company, holding company, subsidiary company, foreign
company, listed company and company not distributing profits’ under Sec 2 (b) to
(h) respectively.

However, under Sec. 13 and 14 the private or public company can converse into
each other. Under Section 12 of the Act some specific company carrying on the
business related to banking and financial transactions, insurance business, stock
exchange business, pension fund or mutual fund business or telecommunication
service company with 50 million paid up capital must be registered as public
company. As per the discussion Companies are classified as follows:

1. Public and Private company:

The MOA/AOA states that the company is public or private. A company,
whether public or private is taken more generally as indication of the social
and the economical importance of the company. So public is tightly
regulated than the private company. In all over the world, public companies
are more highly regulated than the private companies. Transparency is more
needed for public company than the private company.
Section 2(b) of the Companies Act, 2006 has defined private company as
“any private company incorporated under this Act” and the public company
in the Sec. 2(c) as “ any company other than a private company.
2. Limited or Unlimited Company:
Limited company is the company in which the liabilities are limited. The
share holders are liable to the extent of his share only. It limits the ground.
The limited company may be two kinds as like company limited by shares or
company limited by guarantee.
In the unlimited company the shareholders are liable for the company debt
and obligation. In other words in an unlimited company the liabilities of the
members are unlimited. Thus, the members are also personally liable for the
payment of company’s liabilities.
 In Nepal, Sec. 8 of the Companies Act, 2063 permits only limited liabilities
company. According to it “the liabilities of a shareholders of a company
incorporated under the Act in respect of its’ transaction shall be limited only
to the maximum value of share which he has subscribed or undertaken to
subscribe”.
3. Holding and Subsidiary company:
The holding and subsidiary company has been defined in Sec. 2 (d) and (e)
of the Act. According to it a holding company means a company having
control over a subsidiary company and the subsidiary company means any
company controlled by a holding company.
Thus holding company refers to the principal company and the subsidiary
company is under the principal company. Holding company controls or
exercised over the subsidiary company. Holding company is sovereign in the
total administrative function of the subsidiary company.
Section 142, 143 and 144 of the Companies Act, 2063 prescribes the
provision regarding holding and subsidiary company and holding company
may control over its subsidiary company as follows:
a. By holding direct or indirect control over the formation of the board of
directors.
b. By holding majority share of the company.
4. Government company and Foreign Company:

Government company is one, in which government have 51% or more of

paid up capital in a company. Section 173 of the Companies Act, 2063
prescribes the provision regarding conversion of corporation into the public
company.

Section 2(f) of the Companies Act, 2063 defines Foreign company as the
company which is incorporated outside the state of Nepal. Under Chapter 16
Section 154 to 158 of the Companies Act, 2063, prescribes the provision
regarding the foreign company.

5. Company not distributing profit:

Generally company is formed with a view to carry on business to gain
something. In the course of development of the concept of the company
activities company can be established not only to carry the business but also
 to carry certain charitable works as social enterprises providing benefit to
community. The concept of social enterprise was developed in UK which is
called community Interest Company. Community Interest Companies are
relatively a new type of company, which can be registered for objects which
are good for the community. It has been materialized when the Community
Interested Company Act, 2004 is enacted, which has come into force from
2005.
Chapter 19 under Section 166 and 167 of the Companies Act prescribes the
provision regarding formation of the company not distributing profit.
Section 2(h) of the Act defines as the company not distributing profit means
any company incorporated under the chapter 19 on the conditions that it
shall not be entitled to distribute its members any dividends or any other
money out of the profits earned or saving made for the attainment of any
objects.
As per the provision of the Sec. 166 of the Act, company not distributing
profit may be incorporated to develop and promote any profession or
occupation or to protect the collective rights and interests of the persons
engaged in any specific profession or occupation or to carry on any
enterprise for the attainment of any scientific, academic, social, benevolent
or public utility or welfare objective on the condition of not distributing
dividends.
6. Listed Company:
Section 2(g) of the Companies Act, 2063 has defined listed company.
According to it listed company means any public company which has its
securities listed in the stock exchange. The functions, characters and right
and duties of such companies are regulated as per the MOA/AOA of the
company along with the provisions of the Securities Act, 2063 and the
Companies Act, 2063.

The Companies Act, 2063 (kartik 17, 2063) with first amendment
of 2074 Baisakh 19.

The objective behind the enactment of the company has been

stated as follows:

1. It is enacted to bring dynamism in the economic development of the country.

2. It is expected to promote investment in the industry, trade and business sectors
through economic liberalization,
3. It is to make the incorporation, operation, and administration of companies
much easier and more transparent.

1.It is enacted to bring dynamism in the economic development of the country.

2. It is expected to promote investment in the industry, trade and business sectors

through economic liberalization,

3. It is to make the incorporation, operation, and administration of companies

much easier and more transparent.

It consists of twenty chapters with various provision with reference to the

modern principles of the corporate governance.

Salient features of the Companies Act, 2063:

In brief, salient feature of the Companies Act can be listed as follows:

1. It prescribe the definition of the various new concept like; foreign company
S. 2(f), listed co. 2(g), Securities Board 2(w) net worth 2(z3), independent
director S.2(z7, close relatives 2(z9), court Commercial Bench 2(z8) etc.
2. Prescribes the provision regarding Foreign Company S.154, listed company
S .2(g), and Company not Distributing Company chapter IX S.166/167.
3. Prescribes one man Company i.e. single member Company S. 152/153
4. Prescribes minimum paid-up capital for the registration of the public
company S.11
5. Certain companies like banking, insurance, securities dealing company,
mutual fund, telecommunication service company with 50 million paid-up
capital are to be registered as public company only.
6. Prescribes Right and duties of the Company Registrar clearly S.16
7. Concept of pre-incorporation contract and its bindingness S.17
8. Prescribes seal of the company and its use S.26
9. Issue of shares at premium S.29
10.Shares with different rights and rights of such shareholder S.30
11.Prescribes the provision of Debenture Trustee S.35 and others in respect of
the issuing debentures
12.Basic information of the shareholders to be maintained S. 47.
13.Prescribes provision relating to alter its share capital in respect of increase of
decrease S. 56/57
14.Prescribes provision relating to liability of shareholders in case of reduction
of shares S.59
15.Prescribes provision relating to the responsibilities of the Directors in case of
loss of net worth S.60
16.Prescribes provision relating to the disclosure by the Promoters S.92
17.Prescribes provision relating to the disclosure by the Board of Directors S.92
18.Prescribes provision relating to the Board of Directors S.92
19.Prescribes provision relating to the approval for conducting business by the
public company S.63
20.Prescribes provision relating to the auditing of the Companies Accounts
S.110. and appointment of the auditors S.111
21.Prescribes provision relating to the Cancellation of the Registration of the
incorporation of the company by the Company Registrar Office S.136
22.Prescribes provision relating to the punishment for the offence committed
therof S.160/161
23.Prescribes provision relating to the Audit Committee to audit accounts of a
Government public company having paid up capital of 30 million or more
S.164
24.Prescribes provision relating to the Companies not Distributing Profit
S.166/167
25.Prescribes provision relating to the Commercial Bench as designated by the
GON to settle the cases under the Act. S.172
26.Prescribes provision relating to the appointment of a Company Secretary in a
public company where paid capital is ten million or more

So the Companies Act, 2063 is more comprehensive and exhaustive than earlier
Companies Act. The first amendment made in Baisakh 19, 2074 has expanded
scope of the private company by allowing increase its members up to 101. The
first amendment also imposes the obligation against the BOD to be present in
the AGM. It recognizes the digital records, digital submission of documents and
video conference at the time of convening AGM. It encourages woman
shareholders to be associated in the corporate governance be making mandatory
provision of at least one woman in the Board of Director of a public company
where woman shareholders are there. It increased amount of fine @ of double
than earlier as per the commitment of an offence.

Incorporation of a Corporate Body

Incorporation of a company means establishment or registration of the company

or a corporate body as a legal person or legal entity. To carry business under the
name of a company it is mandatory to register them. According to S.5(5) of the
Companies Act, 2063 a person cannot use the name of company to carry any
kind of transaction by the name of any institution or firm. Thus registration of a
company is compulsory to carry any business under its name.

The process regarding registration of a company has been prescribed in

Sections S. 3, 4 and 5 of the Companies Act. The first amendment made in
2074.1.19 allows incorporation of a company via electronic transmission with
digital recording.

Any person desiring to incorporate a company which may be either private,

public or company not distributing profit under chapter IX can incorporate them
(S.3).

Propose name and Application S. 4.

According to amendment of the Section 4 of the Act, the person or intended

promoters desiring to incorporate company must propose the name of the
proposed company for the approval of it. On receipt of the approval an
application is to be submitted along with the documents specified thereof via
digital transmission. The documents include:

i. MOA/AOA of the proposed company.

ii. An agreement of the promoters in case of public company and consensus
agreement in case of private company if any.
iii. Prior approval of the concern line agencies where it is required.
iv. Certified copy of the citizenship certificate in case of Nepalese
promoters, and in case of organized institution their registration
certificate
v. In case of Foreign investor of Company, prior approval of the foreign
investment or carrying business
vi. In case of foreign promoter or company certified documents indicating
the citizenship of such person or the registration documents of such
company and permission or recommendation from the principal
institution or company to transact in Nepal.

Registration of company: (S.5)

On receipt of the application, if the Registrar is satisfied with the legal
compliance of the application, the office will register such company
within seven days after the date of application and grant company
registration certificate to the applicant.
After a company has been registered, it becomes a body incorporated.
The office has to maintain a company register.
After the incorporation of a company, the matters contained in the
MOA/AOA will be binding on the company and its shareholders as if
these were the provisions contained in separate agreement between the
company and every shareholders and among its shareholders (Concept of
body incorporate and corporate independence)
However certain companies are required to be registered as public
company only U/S 12.
There must be at least seven promoters for the incorporation of a public
company under S.3(2) and in case of registration not distributing
company there must be at least five and after the incorporation of such
company, it may have any number of its members S166(3).

Powers to refuse to register company: (S.6)

The company registrar may refuse to register a company in any of the

following circumstances:
 a. If the name of the proposed company is identical with the name or trade
mark or mislead the existing company because of identical by name or
trade mark by which a registered company in existence might cause
misleading.
b. If the name or object of the proposed company is contrary to the
prevailing law or appears to be improper or undesirable in the view of
public interest, morality, decency, etc or reflects motive of a criminal act.
c. If the name of the proposed company is identical with the name of a
company of which registration has been cancelled pursuant to the ct or
that of a company which has been insolvent under the law or so
resembles such name as it might cause misleading and a period of five
years has not expired after such cancellation or registration or insolvency.
d. If the requirements for the incorporation of a company under the Act are
not fulfilled or complied as per S.4 and 11.

Appeal against the refusal: S6(3).

If the Office refuses to register any company in any circumstances as said

above, it will give notice to the applicant no latter than 15 days from the date
of application accompanied by the reasons therefor.

If the office refuses to register any company as said above or fails to give a
notice , a peron who is not satisfied may file a complaint in the court within
15 days.

Features of the body incorporated:

1. Separate legal existence or Independent corporate body/ Distinct legal

personality (Section 7).
Separate from its members. In other words, after the incorporation of a
company, the matters contained in the MOA/AOA will be binding on the
company and its shareholders as if these were the provisions contained in
separate agreement between the company and every shareholders and among
its shareholders. (Salomon Vs Salomon & Co. (1897), Lee Vs. Lee’s Air
Farming co, Piyush Raj Pandey Vs. Department of Tax Office,2040)
2. Limited Liability (Section 8) (Salomon Vs Salomon & Co. (1897), Piyush
Raj Pandey Vs. Department of Tax Office, 2040)
3. Perpetual Succession: Section 7(1): (Salomon Vs Salomon & Co. (1897),
Piyush Raj Pandey Vs. Department of Tax Office, 2040)
4. Separate property, Section 7(2): (Macaura Vs. Northern Insurnce Co. Ltd.,
Purushottam Acharya Vs. Borris Restaurant Pvt. Ltd. 2044).
5. Capacity to sue and be sued, Section 7(3), Section 139): Foss Vs. Harbottle
(1843), Tarani Prasad Adhikary Vs. Nepal Food Corporation 2046)
Incorporation of the principles of Derivative Action in Section 139.
6. Transfer of Shares, (Section 43, 44 & 45): (Prithvi Bahadur Singh Vs. Nepal
Match Factory 2045).
7. Share Capital, (Section 11): Paid up capital of the public company is
required 10 million.
8. Company Seal (Section 26): Company is to use its seal properly its own
name in the course of carrying its transaction.
9. Professional Management: To carry out company’s business there is Board
of Directors, MD/Manager/CEO as per the MOA/AOA with professional
management and expertise. Section 96 of the Companies Act, 2063 permits
the appointment of the Managing Director and Management of the
Company.
10. Publication of the financial Statements: To publish financial statements and
report at the every fiscal years with proper maintenance of the books of
accounts.
11.Winding-up: Company comes into existence under due process of law and
comes to an end only under the due process of law. It may be wound –up
voluntarily under the Companies Act or compulsory winding-up i.e by the
order of the court as per the Insolvency Act 2063.
12.Lifting the corporate Veil: Although an incorporated company enjoy
separate legal existence but in certain situation it can ignore the principle of
independent existence by lifting its veil to examine its real activities to make
members of it personally liable as an exception to principles of corporate
independence. Such activities can be done by :
i. Statutory provision
ii. Judicial activities
iii. At the national interest
iv. By protection of the government revenue
13.Ruled by MOA/AOA of the company along with prevailing law.
In conclusion , incorporated body enjoy separate legal entity, legal personality,
distinct from its members as an autonomous body by which it primarily
distinguishes from partnership firm.

Amendment to Companies Act, 2006 (2063 B.S) (2074/1/19 / May 2, 2017)

 Parliament has passed the First Amendment to the Companies Act 2006 (2063 B.S.)

  The "Companies (First Amendment) Act, 2017 (2074 B.S.)"(the "Amendment"), which was
passed by the Parliament of Nepal, has finally been certified by the President and the
Amendment came into force from May 2, 2017 (2074/01/19). 

 The Amendment has made certain amendments to the Companies Act 2006 (2063 BS) (the
"Companies Act"). The key changes made by the Amendment are briefly presented below: 

 1. Relaxation of the provisions relating to issuance of shares at premium price

 (a) Section 29 of the Companies Act deals with the provisions applicable for issuance of
shares at premium. Section 29(1) had provided following pre-requisite for issuance of
shares at premium: 

(i) The company should be in profit and should have declared dividend for the last three
consecutive  years prior to issuance,

(ii) the company’s net worth should exceed its total liabilities, 

(iii)  The issuance should be approved by the general meeting,

(iv)  Approval of the  Office of Company Registrar (OCR) 

The said requirement was applicable to all forms of companies namely; private limited
companies, unlisted public limited companies and listed companies. 

 (b) The Amendment has amended Section 29(1) of the Companies Act. As per the new
provision, the provisions in case of the listed companies, premium share issuance shall
be subject to the terms and conditions imposed by the applicable securities laws.

 (c)  The private limited companies and unlisted companies will be able to issue shares at
premium after meeting the criteria that such entities do not have negative net-worth (the
 actual language used in the law is that the assets should be more than liabilities) and
the issuance has been authorized by the general meeting.  

(d) The Amendment now removes the requirement of the approval of the OCR for issuance
of shares at premium. 

(e)  As the Amendment removes the OCR approval, companies are likely to benefit in the
reduced cost and time. In relation to equity investments in private and unlisted
companies, the requirement for three years profit and declaration of dividend was
substantial bottleneck in practice and now provides effective tool for investors to
invest at appropriate business valuation especially in relation transaction involving
primary issuance by the companies. 

 2. Mandatory requirement for telecommunication service provider companies to be

converted into a public company 

 (a)  Section 12 of the Companies Act provided for provision pursuant to which certain
business activities like banking, insurance, mutual funds and other notified business
activities are required to be incorporated as public limited companies.  The Amendment
has inserted additional provision in Section 12 of the Companies Act pursuant to which
telecommunication service provider companies having paid up capital exceeding
Nepalese Rupees 50 Million will have to be registered as public limited companies. 

 (b) Further, in the case of the existing telecommunication service provider companies
(while the Amendment does not define telecommunication service providers, it does
appear to include internet service providers by relying on the provision of the
telecommunication laws) which have paid-up capital of more than NPR 50 Million are
required to be converted into public limited company within a period of 2 years.
Section 12 of the Companies Act only covers the form of incorporation and does not
deal with the mandatory requirement for issuance of shares to the general public. In
view of this such entities will not be required to issue shares to the general public
unless mandated under the Telecommunication Act or directives from the
telecommunication regulator. . 

 3. Investment companies exempted from investment ceiling 

 (a)  Section 176 of the Companies Act restricts a company to invest, in excess of (i) sum
total of 60% of its paid up capital and free reserve or (ii) 100% of free reserve,
whichever is higher, in any other company (the “Investment Ceiling)” . The said
Section 176 has also excludes certain companies from application of the Investment
 Ceiling. For instance, Section 176 of the Companies Act excludes, amongst others,  
companies having main objective of buying and selling securities" from the application
of the Investment Ceiling.  In practice, the OCR had implemented Section 176 in the
manner that only the activity of trading in shares and not investment activity falls
within the coverage of exclusion. This meant that 40% of the equity would be trapped
and could not be utilized for making further investments. 

 (b) The Amendment has inserted “investment company” within the excluded business
activity for which Investment Ceiling will not be applicable. Recently, investors have
widely used investment companies (including foreign private equity funds) as an
investment vehicle and will stand to benefit by this regulatory clarification. 

(c)  It may be noted that the Company Directive 2015 issued by the OCR (Clause 90),
currently still provides that even the excluded business activities (excluded under
Section 176 of the Companies Act) can  make investment only up to invest up to (i)
sum total of 90% of its paid up capital, and (ii) 100% of free reserve. This provision
still compels the investment companies to keep 10% of their share capital idle. The said
Clause 90 is inconsistent with the provisions of Section 176 of the Companies Act and
will need to be streamlined with Section 176. 

4. No mandatory conversion requirement for private companies

(a)  Pursuant to Section 13(1)(b) and (c) of the Companies Act, a private company is
required to be converted into a public company in following conditions-(a) 25% or
more shares of such company are held by one or more  public companies, or (b) if such
private company acquires 25% or more shares of a public company. This mandatory
conversion provision has forced a private company to comply with all the requirements
applicable to the public companies. For instance the following conditions are
applicable-(a) minimum paid up capital of 10 million Nepalese Rupees or more, (b)
minimum number of shares to be raised to 7, (c) minimum number of directors to be 3
with a requirement to appoint at least 1 independent director. Further Section 13(1)(b)
and (c) of the Companies Act stand contrary to the provision of Section 14 which has
required a public company to be converted into a private company in a situation where
the number of shareholders is reduced below 7. 

(b)  The Amendment has removed Section 13(1)(b) and (c) thereby allowing a public
company to hold hundred percent shares of private company and vice versa without the
requirement of mandatory conversion.. 
 

5. Special provision for de-registration of the defunct and defaulting companies

(a)  The Amendment has made a special provisions relating to de-registration of the defunct
or defaulting companies. Pursuant to Section 136 of the Companies Act, de-registration
of the defunct companies or defaulting companies are subject to the fulfillment of all the
pending compliances and clearance of all the fines and dues by the liable officers. The
amount of fine as prescribed under Section 81 of the Companies Act can be huge for the
some of the companies which have remained defunct for several years.

(b)  The Amendment has provided a grace period of two (2) year from the date of
commencement of the Amendment to the defunct or defaulting companies to apply to
OCR for the de-registration which have not fulfilled any of the following conditions as of
the date of commencement of the Amendment, (a) commence business, (b) submission of
details pursuant to Section 80, or (c) payment of fine under Section 81. A decision from
the general meeting of such company is required to initiate the process. 

(c)  The Amendment has further prescribed the applicable government fees for such de-
registration is (a) payment of fine under Section 81, or (b) payment of Zero Point Five
(0.5) percent of the paid up capital of the company, whichever is less. For such de-
registration, the defaulting companies will also need to submit the annual returns and
other documents as provided under Section 80.

6. Increase in the maximum number of shareholders of a private company 

(a)  Pursuant to Section 9 of the Companies Act, a private company can not have more than
fifty (50) shareholders. The Amendment has increased this number to One Hundred and
One (101). A private company can now have a maximum of 101 shareholders. It is
traditional to define the companies as public companies or private companies in terms of
the minimum or maximum number of promoters or shareholders. Though the Companies
Act and the Amendment still retain this conventional concept, the Amendment has
provided flexibility to the private companies in terms of the maximum number of the
shareholders. The threshold of maximum number of the shareholders does not apply in
case of the employee shareholders. 

7. Protection of corporate name/ brand 

 (a) Section 6 of the Companies Act provides various grounds under which the OCR can
refuse to provide name for the registration of the company. Section 6 of the Companies
Act, amongst others, included similarity with the name of the registered company as one
of the grounds for refusal for registration with a particular name. This protection did not
extend to the protection of the registered trademarks though some provisions were
inserted in the Company Directive 2015 issued by the OCR.

(b)  The Amendment has inserted provision in Section 6 pursuant to which the OCR can
now refuse registration of the companies if the proposed name is identical or
confusingly similar to the trademark of the registered company.  

8. Provision for specific time limitation to bring action

(a)  The Companies Act had lacked the provision for time limitation to bring an action
against the Company or its officers before the OCR or courts. This implies that any action
under the Companies Act can be brought at any time subject to the general provisions
provided under the Country Code (Muluki Ain). This has provided uncertainty as there
remains possibility of challenging past corporate action or decision by an interested party
at any point of time and without being subject to time limitation. 

(b) The Amendment has been mentioned the time limitation to file a case as two years from
the date of knowledge of the cause. This limitation is applicable in case no separate time
limitation is prescribed in the Companies Act. 

9. Extended prohibition on availing loans to officers and shareholders 

(a)  Previously, Section 101 of the Companies Act had prohibited the companies to provide
loan or financial assistance, security or guarantee to its officers, substantial shareholder or
their close relatives or officers, shareholder or their close relative of the holding company
of such company. The provision has not covered the "officers or shareholders of
subsidiary company of a company in question" within the prohibition. 

 (b)  Pursuant to the Amendment, the prohibition under Section 101 is now extended to
officer, substantial shareholders or officer, shareholder of its subsidiary company or a
close relative of such person.

10. Extended coverage of "Substantial Property Transaction" 

  (a)    Pursuant to existing Section 93 of the Companies Act, any substantial property
transaction by a public company with its director or his/her close relative or "Substantial
Shareholder" is subject to an approval of the general meeting. Similarly, a subsidiary
company is restricted to enter into "Substantial Property Transaction" with the director,
his/her close relative or substantial shareholder of the holding company without obtaining
an approval from the general meeting of the holding company. 

 (b)  "Substantial Property Transaction" as defined in the explanatory clause of Section 93

mean and include-(a) any transaction of sale, purchase or exchange and contract the value
of which at the time of doing the transaction exceeds 120,000 Rupees or 5% of the total
assets of the Company whichever is lesser, or (b) rental transaction amounting to 120,000
Rupees or more annually.

  (c) Section 50 of the Companies Act defines the "substantial shareholding" in the context of
the public companies. Pursuant to the said Section, any person owning 5% or more of the
paid up capital of any public company with full voting rights is considered to be a
"substantial shareholder" of such company. However, in the case of a company having
the paid up capital of more than two hundred fifty million rupees, any person owning one
percent or more of the total paid-up capital of such company with full voting right is
considered to be a "substantial shareholder" of such company.

 (d)  Prior to the Amendment, the substantial property transaction as provided under Section
93 of the Companies Act was regulated in case of officers or substantial shareholders in
their individual capacity. The Amendment has further restricted to carry out "Substantial
Property Transaction" with "the firm, company or corporate body" of which such
director, close relatives of a director or substantial shareholder holds substantial shares.  

 11. Extended prohibition to provide financial assistance

 The restriction for providing loan or financial assistance as provided under Section 62 of
the Companies Act has further been widened by the Amendment. Prior to the
Amendment, the restriction was applicable to the companies and holding companies.
Pursuant to the Amendment, a company is further restricted to provide financial
assistance to anyone for the purpose of buying its shares or the shares of its subsidiary
company.  

12. Mandatory participation in the general meeting

 Pursuant to Section 68 of the Companies Act, a director is required to be present in the

general meeting to the extent possible. No alternative means of presence was allowed by
Section 68. The Amendment has provided the mandatory participation of the director in
 all the general meetings. However, a director can participate in the general meeting by
means of video conferencing or similar technology. However, ensuring presence by
means of video conferencing or similar technology is allowed in force majeure situations
only. 

 13. Additional requirement for private companies in relation to annual general meeting

 (a) Section 76 of the Companies Act requires each public company to conduct the annual
general meeting within six (6) months from the end of a fiscal year. Section 76 has
granted right to the shareholders of a public company to seek recourse in case a public
company does not convene annual general meeting within the statutory timeline. A
shareholder, as prescribed under Section 76, can seek recourse from (a) OCR to issue
directive to the public company in question requiring holding annual general meeting,
and (b) court if the company does not comply with the directive of the OCR in regard to
concluding the general meeting. 

 (b) The existing Companies Act does not provide similar provisions to the private
companies. Furthermore, it is not mandatory for the private companies to conduct annual
general meetings unless the same is provided in the articles of association of the
company.

 (c) The Amendment has now provided the requirement of convening of Annual General
Meeting and other compliances thereto in case of private company as well. The statutory
timeline, as mentioned under Section 76, for concluding the annual general meeting is
also now applicable to private company as well. This will provide right and recourse to
the shareholders of a private company to ask such company to conduct annual general
meeting by taking assistance from the OCR and court.   

 14. Specified Timeline for holding extra ordinary general meeting ("EGM") upon
requisition

 (a)  Pursuant to Section 82(3) of the Companies Act, the Board of Directors of a company is
required to call EGM in case of the shareholders holding at least ten percent shares of the
paid–up capital of a company or at least twenty five per cent shareholders of the total
number of shareholders make an application, setting out the reasons for the same. But,
prior to the Amendment, the timeline to call and convene the EGM upon request by
shareholders was not specified.  

 (b)  The Amendment has now prescribed the time and as such the BOD is required to hold
the EGM within thirty (30) days from the date of receipt of such request/application from
the shareholders.  

 15. Maximum number of directors

   The flexibility allowed to a private company regarding the appointment of directors in
desired number has been removed by the Amendment. Pursuant to Clause 21 of the
Amendment, a private company can now only have a maximum of eleven (11) numbers
of directors. As the private companies generally have small board of directors, this
provision should not have any adverse impact to the company.  

 16. Requirement of mandatory female director

 Pursuant to the Amendment, a public company is required to have a mandatory female

director if there is one or more female shareholder in the company. This requirement,
however, is not applicable to-(a) private companies, or (b) even public companies without
female shareholders. 

 17. Statutory recognition to online system 

 (a)  The Amendment has provided a statutory basis for the recognition and implementation
of the online filing of the documents with Office of the Company Registrar (the "OCR").
Though the OCR has already implemented the online filling and submission, it had no
legal basis. Further, the Amendment has also recognized the use of electronic signature in
the documents to be submitted to the OCR. 

 (b)  It is not clear as to whether the manual submission of the documents would also be
required following the online submission of the documents. Currently, the documents are
submitted both online and manually. The registration certificate and charter documents
are also required to be collected from the OCR physically. Hence, the practice will need
to be aligned in line with the provisions of the Amendment to implement the online
system in real sense. 

 18. Reduction of the statutory timeline for registration of companies

 (a)  The Companies Act, under its Section 5(1), required the completion of registration of a
company within a period of fifteen (15) days from the date of application. The
notification of refusal of registration was required to be given within 15 days as provided
under Section 6(2). 

 (b)  The Amendment has reduced the statutory timeline for giving decision by the OCR as to
the proposed registration of the companies. Pursuant to Section 4 of the Amendment, the
OCR is required to register a company within 7 days. In case of refusal, the decision of
refusal will need to be notified to the applicant within next 3 days. 

 19. Provision of services from the branch offices of the Office of the Company Registrar 

 (a)  Generally the entire system of company registration, reporting, payment and similar
services of OCR is centralized in the Kathmandu valley only. There is no any branch
 office of OCR to render services. The only example in the past was the establishment of a
unit of OCR in Lalitpur District. 

 (b)  Therefore, the demand for the establishment of branch offices of OCR has been raised
time and again, at least in major business cities. The Amendment has thus provided for
the establishment of branch offices of the OCR. In line with the provision, the OCR can
now establish the branch offices and provide the services related to company registration
and administration through such branch offices. This is likely to simplify the business
registration as well as compliances related process.  

 20. Compliance with the anti-money laundering requirement 

The Amendment has prescribed the compliance requirement with the anti-money
laundering laws. The company is required to make commitment pursuant to the
applicable laws on anti money laundering and terrorist financing.