Incorporation of Company: s.10.

Terms to be abided by
Company
An company incorporated under this Act shall abide by the
following terms, in addition to those set forth in this Act,
memorandum of association or articles of association:
(A) The company shall carry on all of its activities and
transactions by its name.
(B) A private company shall add the words “private limited’’
to its name as the last words and a public company shall add
the word “limited” to its name as the last word.
Provided this provision shall not be applicable to a
company not distributing profit.
 Continuation of s.10
(C) Private Company shall not sell the shares and debentures openly.
(D) The Private Company shall not transfer its ownership of securities without
fulfilling the process of MOA, AOA, or Agreement of Consensus to any one
except the shareholders.
(E) The company shall not open any partnership or private firm.
(F) Except any thing else written otherwise in this Act, the non-profit company
shall not distribute dividend to its members (shareholders) or shall not make
any payment directly or indirectly to its members or their nearest relatives.
 Kelner v Bexter (1886) L.R. 2 C.P.174
A hotel company was about to be formed and promoters signed an
agreement for the purchase of stock on behalf of the proposed company.
The company came into existence but, before paying the price, went into
liquidation. The promoters were held personally liable to the plaintiff.
Further, an agent himself may not be able to enforce the contract against
the other party. So far as ratification of a pre-incorporation contract is
concerned, a company cannot ratify a contract entered into by the
promoters on its behalf before its incorporation. The reason is simple,
ratification can be done only if an agent contracts for a principal who is in
existence and who is competent to contract at the time of the contract by
the agent. This case suggests that terms of the incorporation has to be
fufilled before or for the incorporation of a company or for the validity
of the function of Co.
 Incorporation of Companies
Company is an artificial person created by following a legal procedure. Before a
company is formed, a lot of preliminary (प्रारंभिक) work is to be performed. The
lengthy process of formation of a company can be divided into four distinct stages :
(I) Promotion (संस्थापन) – Promoters (संस्थापकहरू) shall initiate the process of
Promotion;
(ii) Incorporation or Registration (दर्ता);
(iii) Capital subscription (सदस्यता); and
(iv) Commencement of business. However, a private company can start business as
soon as it obtains the certificate of incorporation. It needs to go through first two
stages only.
The reason is that a private company cannot invite public to subscribe to its share
capital. But a public company having a share capital, has to pass through all the
four stages mentioned above before it can commence business or exercise any
borrowing powers (Section 149).
 Continuation of s.10. Terms to be abided by
Company
(c) A private company shall not sell its shares and debentures
publicly.
(d) A private company shall not pledge, or otherwise transfer title
to, its securities to any person other than its shareholder without
fulfilling the procedures contained in the memorandum of
consensus agreement,
(e) A company shall not open a partnership or private firm.
(f) Except as otherwise provided in this Act, a company not
distributing profits shall not distribute dividends among its members
or pay, directly or indirectly, any amount to a member or his/her
close relative.
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