Company Law

Legislation under which the formation, registration or incorporation,

governance, and dissolution of a firm is administered and
controlled. These are the standardization process of law.
The expression company law may be defined as a branch of law
governing the companies. It deals with all aspects relating to
companies, such as incorporation of companies, allotment of shares
and share capital, membership in companies, borrowing by
companies, management and administration of companies, winding
up of companies. Thus, the company law is that branch of law which
exclusively deals with all matters relating to companies. The
company law in Nepal, is codified, and contained in the companies,
Act 2063 (2006).
 History of the Nepalese companies, Act 2063
(2006)
Historical Evolution of Company Law in Nepal
• The Company Act, 1993
• Company Act, 2007
• Company Act 2021
• Company Act 2053
• Company Bill 2062
• Company Act 2063
• The First Amendment- 2064/5/9
• The Second Amendment- 2074/1/19
 Meaning of the following Words related to
Co.
Com Meaning in Latin
Together, together with, in combination
Com- with, together
 Origin & Meaning of Company
"large group of people," from Old French compagnie "society, friendship, intimacy; body
of soldiers" (12c.), from Late Latin companio, literally "bread fellow, messmate," from
Latin com "with, together" (see com-) + panis "bread," from PIE root *pa- "to feed."
Abbreviation co. dates from 1670s.
From late 14c. as "a number of persons united to perform or carry out anything jointly,"
which developed a commercial sense of "business association" by 1550s, the word having
been used in reference to trade guilds from late 14c. Meaning "subdivision of an infantry
regiment" (in 19c. usually 60 to 100 men, commanded by a captain) is from c. 1400.
Meaning "companionship, consort of persons one with another, intimate association" is
from late 13c. Meaning "person or persons associated with another in any way" is from c.
1300. In Middle English the word also could mean "sexual union, intercourse" (c. 1300).
First of All, in France this word was used for body of soldiers see [Fr. Term Compaignie]..
After year 1500, this word became famous in business. Group of businessmen was called
company.
 Continuation of Origin & Meaning of
Company
Word-forming element usually meaning "with, together,"
from Latin com, archaic form of classical Latin cum "together,
together with, in combination," from PIE *kom- "beside,
near, by, with" (compare Old English ge-, German ge-).

The prefix in Latin sometimes was used as an intensive.

Before vowels and aspirates, it is reduced to co-; before -g-, it
is assimilated to cog- or con-; before -l-, assimilated to col-;
before -r-, assimilated to cor-; before -c-, -d-, -j-, -n-, -q-, -s-, -
t-, and -v-, it is assimilated to con-, which was so frequent
that it often was used as the normal form.
 Continuation of Origin & Meaning of Company
Meaning "person or persons with whom one voluntarily associates" is from c.
1600; phrase keep company "consort" is from 1560s (bear company in the same
sense is from c. 1300). Expression two's company "two persons are just right" (for
conversation, etc.), is attested from 1849; the following line varies: but three is
none (or not), 1849; three's trumpery (1864); three's a crowd (1856).
mid-12c., "large group of people," from Old French compagnie "society,
friendship, intimacy; body of soldiers" (12c.), from Late Latin companio, literally
"bread fellow, messmate," from Latin com "with, together" (see com-) + panis
"bread," from PIE root *pa- "to feed." Abbreviation co. dates from 1670s.
com-
word-forming element usually meaning "with, together," from Latin com, archaic
form of classical Latin cum "together, together with, in combination," from PIE
*kom- "beside, near, by, with" (compare Old English ge-, German ge-). The prefix
in Latin sometimes was used as an intensive.
 History
European history begins in 1866, with the foundation of the Anglo-
Swiss Condensed Milk Company. Henri Nestlé develops a breakthrough
infant food in 1867, and in 1905 the company he founded merges with
Anglo-Swiss, to form what is now known as the Nestlé Group. During
this period cities grow and railways and steamships bring down
commodity costs, spurring international trade in consumer goods.
In 1867, Henri Nestlé's 'farine lactée' Nestlé’s founder, German-born pharmacist
Henri Nestlé, launches his ‘farine lactée’ (‘flour with milk’) in Vevey, Switzerland. It
combines cow’s milk, wheat flour and sugar, and Nestlé develops it for consumption
by infants who cannot be breastfed, to tackle high mortality rates. Around this time
he starts using the now iconic ‘Nest’ logo.
In 1875, agreement signed by Henri Nestlé Henri Nestlé sells his company and factory
in Vevey to three local businessmen. They employ chemists and skilled workers to
help expand production and sales.
 Continuation of Company History

In 1878, advertising by Anglo-Swiss and Nestlé Fierce competition

develops between Nestlé and Anglo-Swiss, when both companies
start selling rival versions of the other’s original products: condensed
milk and infant cereal. Both firms expand sales and production abroad.
In 1882-1902, milk arrival in Cham, Switzerland In 1882 Anglo-Swiss
expands into the US, but the death of George Page frustrates its
plans. In 1902 it sells its US-based operations, which paves the way
for an eventual merger with Nestlé.
In 1904, employees working in a Swiss chocolate factory Nestlé begins selling
chocolate for the first time when it takes over export sales for Peter & Kohler. The
Nestlé company also plays a role in the development of milk chocolate from 1875,
when it supplies his Vevey neighbour Daniel Peter with condensed milk, which
Peter uses to develop the first such commercial product in the 1880s.
In 2000, Acquisition of Otto Heat Heizungs-, Energie- und Anlagentechnik GmbH +
Co. KG
 Continuation of Company History
2010- Heinrich Winkelmann takes over as the fourth generation of
manager of the Winkelmann Group at the headquarters in Ahlen
2013-The 'Reflex' brand gets a brand relaunch with the new claim
'Thinking Solutions'. The Reflex training centre is opened in Ahlen.
2014- Acquisition of the company Sinusverteiler GmbH
2015- Launch of the Winkelmann production system to optimise and
increase efficiency in production processes
2016- Opening of a new Reflex distribution company in Dubai.
2017- The business division is rebranded to Winkelmann
Building+Industry and enables the strategic opening of future ranges.
Opening of a new Reflex distribution company in Singapore.
 Definition of the Company
A company is a legal entity that is formed when a certain number of
people come together with the same intention of providing goods or
services to the customers. Some of the advantages of a company
include being a legal entity and quality decision making. However, one
of the main difficulties facing companies is strict regulation from the
government.
A voluntary association formed and organized to carry on a business.
Types of companies include sole proprietorship, partnership, limited
liability, corporation, and public limited company.
The members of the company are called as shareholders of a company.
A company is a separate legal entity, It is a separate entity from its
members, directors, promoters, etc.
Definition of the Company in Nepalese Co. Act
2063
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 Definition of a Company as to Indian Companies Act, 2013
Indian Companies Act, 2013 defines Company as ” A Company formed
and registered under this Companies Act or under any previous
company law”. A company is defined easily as an association of two or
more persons which is formed for doing business collectively and
registered with Registrar of Companies according to Indian
Companies Act, 2013.There are different types of companies like One
Person Company, Private company and Public Company, etc.
The company exhibits certain special characteristics, such as
✔ It have a Separate Legal Entity- Salomon v Salomon & Co. (1897)
✔ It contains Common Seal under its name
✔ It has limited liability
✔ It acts as an artificial person, Etc.
Company has a Complex Mechanism
 Types of Business Structures One could choose
from
As you plan starting up your own business, one of the first decisions
you need to make is the formal business structure you will assume.
Which structure you choose depends on your industry, growth goals,
and how many people you plan to involve in your company. It is
important to have a full understanding of the business structure you
take - but at the same time, I caution you to avoid paralysis through
analysis. Make an informed decision and get back to focusing on
starting and nurturing the growth of your business.
The following are six types of business structures you could choose
from.
 Sole Proprietorship/Sole Trader
This is the easiest type of business to start. There are no
incorporation forms to file or fees to pay with the government. You
pick your business name, and get to work. With a sole
proprietorship, you avoid double taxation that occurs in corporations
as every dollar you earn hits your personal income tax. You pay no
corporate income tax.
Because of the ease of starting this type of business, there is a larger
amount of risk involved due to the lack of incorporation. How much
risk? You are personally liable for everything done in the business'
name. You can hire employees as you would with any other business,
but if they damage someone else's property you can be personally
sued for the damages. This puts everything you own at risk.
 Continuation of Sole Proprietorship
The sole trader is the amoeba of the business
organization world. It is a one person operation
where someone just operates on their own. There
are no legal filing requirements, they just go into
business on their own. they usually provide the
capital with personal savings or a bank loan. They
contract in their own name and have personal
liability for all the debts of the business. There is no
need for a formal organizational structure.
 Continuation of difference of Sole Trader with
Partnership & Public Enterprise i.e. Company
Sole Proprietorships: Basically, a sole proprietorship is not a legal
entity, and refers to a business which is solely owned by one
person. This one person is personally liable for the debts and
expenses of this type of business. This is the simplest form for a
company to use. They are advantageous to owners because they
are simple to form, and have nominal costs compared to other
types of ownership. However, sole proprietorships are problematic
because the owner’s personal assets can be reached by creditor’s
for business matters.
Difference in Sole Trader
Start up Cost Less
Managerial Feature Since it the too small, it is too
simple so easy to manage
Expansion of Capital Hard to collect capital as it
can not issue the shares
Fiduciary Feature No
(Common Law Concept)
Formation Formality It of Informal Nature
Personality No Legal Personality
Ownership of The Asset The Proprietor himself owns
Level of Operational Risk High Risk
Company Public
Enterprise
High Cost
Requires Professionally skilled
as the organization is complex
It can collect capital by
IPO/FPO
Yes, Company has a fiduciary
duty to members: Trustee &
Beneficiary Relationship
It has to take very formal step
It has to be formal since birth
Legal Personality
Yes, the company owns the
Asset, But no ownership of
the members
Low Risk, since no Risk to the
Member because liability
equals only the shares owned
Less than Company
Yes, easy to manage
compared to the Company
It is difficult to increase capital
as it cannot issue share
No
It is also of Informal Nature
Join partners and start trade
Just Partner (No Legal
Personality)
The assets are directly owned
by the partners
It is the Risk of the Partners
 Partnership
A partnership is where two or more individuals formally agree to
do business together. Partnerships are very easy to form, and the
income earned from the business is filed on the individual
partners' tax returns. As with a sole proprietorship, you pay no
corporate income tax and avoid double taxation.
However, as with a sole proprietorship, there are risks involved.
Partners are personally legally liable for not only their actions,
but the actions of all general partners. For example, if your
partner takes on a business loan, you are also responsible in
seeing that it is paid back. The members of the Partnership firm
are called as Partners. Partnership firm is not a separate legal
entity from partners. The Partners of the firm are collectively
referred as a Partnership firm.
 Partnership
A partnership is a business in which two or more individuals share
ownership. In general partnerships, all management duties, expenses,
liability and profits are shared between two or more owners. In limited
partnerships, general partners share ownership responsibilities and
limited partners serve only as investors.
In general partnerships, all management duties, expenses, liability and
profits are shared between two or more owners. In limited
partnerships, general partners share ownership responsibilities and
limited partners serve only as investors.
Partnerships have simpler management structures than corporations.
In a partnership, all general partners decide how the company is run.
General partners often assume management responsibilities or share
in the decision of hiring and monitoring managers.
 Partnership
Partnerships: This is a business owned by two or more people, who
share equally in profits and losses. Partnerships involve a number of
different legal considerations that you should familiarize yourself
with. Also, there are different types of partnerships (such as general
partnerships, limited partnerships, joint ventures), so you need to
have a good understanding of what will work best for your
company.
 Company vs Corporation
All corporations are companies, but not all companies are
corporations. Company is a much broader term than corporation,
and it encompasses a lot of different types of businesses. These are
a few of the key differences between a company and a corporation.
Company is any entity that engages in business.
Companies can be structured in different ways. For example, your
company can be a sole proprietorship, a partnership, or a
corporation. Depending on which different type of company you're
dealing with, it may be owned by one person or a group of people.
Liability in most types of company is assumed by the owners, and
can either be limited or unlimited depending on the type.
 Corporation
Corporations are different from other types of company in that they exist
separately from their legal owners. That means that liability is separate as well.
With corporations, liability is limited to the holding of shares. In fact, shareholding
is a major difference between corporations and other types of companies. With
corporations, the shareholders each own a small piece of the larger corporate
structure. Most companies are typically owned by one or a small handful of
people, while corporations can be owned by thousands of different individuals.
Corporations: These are separate legal entities that are owned by the
shareholders. Corporations are much more complex and are typically used by
larger businesses. They have more costly administrative fees and more
complicated tax and legal requirements. Corporations are afforded the
opportunity to sell ownership shares through stock offerings. There are also
different classifications of Corporations (such as C-Corps, S-Corps, Closely Held
Corps.), so once again, you will need to have a good idea of what your company’s
best option is.
 What is a C Corporation?
A business can be set up in a variety of ways, ranging from a
sole-proprietorship to a general partnership, an LLC to a
corporation. Corporations are remarkably different from
other forms of businesses in the sense that it is an
independent legal entity that is separate from the people
who own, control and manage it. Due to this recognition as
an individual entity, it is viewed as a legal "person" in the
view of tax laws, and can thus be engaged in business and
contracts, can initiate lawsuits and itself be sued. It also
must pay taxes.
 Continuation of Corporation
A C corporation is a business term that is used to distinguish this type of
entity from others, as its profits are taxed separately from its owners under
subchapter C of the Internal Revenue Code. In an S corporation, the profits
are passed on to the shareholders, and are taxed based on personal
returns. This is done under subchapter S of the Internal Revenue Code.
A C corporation is owned by shareholders, who must elect a board of
directors that make business decisions and oversee policies. In most cases,
a C corporation is required to report its financial operations to the state
attorney general. Because a corporation is treated as an independent
entity, a C corporation does not cease to exist when its owners or
shareholders change or die.
Another major advantage of a C corporation is that its owners have limited
liability. Thus, they do not stand personally liable for debts incurred by the
corporation. They cannot be sued individually for corporate wrongdoings.
 Major Benefits of a C Corporation
As opposed to a sole proprietor or an LLC, corporations are usually at a
lower risk of being audited by the government.
The owners and the shareholders of a C corporation have a limited
liability towards business debts.
A C corporation can deduct the cost of benefit as a business expense. For
example, they can write off the entire costs of health plans established
for employees as business expenses. These benefits are tax-free even for
those receiving them.
A C corporation can be used to split the corporate profit amongst the
owners and the corporation. This can result in overall tax savings. The tax
rate for a corporation is usually less than that for an individual, especially
for the first $50,000 of taxable income.
 Limited Liability Company (LLC)
A Limited Liability Company, also known as an LLC, is a type of business
structure that combines traits of both a sole-proprietorship and a
corporation. An LLC is eligible for the pass-through taxation feature of a
partnership or sole proprietorship, while at the same time limiting the
liability of the owners, similar to a corporation.
As the LLC is not considered a separate entity, the company does not pay
taxes or take on losses. Instead, this is done by the owners as they have
to report the business profits, or losses, on their personal income tax
returns. However, just like corporations, members of an LLC are
protected from personal liabilities, thus the name Limited Liability.
Limited Liability Companies are recognized in all 50 states and the District
of Columbia. In most states any type of business can form an LLC, though
some state laws may require at least two members in order to form one.
 Advantages of an LLC
The members of an LLC have protection against liability. They cannot be held
liable for company losses, or debts and business credit, and their personal
assets (such as a house or car) cannot be recovered by the debtors.
LLCs have the freedom of selecting any form of profit distribution, which does
not have to be in the ratio of the ownership between different members.
LLCs do not have a legal requirement to conduct formal meetings, maintain
minutes of the meeting, or record resolutions.
Benefits similar to a corporation are available without going through any
incorporation formalities.
Pass-through taxation principles apply and the company itself is not taxed
unless it opts for being treated as a regular corporation. All business profits,
losses, and expenses are accounted for by its individual members. Members
have to show the earnings in their individual tax returns and accordingly pay
taxes. This allows the avoidance of double taxation by way of corporate tax
payment along with the individual income tax.
 Disadvantages of an LLC
While the advantages largely benefit most small businesses, certain aspects of an
LLC can prove to be disadvantageous. This is especially true for larger organizations.
Some of the disadvantages of an LLC are:
LLCs have a limited life and are usually dissolved when a member dies, or if the
company faces bankruptcy.
LLCs cannot go public, as there are no shares or shareholdings. For the same
reason, issuing shares to employees through stock options is not possible.
Even though the paperwork and the complexities associated with LLCs are
significantly less than those required for forming a corporation, its formation is still
substantially more complex than a partnership or sole-proprietorship.
In most states, an LLC can be created simply by filing the "articles of organization"
and paying the required filing fee. This document is also known as a "certificate of
organization" or a "certificate of formation". Some states have an additional
requirement of publishing an intention to create an LLC in a local newspaper.
Another part of forming an LLC is the operating agreement, which is not
compulsory in most states, but is highly recommended. This document explicitly
 Definition of Company Profile
Concise description which, among other items of information, includes
(1) firm's history,
(2) number and quality of its human, financial, and physical resources
(3) organizational and management structure,
(4) past, current and anticipated performance, and
(5) its reputation, and the standing of its goods or services.
 Characteristics of a company
1.It is a separate legal entity: Salomon v Salomon & Company : held that It is the feature of company that
company is not just association of persons but it has separate legal entity different from its shareholders.
a)Pyush Raj Pande vs Kathmandu Revenue Office; b) Vijaya Kumar Dugad vs Industry Development
Board
2.It has a perpetual succession & shelf-administered body (s. 7):[State ex rel. Walker v. Payne, 129 Mo.
468 (Mo. 1895)]: perpetuity gained by registration; [Solem v. Port Authority Transp. Co., 1987 U.S. Dist.
LEXIS 10585 (E.D. Pa. Nov. 13, 1987)]: perpetual & intangible.
3.It has a separate property
4.It has a capacity to sue and being sued
5.It has a common seal
6.Its members have Limited Liability (s.8); A Private Company shall add the words “Private Limited’’ (s.10)
& limited for Public Company.
7.Its shares are freely transferable
8.It has several other advantages: apart from above advantages available to a company, it enjoys several
other advantages as well, such as,
9. Social Objective
10.Voluntary Association
 Characteristics of a company
8.Social Objective
The present view as regard the legal nature of Company Law is that the
Company is a social institution having duties and responsibilities toward
the community, its workers, the national economy and progress.
9. Voluntary Association
A company is an association of many persons on a voluntary basis.
Therefore a company is formed by the choice and consent of the
members.
Characteristics of a Company: Vijaya Kumar Dugad vs
Industry Development Board-separated legal & perpetual
entity
Held:
•“Both the companies are separate and independent perpetual corporate body and they are
not deemed to be subsidiary or successor to each other;
•Legally, a company may acquire or dispose the property by its name;
•All the property is not sold, only the corporeal property has been sold but not the whole
business therefore it is deemed that company ownership is not conveyed or transferred;
•It is deemed that the shareholder and director of the first company the shareholder and
director of the second company.”
•“Both the companies are separate and independent perpetual corporate body and they are not
deemed to be subsidiary or successor to each other;
•Legally, a company may acquire or dispose the property by its name;
•All the property is not sold, only the corporeal property has been sold but not the whole
business therefore it is deemed that company ownership is not conveyed or transferred;
•It is deemed that the shareholder and director of the first company the shareholder and
director of the second company.”
 Continuation of Characteristics of a company
a)a company has an autonomy and independence to form its own policies
and implement them in accordance with the provisions contained in its
memorandum, articles of association and the companies Act;
b)a company attracts professional management and thus helps in
promotion of professional management and efficiency;
c)a company the privilege of collecting interest free money from the
public, for its business, by making a public issue or through private
placement of share and other securities;
d)the restrictions, with certain exception on the purchase of its own
shares by the company, provide performance of capital collected and
stability to the company and protection to some extent to the creditors of
the company. In Nepal, by-back can be done only out of the bonus amout.
 Difference BTN a Company & Partnership
Partnership Company
Simple Organizational Structure Complex Organizational Structure
Low Startup Costs High Startup Cost
Liabilities Upon Members Liabilities of the Company
Taxation did on Individual Members Taxes did on the company and members

One cannot transfer shares One can easily transfer shares

End upon death, insanity, and Can exist for a long time
insolvency of a member
Summary of Partnership and A Company
Both company and partnership are forms of business
ownership, which are adopted around the world with
individuals preferring different ownership methods
concerning the benefits associated.
It is also worth noting that people forming a partnership are
referred to as partners between two or more than two
while owners of the company are referred to as
shareholders and should not be more than 100 in a private
company and seven to unlimited in a public Company as to
the Nepalese Companies Act 2063 as amended.
 Kinds of Company
There are many kinds of companies. Yet following are some
important from the subject point of view.
1.Private company
2.chartered company
3. public company
4.statutory company
5.registered company
6.holding and subsidiary company
7.government company and
8.foreign company
 Chartered Company
A chartered company is an association with investors or
shareholders and incorporated and granted (often exclusive)
rights by royal charter (or similar instrument of government) for
the purpose of trade, exploration, and colonization.
Chartered company, type of corporation that evolved in the early
modern era in Europe. It enjoyed certain rights and privileges and
was bound by certain obligations, under a special charter granted
to it by the sovereign authority of the state, such charter defining
and limiting those rights, privileges, and obligations and the
localities in which they were to be exercised. The charter usually
conferred a trading monopoly upon the company in a specific
geographic area or for a specific type of trade item.
 Public companies
Subject to the proviso to Sub-section (2) of section 3 of the Companies Act 2006,
the number of shareholders of a public company shall be seven in minimum and a
maximum of any number.
A public company, on the other hand, is a company that has sold a portion of itself
to the public via an initial public offering of some of its stock, meaning
shareholders have claim to part of the company's assets and profits. It is necessary
of the disclosure for the financial information in case of the public company.
Public companies are those businesses owned by individuals (and not by a
government). If a public company is a corporation whose stock is traded on a stock
exchange it is said that the stock is publicly traded or that the company is a
publicly-traded corporation.
Minimum 1 Crore Rupees paid-up capital in Nepal. (s.11.)
No. of Members- 7 to Unlimited.
 Private company
As to the Companies Act 2006, the number of shareholders
of a private company shall not exceed fifty.
A Private Limited Company cannot offer shares for sale on
the stock market, whereas a Public Limited Company can.
All limited companies must be registered at Companies
House. All limited companies should submit an 'Annual
Return' to Companies House each year as well as their
annual accounts.
Membership- not more than 100 in number.