277423563 Summary of Company Act 2063 Nepal PDF

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1. INTRODUCTIONIn 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[ CITATION bus15 \l 1033 ]. Hence, Company Act is all about the law governing the starting, management and closi...

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1. 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[ CITATION bus15 \l 1033 ]. 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. [ CITATION Shu06 \l 1033 ]. 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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a. 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. b. Seven promoters are required to start a public company except for when another public is one of the promoters. c. 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. The Office of Company Registrar must provide the applicant with a Company Registration Certificate if the application is made lawfully. There are certain clauses that give the Office the right to refuse registration under certain grounds described in these sections. 3. 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. The promoters when applying for the incorporation should submit Article of Association and Memorandum of Association. These two documents are probably the most important documents that direct the company. 3.1. 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. It is the identity of the organization as it provides the name of the company, address of registered office, figures of authorized capital, share capital and the figure to be paid nu the promoters as their contribution. 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. Some matters described in the AOA are: 

Procedures for general meetings

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The board structure and the tenure of the directors 2

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Required subscription of shares to become a director

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Qualification and number of independent directors

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Power and duties of the board of directors etc.

3.2. Meetings The MOA and AOA are synonymous to the constitution of the company. They provide the direction and lay the basic foundation for operation of the company. But the continuous management of the company is more important. For that the owners need to get involved in the decision making process. However, as the number of the owners/shareholders can be very large, not all can or would want to participate in the day to day management of the company. Hence, they meet at certain intervals to discuss the progress the company has made. These are done through the General Meetings. The Company Act 2063 describes two types of general meetings: Annual General Meeting and Extraordinary General Meeting. 3.2.1. Annual General Meeting Annual General meeting may be of two types – First Annual General Meeting and Annual General Meeting. Every public company, after receiving license for operating business needs to conduct its First General Meeting within one year, which shall be followed by subsequent Annual General Meetings within 6 months of completing every fiscal year. The Company Act 2063 also prescribes the procedure for call of the AGM, Discussion and Decisions at the AGM, Legality of the Meeting, Quorum, Operation of AGM, Voting rights etc. Every public company needs to submit the details of AGM within 30 days including the number of shareholders present, annual financial statement, reports of director and auditor and the decisions made by the meeting to the Company Registrar’s Office. 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. 3.2.2. Extra Ordinary General Meeting Every general meeting other than the first and the Annual General Meetings are called the ExtraOrdinary General Meeting. 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. An Extraordinary General Meeting can also be called by the Board of Directors or on the request of the Auditor. The Act also allows shareholders holding 10%of the paid up capital or 25% of the total 3

shareholders (in number) to request an Extra-Ordinary Genera Meeting to be called by following certain procedures prescribed in the Act. Extra-Ordinary General Meeting is distinct from the AGM only in the way it is called rather than the power and process. Meetings are where the decisions are made. These decisions are usually made through democratic processes or voting. The issues that are proposed for decision are called the resolution. Ordinary resolutions are those that require a majority vote to pass. Special resolutions are those that need two-third of the total votes to be approved. Increment of authorized capital of the company, reduction of share capital, 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, amendment of AOA, liquidation of company etc. are some issues which are to be presented as special resolutions. 3.3. Directors and the Board of Directors As discussed earlier, not all shareholders can or would to get involved in the day to day management of the company. They elect their representatives who run the company on their behalf. These representatives of the shareholders are called the directors. Hence, 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. Directors are appointed as provided by the AOA of the company. 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. Usually anyone appointed by the general meeting can be a director provided that the person is aged more than 21 years, has a sound mind, has not been declared insolvent, has not been convicted of an offence of corruption or other morally degrading offence. Their tenures are as described in the AOA and for public company the tenure cannot exceed 4 years. The board of directors is the apex management body of the company and provides the strategic decision to it. So, the board has to sit down for meetings to decide on the major issues concerning the company. The board meetings in a private company will be carried out as per the provisions in the AOA. Public companies need to have a minimum of 6 board meetings in a year

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with the interval between any two meetings not exceeding three months. A minimum of 51% of the total board members need to be present to make the meeting legitimate. All meetings need to be properly documented with the use of minutes.

4. CLOSING DOWN OF THE COMPANY Usually companies are deemed to have an infinite life. However, there might be situations where the company needs to formally stop its transactions by ending the legal status. This is called the winding up or liquidation of the company. Liquidation means to sell all the assets of the company, paying to all who have claims over the assets of the company including creditors and shareholders and closing the company down. 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. 4.1. Voluntary liquidation of company Unless otherwise provided by the Insolvency Act, the shareholders of the company, by passing a special resolution can dissolve the company if it is: 

Able to pay debt or any other liability

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Not declared insolvent

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Able to pay all the liabilities within one year

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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 liquidator shall be a licensed practitioner. 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. Finally all the assets of the company are sold, the proceeds are used to pay off the debt and the remaining amount, if any, are returned back to the shareholders. 4.2. Winding up by the Company Registrar’s Office It is also called compulsory winding up or the cancellation of registration of the company. The Company Registrar's Office can dissolve the company in the following circumstances.

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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.

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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.

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If the Office believes that the company is not in existence any more.

4.3. 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, and this claim is deemed true. 5. 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. Therefore, it should be able to address the actual and future needs of business. 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. Theoretically, this Act is sound and compatible with the contemporary requirements. It has been prepared on the basis of the experiences in the national as well as international markets. The only problem, as with any other act or law of the country is in its implementation.

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