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History of Company Law Development of Company Law in England  It is argued that The Development of Company Law was started from England.  The terms separate personality; limited liability and perpetual succession were developed in England before 17th century.  England is the birth place of develo...

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History of Company Law 1. Development of Company Law in England    

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It is argued that The Development of Company Law was started from England. The terms separate personality; limited liability and perpetual succession were developed in England before 17 th century. England is the birth place of development of company law. The word ‘corporations’ are not novelties. Corporations were known as institutions since very ancient date. Development First Phase Before 1720 AD Even in ancient period there were a lot of institutions having separate legal personality in England. These institutions were incorporated through the Crown Charter. There were some institutions in trade or business sector. Such institutions were known as “Guilds of Merchant’’. “Guilds of Merchants” were not actually legal personality but some guilds of merchant were recognized by the crown charter. Such guilds of merchant had legal personality as modern company, but the word company had not used for such guilds of merchant. Use of the term ‘Company’ The traders, who generally traded in abroad, used the word ‘company’. East India Company was established in 1600A.D to provide trade monopoly in India. There was no clear distinction between unincorporated partnership and incorporated company. Second Phase 1720 to 1825 AD First Company ActIn 27 April 1720, the Bubbles Act 1720 was enforced to prevent the cheating in the name of company. This Act prohibited the companies of not having royal charter.

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Enterprises such as banking, insurance, irrigation, canals construction and water supply were permitted to be incorporated in the form of company. Deed of settlement was developed by lawyer presently known as Memorandum of Association. The term limited liability, separate personality were developed. Third Phase After 1825 to 1855 AD Trading Company Act 1834. Companies could be incorporated without Charter. Chartered Company Act 1837 Joint Stock Company Act 1844 differentiated between Partnership and Joint stock Company. Limited liability Act 1855.

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Modern Company law 1855 to present time Limited liability Act was repealed by the new Act named Joint Stock Company Act 1856. The term MOA, AOA, Capital are defined clearly Companies Act 1862 Companies’ Winding- Up Act 1890 Directors Liability Act 1890

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Companies Act 1965 Companies Act 1989 Companies Act 200

Features of Company The most distinguishing features of company are as follows; 1.             

Separate Personality or Distinct Personality or Legal Personality Company will have separate legal personality after its incorporation Other enterprises like Partnership, Proprietorship have no separate legal personality Personality different and distinct than shareholders or member. Distinct personality is the main feature of company. Other features are the outcomes of this main feature. No material existence but separate personality. Section 7 of the Companies Act 2063 B.S - “Company to be body Corporate”. An autonomous and corporate body with perpetual succession. Company may acquire, hold, sell dispose of, or otherwise deal any movable and immovable property like an individual. Company may sue and be sued like an individual. Company may enter in to a contract and exercise the rights and perform the obligation as referred to in such contract. Different than shareholders/ members after its incorporation. Common seal. The concept of separate or distinct personality originated from these cases in different time - Saloman V. Salomon and Co. at the end of 19th century( See; Company Kanoon of Bharat Raj Upreti) - Piush Raj Pandey v. Tax Office Kathmandu(D.No 1857,NLJ 2040,)( See; Company Kanoon of Bharat Raj Upreti) - Bijaya Kumar Dugar V. Industrial Promotion Board (D.No 7401 NlJ 2061)( See; Company Kanoon of Bharat Raj Upreti) -

Abdul Hok V. Das Mal (1910 19 IC 595)( See; Company Law of Ashok K Bagrial) Leeand Lee’s Air Farming ltd (1960 3 All E.R.420)( See; Company Kanoon of Bharat Raj Upreti)

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Company has a legal entity distinct from and independent of its members.

2. Limited liability  One of the important advantages of company is that liability of its member’s is limited.  The creditor can recover their money only from company, not from individual behind the company.  Shareholders are not liable to pay the debt personally dues. This is very limited liability nature shareholders. Only, company is liable to pay not the shareholders.

of company’s

 Actually limited liability for only its shareholders /members, not for the company.  The shareholders are only liable for the value of their share. 2

 Shareholders liability is limited within the extent of maximum value of their shares amount.  If any shareholder paid the nominal value of its share his liability is nil. But in the proprietorship and partnership firm they are not free from this liability they are individually liable.  Section 8 of the Companies Act. 3) Perpetual Succession (Permanent Existence) 

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Section 7(1) of the Companies Act 2063 states about this feature. -A company shall be an autonomous and corporate body with the perpetual secession after its incorporation. Company shall carry on all of its activities and transactions by its name. (Section 10 (a) of the Companies Act) Natural persons have age and certain period for fix time but no for company. Company cannot be ended without fulfilling legal procedure determined by law. Without dissolution company cannot die. L.C.B.Gower-

“The death of members leaves the company unmoved. Members may come and go but the company can go on the forever.’’(Davies Paul L, Gower and Davies’ Principle of Modern Company law 7 th Edition, Sweet& Maxwell London) 

During the World War- II, All members and their employers of one AmericanPrivate Company, were killed by a bomb while they were in a general meeting, but court declared that company can survive even in this situation. Not even a hydrogen bomb could have destroyed a company. - K/g meat suppliers (Guildford ) ltd .Re 1966 (Ashish Adhikary& Sudeep Gautam; Business Law in Nepal p.no 269)

-Perpetual succession leads stability and long life to a company as compared to other forms of business organization. In Re Neel Tedman Holding Pvt. Ltd Only two members were killed in a road accident, the Company was held could operate even after their death.(Ashish Adhikary & Sudeep Gautam; Business Law in Nepal)    4.) 5.) 6.)

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Only the shares are traded withdue the process, not the company –sec 42(1) (2) Corporate life of company never ends without following particular legal formalities. Even OneMan Companycannot be ended after the death of the shareholder. It can end by the legal procedures. Incorporated Association Section 2(a)&3, 4, 5,6&7 of the Nepalese Company Act Common Seal Sec 26 Transferable Share -as movable property Sec 42, 43 Capacity to sue and being sued Sec 7(3) of the Company Act (Bed Krishna Shrestha v. Govinda Krishna Shrestha; Kanoon Bibarnika, 2041,Year 2 p. 13) Legal capacity to enjoy property right - Sec 7(2) of Nepalese Company Act - Purshotam Aacharya v. Boris Bar & Restruant pvt. Ltd (NLJ 2044 p.934 Decision No. 3206) Management of representatives - Sec .86, 87 of Nepalese Company Act 3

“Board of Directors are the brains and the only the brains of company, and does act only through them’’Bates V. Standard land 1910 2 Ch. 408 at p.16 10.)Registered Office - Section 4, 5,6 &10(a) & (b) of Nepalese Company Act Lifting (or Piercing) the Corporate Veil  An exception of distinct personality.  Concept of ‘piercing the corporate veil’ describes legal decisions where a shareholder, member or director of a corporation is held liable for its debts or other liabilities.  Generally, corporation is liable, but exceptionally, in the course of delivering justice the members or shareholders are liable.  This doctrine is known as disregarding of corporate entities.  The phrase ‘disregarding of corporate entity’ relies on metaphor of a ‘veil’ or ‘legal fiction’.  The doctrine is generally used in cases where liability is found but corporation is insolvent. Lifting the corporate veil-(Exception to corporate personality)  Disregarding of corporate entity.  The principle of separate personality was established in a famous case of Salomon v.Salomon &Company.  It is a fundamental principle of company law that company has distinct personality.  There is a veil drawn between the company and its members. -as per this principle typically, courts in most cases refuse the separate personality, go behind the curtain and see who are the real persons composing the company, but sometimes necessity of situation come to the courts or authorities to disregard the corporate legal entity and look to individual members who are in fact the real beneficial owner of all corporate property, and this is fact known as lifting or piercing the corporate veil.  If the veil is lifted, individual members are held liable for acts or entitled to its property. -

Grounds for Lifting the Corporate Veil 1. 2. 3. 4.

For securing justice. For the benefit of revenue Separate legal entity is general rule and lifting the veil is an exception. Statutory provisions for applicationlifting the corporate veil; Section 24,120(3),121,122,123,124,163,160(a),160(b),160(m),160(e),160(f),1609(g),160(h),160(i)160(l),161(a),! 61(b),95(4),161(w),80,81,160(n),114,161(c),47,160(x),160(z),141,175,160(j), 160(A),160(P),160(Q),160(r),160(t),138-139 etc. of the Companies Act 2063 BS.

Use of Lifting the Corporate Veil on the basis of the Principles Developed by Courts; 1) To determine the enemy character or residency relation.( See; Company Kanoon, Bharat Raj Uprety) Daimler v. Continental Tire&Rubber Co.) 2) To determine group of companies(Agency Relation)( See; Company Kanoon, Bharat Raj Uprety) 3) In case of Fraud or Misconduct ( See; Company Kanoon, Bharat Raj Uprety) Gilford Motor Co. V Horne 4) For revenue purpose.( See; Company Kanoon, Bharat Raj Uprety) Income tax Commissioner V. Sri Meenaxshi Mills  A legal decision where a Shareholder or director of company is held liable for debts or other liabilities of company.  General principle is that shareholders are immune from suits. Only the company is liable but piercing the corporate veil is an exception.

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Factors to consider the doctrine of disregarding corporate entity Inaccuracy of corporate records. 4

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Concealmentor misrepresentation. Failure to maintain arm’s length relationships with related entities. Failure to observe the corporate formalities in terms of behavior and documentation. Failure to pay dividends. Intermingling of assets of corporation and of the shareholders. Manipulation of assets or liabilities Non- Functioning corporate officers and directors. Other factors the court find relevant. Siphoning of corporate fundby the dominant shareholder(s). Treatment for individual in terms of assets of corporation as his/ her own; Alter ego

Legal Modalities of Business Enterprises  No need to register company for all type of business enterprises.  There are so many modalities, determined by law to run business or enterprises.  Any person desires to establish or run any business s/he is entitled to register such business under law otherwise that become null and void.  Basically there are two types of investment in any business; government investment enterprises and private sector investment enterprises.  The Companies Act 2063 BS, Partnership Act 2020BS,Private Firm Registration Act 2014 BS, Cooperative Act 2048 BS are the Acts ,that regulate the private investment enterprises.  Corporation Act 2021BS, Communication Corporation Act 2028BS, Development Board Act 2013BS, Water Corporation Act etc. are the Acts that regulate the government investment enterprises.  But presently,there are so many government companies, established under Nepalese Company Act. Government Investment Enterprises  Corporation Act e.g. Nepal Food Corporation  Nepal Electricity Authority Act 2021,NEA  National News Board Caste Act 2019,(Rastriya Samachar Samittee)  Gorkhapatra Sansthan Act 2019 Gorkhapatra Sansthan  Development Board Act2013;Melamchi Drinking Water Development Board  Under Nepalese Company Act; National Trading Ltd ,Nepal Telecom etc.

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Available Modality for Private Sector The determination of business modality depends upon the nature, volume of investment, number of investment, numbers ofinvestors and size of business. If few family members or group of close relatives desire to run any business they are require to register private company. If single person desires to run small nature business s/he is required to register private firm or proprietorship under Private Firm Registration Act 2014. If some friends jointly want to run small business they are required to establish partnership firms or private company. If some people jointly want to run a business on huge investment they are required to establish public ltd company. If any persons are interested to run social or charitable business enterprises, they are required to establish profit not distributing company. If any persons have not the aim to making maximum profit but they want the sustainable economic progress of them, they are required establish co- operative within their territorial locality. Public company, not below than 7 persons, for collection of fund from public sector. Available Enterprises modalities in Nepal 5

Proprietorship Firm;    

Private Firm Registration Act 2014 One person as a proprietor The proprietor’s personality is attached with firm. Unlimited liability

Partnership Firm    

Partnership Act 2020. Two or more than two partners No distinct personality (Unlimited liability) Different authorities for registration and regulation, same as proprietorship firm.

Co-Operative Ltd    

25 member minimum For the members’ welfare and economic and sustainable progress Registration in Dept. of Co-operative and co-operative offices within particular territory; jurisdiction. Co- Operative Act 2048BS and Co-Operative Rules 2049 BS.

Company;      

For trade, industry, profession or other transaction. Corporate body established under the Companies Act 2063BS. Widely accepted modality. Distinct or separate personality after incorporation. Promoters, shareholder and member. This modality has been popular due to nature of limited liability,separatepersonality etc.

Types of Company There are so many basis to determine the classification of company. Basis may be function of company, may be objectives of company and may be form of company. Basis; a. Function/Objectives - Profit making company and profit not distributing company. b. Responsibility of shareholders in terms of company’s liability - Limited liability company - Unlimited liability company - Guarantee company All companies are supposed as limited liability Company in the context of Nepal as per the provision of the Companies Act 2063.But in UK and India, there may be unlimited liability company. c. Country of incorporation - Foreign company - National company d. Basis of profit sharing - Profit-sharing and profit not - sharing company e. Mode of capital formation - Public company& Private company 6

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Modality of control - Holding & Subsidiary company

g. Investments byGovernment or Private sector. - Private company/Government Company/Public Company But generally, there are following types of companies;       

Guarantee andUnlimited company Private company Public company Company not distributing profit. Government company Foreign company Holding and subsidiary company Guarantee and Unlimited Company - On the basis of liability to be beard - Generally, non-trading companies are formed with a guarantee of liability. A company limited by a guarantee of its members. Such companies are formed for the promotion of art science,culture and sports etc. Such company may be registered with or without share capital. - The article of association shall state the numbers of members with which the company is to be registered section 27(2) of Indian company Act. - Section 13 (3) of the Indian company Act providesmemorandum of company limited by guarantee; following things shall be mentioned, + Payment of liabilities of company or of such debts to the extent of particular limitation + Payment of costs, charges and expenses of winding up + Adjustment of right of contributories among themselves, such amount may be required, not exceeding a specified amount. The liability is already guaranteed, not exceeding a specified amount; -No Shareholders, only members -No guarantee company under the Companies Act 2063 of Nepal

Unlimited Companies;  Section 12 (2) (C) of Indian Companies Act 1956- two or more persons may form or incorporate company with or without liability. The members are liable for the company’s debts in proportion to their respective interests in the company. The members’ liability is unlimited –There is no share capital.  Section 27 (1) of Indian company Act 1956 - The AOA shall state the numbers of members with which the company is to be registered. Though inthese days such companies are very rare. Private Company On the basis of the numbers of shareholders, size of capital and mode of capital formation. – Section 2(b) of the companies Act 2063 B.S, of Nepal any private company incorporated under this Act. Section 3(1) (iii) of the Indian Company Act states that a private company means a company which has minimum paid up capital of Rs. One lakh or such higher paid up capital as may be prescribed by its Articles of Association. -The nature of private company can be understood from section 3(1) , 9,10, and chapter -14 and 15 of the Companies Act 2063 B.S.. -The minimum number of shareholder of private company shall be one and the maximum numbers of shareholders shall not exceed 50. 7

- Company Act 2063.Section9 (1) –The numbers of shareholders of a private company shall not exceed 50. -Section 9(3)-- If any employee purchased a share of a company under a scheme of selling shares to its employees or any employee who has already purchased a share under such scheme but is not in service of company for the time being shall not be countedshareholder. -As per section 10(b) of the companies Act 2063 BS.- A private company shall add the words Private Limited to ita name as the last word. Public company only ‘limited’ . -However, the profit not distributing company has no compulsion to add pvt.ltd. and ltd. -Section10©-Private companyshall not sell its shares publically. -Section10 (d) –Aprivate company shall not pledge or otherwise transfer the title to, its securities to any person other than its shareholder without fulfilling the procedures consensus agreement. –Section 145- “Special provision relating to private company regarding Consensus Agreement” -Section 145(h)- Provision relating to no board of directors. -Section 148- Holding of annual general meeting not required, If the consensus agreement is concluded in this regard. -Section 150- Deemed participation in general meeting. Communication contract -Hearing, reading and speaking is same as participation (Video Conference Meeting) -No need to be physically presence. -Section 42 (2)-Restriction on sale or pledge of shares or debentures.(Private company may put the provision of restriction clause regarding transfer of in MoA, AoA, and Consensus Agreement) -No need to take prior permission from company register office to run business. Section 63(1) is for only public company. -No need to publish the prospectus publicly. Section 23 is for only public company. The private company can be divided in to two ...