Kathmandu University School of Management

Balkumari, Lalitpur

Assignment II
Law of the company

Submitted By:
Anamika Shakya
Roll Number: 18785
Section: C
BBA Year II

Submitted To:
Advocate Hem Raj Pokhrel Upadhyaya
Faculty of Business law
KUSOM
1)Introduce Company with the concept of Limited Liability.

Answer:

A company can be defined as an association of natural or legal persons or a

mixture of both being registered in the authority as separate legal person with

limited liabilities. A company is a corporate body consisting of legal person also

known as the artificial person.

A company is essentially known as an artificial person which is also known as

corporate body in which, it is an entity that separates from the individuals who

own, manage, and support its operations. Companies are generally organized to

earn a profit from business activities though some may be organized as nonprofit

charities. Each country has its own hierarchy of company and corporate structures

In a company, the artificial persons are created by statute, and they are also

treated like individual under the law, having legally enforceable rights, the ability

to acquire debt and to pay out profits, the ability to hold and transfer property, the

ability to enter into contracts, the requirement to pay taxes, and the ability to sue

and be sued. A company has many of the same legal rights and responsibilities as a

person does, like the ability to enter into contracts, the right to sue or be sued,

borrow money, pay taxes, own assets, and hire employees.

 A limited liability company is a legal person which is created under state law.

As an artificial person, a limited liability company has certain rights and

obligations, such as the right to do business and the obligation to obey with the

laws. The artificial persons are created by the law under the limited liability which

means by the amount of investment done in the company.

For example, if 5 crore amounts have been invested for establishment of a

company then, it is called as the limited liability under which the artificial person is

created by the amount of investment.

2.How is a company registered in Nepal? What are the requirements
of it?

Answer:

In Nepal, the incorporation of a company can be done by meeting all the

necessary requirement and by following legally important procedures. The
registration of company in Nepal is governed by the Companies Act (2063) -
“Companies Act”). The Office of Company Registrar (OCR) is the competent
authority to govern the company registration.

First of all, practical and legal documents should be prepared which should
be signed and scanned which should contain all the practical issues. Once it is
scanned, it must be uploaded so that it becomes available online.

Then an application to the Office of Registrar should be submitted with the

necessary fees along with the following important documents for the registration of
the company.

a) The Memorandum of Association of The Proposed Company is required.

b) The Articles of Association of The Proposed Company,

c) In the case of a public company, a copy of the agreement, if any, entered into
between the promoters prior to the incorporation of the company is required.

d) In the case of a private company, a copy of the Unanimous Agreement is

required

e) If prior approval or license has to be obtained from regulatory body such

approval or license is also required for example: license for the airlines can be
obtained from Civil Aviation Authority of Nepal. Similarly, license for the
insurance company can be obtained from Insurance Board.

f) Where the promoter is a Nepalese citizen, a certified copy of the citizenship

certificate is necessary to present and where a corporate body is a promoter, a
certificate of registration of incorporation, decision of the Board of directors,
regulating the incorporation of the company and major documents regarding
incorporation are required.

Likewise, for the foreigner to invest in the company of Nepal, they must follow the
meet and follow the following requirement for the registration of the company:

g) In cases. where the promoter is a foreign person or company or body,

permission obtained under the prevailing law to make investment or carry on
business or transaction in Nepal is needed.

h) Where the promoters are a foreign person, a document proving the country of
his/her citizenship is also requires

i) Where the promoter is a foreign company or body, a certified copy of the

incorporation of such company or body and major documents relating to such
incorporation are required.

After the submission of all these required documents, the documents are examined
by the OCR and once the examination is completed and all the requirement are
met, the registration of a company is completed.
3.Give Short introduction of Memorandum of Association and
Articles of Association.

Answer:

Memorandum of Association:

Memorandum of Association (MOA) is a legal document which is prepared

in the creation and registration process of a limited liability company. In Nepali
language, the Memorandum of Association or MOA is also called as ‘प्रबन्धपत्र.
It is the legal document that has to be filed with the Office of Company Registrar
at the time of incorporation of the company. It is often called as a memorandum
and is comprised of fundamental conditions on the basis of which a company
operates. MOA is the most important document to be filed for incorporation.

It contains the rights, privileges and powers of the company. So, it is called a
charter of the company. It is treated as the constitution of the company. It
determines the relationship between the company and the outsiders. The MOA is
available to the public and mainly it describes the company’s name, physical
address of registered office, names of shareholders and the distribution of shares.
The Moa serves as the constitution for the company.

Mostly, the memorandum of association must include the following matters

 The name of the company,

 The registered address of the company,
 The objectives of the company,
  The figure of the authorized capital of the company and the figure of
the share capital to be issued by the company for time being and the
figure of undertaken to be paid by the promoter of the company,
 Types of shares of the company, the rights, and powers inherent in
such shares, the value of each share and number of shares of different
types.
 Number of shares which the promoters have undertaken to subscribe
for the time being,
 Terms of payments of share amounts,
 Statements that the liability of shareholders shall be limited,
 The maximum number of shareholders in case of a private company,

Articles of Association

Article of Association or AOA is the document which contains all the rules
and regulations to run a company. It defines the overall company’s purpose. It the
document which tells what is the procedure for appointing the board of directors,
recording the financial transaction, conducting a general meeting, issuing shares
and so on. It is covering all the rules and regulations that govern the company’s
internal affairs.

The Articles OF Association shall include the matters like share capital, call
of share, forfeiture of share, conversion of share into stock, transfer of shares,
Similarly, information about the directors, their qualifications, appointment,
remuneration, powers, and proceedings of the board of directors’ meetings is also
made available in AOA. Likewise, it also includes the voting rights of
shareholders, and proceeding of shareholders general meetings are also mentioned.
Information related to dividends and reserves, accounts and audits, borrowing
powers and winding up are also included in it.

4. What is the importance of Share Capital in a Company? Write

with the types of share.

Answer:

Share capital is the money a company raises by issuing common or preferred

stock. A company's share capital is the money it raises from selling common or

preferred stock. The per unit investment of the money in a company is known as

the share capital.

There is a great importance of the Share capital in a company as it is the

source of investment in a company. For running a company there must be

investment of money in the company to conduct all the activities of the company.

Without share capital, there will be no investment in the company as a result that

company won’t be able to run and will end up to shut down the company. So, for

the purpose of running all the economic activities of the company there must be

Share capital in a company.

The share capital of a company is of two types:

1)Preferential Share Capital

2)Equity Share Capital

1)Preferential Share Capital

Preferential shares are preferential in nature. During the liquidation of the

company, the shareholders holding preferential shares are paid out first after

settling the debts of the creditors of the company. The preferential share capital

generally carries a right that gives the holder preferential treatment when annual

dividends are distributed to shareholders. However, the preferential shareholders

do not have any voting rights.

2)Equity Share Capital

Equity shares are also known as ordinary shares. The holders of

Equity shares are members of the company and they also have voting rights. Equity

shares are the vital source for raising long-term capital. Equity shares represent the

ownership of a company and capital raised by the issue of such shares is known as

ownership capital. The equity shareholders are paid on the basis of earnings of the

company and do not get a fixed dividend.

5. Introduce Board of Directors and Annual General Meeting?

Answer:

Board of directors:

The board of directors are the one who supervises, regulates, or controls the

activities and to make the important policy decisions of the company. So, the board

of directors is known as the executive body of the company which is responsible to

execute the plans, policies, budgets, programmes, mandates of the company once it

is passed by the Annual General Meeting. The board of directors can be defined as

a team or group of people who are elected by company’s shareholders in order to

represent the shareholders' welfares. The board of directors is formed to act as a

governing body that typically meets at regular intervals in order to set policies for

the corporate management. Every public, private and nonprofit company mostly

have a board of directors.

In the board of directors, a director is the head of an organization, either

elected or appointed, who generally has certain powers and duties relating to

management or administration of company. The minimum members required for

the formation Of BOD is 11.

 Talking about the duties of BOD, the BOD has to function beyond the

duties which is mentioned in the law as it is the executive body consisting of all

the information’s and it knows how to handle the company so the first duty of Bod

is the Fiduciary Duty i.e to act in good faith in the best interests of the company. It

should also show a greater degree of skill than reasonably expected from a general

person’s knowledge and experience. Similarly, it should also perform the statutory

duties like it should act according to the law, be present in the meeting, participate

in the general meeting, It should not participate and vote in general meeting which

is going to decide: his obligation for his misconduct or for his appointment,

transfer or any other matters having his interest, or in the appoint of an auditor.

Similarly, the BOD is responsible to prepare the annual account and report.

Annual General Meeting:

An annual general meeting (AGM) is a mandatory yearly gathering of a

company's interested shareholders. At an AGM, the directors of the company

present an annual report containing information for shareholders about the

company's performance and strategy. An annual general meeting, is held in order

to allow shareholders to vote on both company issues and the selection of the

company's board of directors. The AGM must be held once during each calendar

year. Generally, in an AGM, a company’s performance is analyzed and its future

strategy is discussed. The shareholders can also question the board, get answers for
unsatisfactory performance and challenge them on the direction of the company.

Similarly, votes can also be held during an AGM, allowing shareholders to vote on

company decisions, and fill any vacant positions on the board of director.

6. How does AGM control BOD? Explain.

Answer:

Annual General Meeting is the legislative and the supreme body of the
company. An annual general meeting is a mandatory yearly gathering of a
company's shareholders. At an AGM, the directors of the company present an
annual report containing the information for shareholders about the company's
performance and strategies.

The AGM holds supreme power over the Board of Directors as the AGM is
the one who passes all the plans, policies, budgets, programmes, mandates to be
implemented by the Board of Directors. The Board of directors can only execute
the plans, policies, programmes for the company only after being passed and
approved by the AGM,

Similarly, during an AGM the shareholders cam question the board, get
answers for unsatisfactory performance and challenge them on the direction of the
company. The AGM is the one who decides and allocated the budgets to be
executed by the BOD, The AGM at the same time is also responsible to appoint the
directors for forming the Board of directors and facilitate them with the required
power and authorities. In this way AGM controls the board of directors.
7. How is the Meeting of an AGM called? Mention the procedures.

Answer:

Annual General Meeting (AGM) is a yearly meeting of stockholders or

shareholders, members of company, firm and organizations. Annual General
Meeting is held every financial year and it is mandatory for everyone. There are
required steps and procedures that must be followed for calling the AGM meeting
which are described as follows:

1)Call of Meeting

The Board of directors are responsible for calling of the meeting and the notice of
the meeting must be sent to the interested shareholders, and concerned members of
the company. Prior notice and invitation should be sent by the BOD to the required
members of the company.

2)Agenda, time, venue and date:

Agenda

The second step is there must be the preparation of the agenda. The agenda
is essentially a list or outline of the information that will be covered at the AGM.
The agenda should be prepared in advance. It should consist the list the topics of
discussion to be discussed in the meeting.

Time and date:

The date for the AGM must be fixed and all the essential members should be
informed about the meeting along with the notice of the time when it will be held
should be informed to all the essential members of the meeting.
Venue:

The place and venue for the AGM should be decided and fixed and its notice must
be given to the essential members of the meeting.

3)Legality/Quorum

It refers to the required number of the participants that must be present in the
meeting as per the investment done in the company. For example, there should be a
condition made about the percentage of participation members required it can be
51 percent, 61 percent and so on.

4)Participation and Voting

The participating members include all the important shareholders, BOD, creditors,
auditors, suppliers, consultants, local representatives. The voting rights however
can be exercised by the shareholder only in selecting the new directors, or
replacing existing directors.

5)Resolution-OR, SR

In the AGM meeting, there should be resolution simply referring to discussion

related to the day to day operations like about the name, capital, objectives of the
company.

6)Discussion and Decision

In this step, the shareholders and all the participants of the meeting involve in
discussing the essential topics about the company’s performances, plans and
polices and accordingly after analyzing necessary decisions are taken by the
shareholders and the quorum.

7)Minutes

The minutes should be prepared after the completion of the meeting which
should include the information about the topic of discussion which was discussed
in the meeting along with the information of the place, venue and time at which the
meeting was held. It should mention the important details of the meeting along
with the inclusion of the number of participants in the meeting. The minute should
summarize all the important decisions that was taken in the meeting.

8)Records of Minutes for Shareholders

The prepared minute should be kept safely so that it acts as a record for the
shareholders. The minutes prepared can be examined by the shareholders for the
information purpose.

9)Submission of Records of Minutes to the Authorities

The minutes prepared must be submitted to the authority at the end which means
the record of the minute should be submitted to the Office of registrar for the
examination of the records.

In this way, the meeting of AGM is called.

8. Differentiate between Certificate of Incorporation and Certificate
of Commencement of Business.

Answer:

Certificate of Incorporation of Business

A certificate of incorporation is a legal document relating to the formation of

a company or corporation. It is a license to form a corporation issued by state

government, by non-governmental entity. An incorporate certificate for a company

is obtained when all the legal formalities relating to its registration are completed.

For obtaining the certificate of incorporation, the registration of the memorandum

of the association, the article of association and other documents are filed with the

registrar. After getting the application & documents submitted, the Registrar will

issue the Certificate of incorporation’. A certificate of incorporation is acts as a

proof the existence of a company.

Certificate of commencement of Business

The commencement of business refers to a legal document which can be

obtained after the incorporation of a business to officially start the activity of a

business.

The process of getting a commencement of business can be described in this way.

As soon as a company gets the certification of incorporation it can start its

business. Once the certificate of incorporation is received by the company, a

company issues a prospectus for inviting public to invest to its share capital. It

fixes the minimum subscription in the prospectus. The company needs to sell the

minimum number of shares mentioned in the prospectus.

After completing the sale of the required number of shares, the certificate is

sent to the registrar. If all the legal formalities are done then the registrar issues a

certificate known as ‘certificate of commencement of business.

9. Introduce liquidation and differentiate between Compulsory

Liquidation and Voluntary Liquidation.

Answer:

Liquidation of a company refers to the procedure in which a limited

company is brought to a close or by an appointed Insolvency Practitioner i.e the

Liquidator. It can be simply defined as the process of bringing a business to an end

and distributing its assets to claimants. The liquidation usually occurs when a

company is insolvent, meaning it cannot pay its obligations when they are due. As

company goes for the process of liquidation and the operations of the company

end, the remaining assets are used to pay creditors and shareholders based on the

priority of their claims.

There are mainly two types of liquidation. They are Voluntary and Compulsory

Liquidation

1)Voluntary Liquidation:

It is a type of liquidation which is not forced by insolvency and is

voluntarily decided by the owner of the company to liquidate. The voluntary

liquidation is carried out for the insolvent company. The company assets

outweigh the liability in the voluntary liquidation.

2)Compulsory Liquidation:

The Compulsory liquidations ais mostly initiated by a creditor that is

looking to force a company into closure with the help of a court order application.

The process is usually instigated with a winding up petition and once it is heard at

court, it can become a winding up order. The compulsory liquidation is done for

the insolvent companies where the liabilities is gritter than the assets of the

company.

The major difference between the Voluntary Liquidation and Compulsory

Liquidation can be explained by the following schedule:

Difference basis Voluntary Liquidation Compulsory Liquidation
Basis/ guidance It is performed according to Company act It is done in accordance to the

2063. Insolvency act 2063.

Solvency Done by solvent company Done by insolvent company
Appointment of Liquidators are generally appointed by the Liquidators can be appointed by the

liquidators shareholders the company itself through company or the court

Annual General Meeting or EOGM

Liabilities All the liabilities are paid to the creditors The liabilities might not be repaid as

  the liabilities are greater than its assets

Priority There is no prioritization in the obligation There is prioritization while repaying

  fulfillment the stakeholders of the company

 
Option/ It is optional as it depends upon the When the company faces liquidity or

mandatory company to decide whether to liquidate or bankruptcy, the liquidation becomes

  not mandatory.
The court doesn’t conduct detailed A detailed investigation process is

investigation for the liquidation process. carried out by the court to declare a

company insolvent. The court also has

a responsibility to appoint investigation

Role of court officer and liquidator for the entire

  process.
Investigation The investigation officer is not required The investigation office is mandatory.
officer