PART A: COMPANY INCORPORATION AND CAPITAL STRUCTURE

MEANING AND TYPES OF COMPANY

A company is an artificial person created by law having its own separate legal entity and common seal to operate. In Nepal,
Company is formed and registered under “Nepal Company Act 2063”.

A company can also be defined as a association of person having same interest and objective which have its own legal
existence.

Some of the features of Company are as follows:

1. Legal Entity: A company is an artificial person and have its own separate legal entity. It can enter into contracts, open
bank account and do all business activities in its own name.

2. Common Seal: As a company it cannot sign its documents and legal papers like individual. Therefore, it uses common
seal as its signature and identity. In case a company operates in more than one place, it uses same seal as a common
identity.

3. Ownership and Management is different: Despite all the investors are the owners of company, they form a Board of
Directors between themselves to run and manage the business activities.

4. Audit of Accounts: It is compulsory for all companies to perform its annual audit and file it to the concern
government authority. This also helps company to know about its financial position.

The company can be broadly divided into two categories: (i) Private Company (ii) Public Company

1. Private Company:
Those type of company which does not allow its shareholder to easily transfer its share is called private company. It
can have minimum of One and maximum of One hundred one shareholders. It uses the term “Private Limited” behind
its name. Private Company cannot invite public to subscribe its share.

2. Public Company:
All the companies that are not private are called public company. There must be minimum of seven members to form
public company whereas maximum is unlimited. Person can easily transfer its share to other individual without any
problem. It can also invite public to purchase its share and debentures.

MEANING OF PROMOTER

Promoters are those person to initiates and perform every task to establish the company. They visualize the idea of company
and prepares its MOA, AOA and other necessary documents of a company.
MAIN DOCUMENTS OF COMPANY:

1. Memorandum of Association (MOA)

The MOA is a heart of company. Without MOA, no company can be registered. MOA is like a constitution of a
company which list out every necessary information of a company.
As per Nepal Company Act 2063, a MOA must have following content listed in it:
 Name of a Company
 Address of a Company, where it is registered
 Objectives of a company
 Amount of authorized and paid up share capital
 Number of shareholders and their details
 Terms of payment of share amount
 Restrictions, if any while purchasing of shares
 Other necessary information’s

2. Article of Association (AOA)

AOA is another useful document of a company that contains the rules and regulations of company in detail way. It
defines the approach and working strategy of a company. In short, it can be considered as a blue print for running any
kind of company.
As per Nepal Company Act, 2063, a AOA must have following content listed in it:
 Procedure for calling a general meeting
 Number of Directors and provision of alternative directors list
 Lien on shares
 Provision related to transfer of shares
 Power and duties of shareholder, board of directors.
 In case of Public company, qualification and number of independent directors.
 Provision for raising loan
 Account and audit related information and rules

3. Prospectus:
A prospectus is a document in writing to invite the public to subscribe the shares and debentures or any type of
securities issued by a company. It is like a notice, circular and advertisement that is issued for public. Prospectus help
public to get information about the company invitations.
The contents of Prospectus are as follows:
 Name, address, nature and objective of a company.
 Name, address and occupation of the directors, managing directors etc
 Date of opening and closing of invitation.
 Information regarding payment modality to accept shares and securities.
 Projected Financial statement for three years.

MEANING AND TYPES OF SHARES:

Share can be defined as a unit of ownership in any company. A person having share in a company is called as shareholder. For
any company, share amount received from the shareholder is an liability whereas for the shareholder it is an assets.

As per Nepal Company Act, 2063, a company can issue two types of shares:

(i) Equity Share and (ii) Preference Share.

EQUITY SHARE:

The Share that does not hold any special privilege and priorities is called as equity share capital. Equity shareholder cannot get
the arrears of past year dividends however they enjoy the voting rights. Equity shareholder are the last man standing in the
company in case the company get liquidation. They have right to elect directors of the company. They also get benefited from
the residual profit of a company.

PREFERENCE SHARE:

Those share that holds right on dividend and refund of capital are called preference share capital. The rate of dividend is fixed
in case of preference share however they don’t have voting right and cannot elect the directors of a company. They also cannot
get benefit from the residual value of the company. Their priority in the settlement of the company comes before the equity
shareholders.

TYPES OF SHARE CAPITAL:

Share Capital are broadly divided into six different types as mentioned below:

 Authorized Capital
The maximum amount of capital that any company can raise and issue is called authorized share capital. If the
company wants to issue more amount than the authorized share capital, it has to amend the share capital through
Memorandum of Association, then only it can change it.

 Issued Capital
Issued share capital is the part of authorized share capital that it offered to the public. The company issue the
invitation with the help of prospectus and public can accept the invitation for the same.

 Subscribed Capital:
Subscribed capital is a part of issued capital that a public actually accepts for. For example, if a company issued 50,000
shares of Rs. 100 each and public accept only 40,000 shares then that 40,000 share of Rs. 100 each is called a
subscribed capital.

 Called up Capital:
Called up capital is a portion of amount that company receives from the person who subscribed its issued capital. For
example, in above example of subscribed capital, out of Rs. 100, the company ask for Rs. 40 only for now as first
installment then the total amount collected Rs. 16,00,000 ( 40,000 shares * Rs. 40) is known as called up capital.

 Paid Up Capital:
Paid up capital is a part of money that is received from the called up capital. For example, out of 40,000 shares, only
38,000 shares money were received. Then such money received out of 38,000 shares in called paid up capital. The
money that is not collected is called as calls in arrears.
It can be simply understood as: Called up capital – calls in arrears.

 Uncalled Capital:
The part of subscribed capital that is yet to be called for second or more installment is called uncalled capital. The
company can call for this amount any time in future when they need it.
MEANING OF OVER SUBSCRIPTION AND UNDER SUBSCRIPTION:

OVER SUBSCRIPTION of SHARES:

Over Subscription is a condition where public applies for more number of shares than company actually invites for. For
example: A company invites application for 10,000 shares and public applies for 12,000 shares. Here the excess of 2,000 share is
a condition of over subscription.

UNDER SUBSCRIPTION of SHARES:

Under Subscription refers to the amount which must be raised by the company to meet the necessary condition. If the
minimum subscription is not received, company cannot allot the shares. For example, if a company invites application for 5,000
shares and public applied for only 4,000 shares, this condition is called under subscription of shares.

MEANING OF CALLS IN ARREARS AND CALLS IN ADVANCES:

CALLS IN ARREARS:

Calls in arrears is a condition where a shareholder fails to the pay the amount that he/she has to pay the company against
his/her share. Let say, the value of ordinary share is Rs. 100 per share. A shareholder pays application money of Rs. 20,
allotment money of Rs. 50 but didn’t pay the call money of Rs. 30 then in such case, his arrear amount will be Rs. 30, which he
didn’t pay to company.

CALLS IN ADVANCES:

Calls in advance is a condition where a shareholder pays the e money of shares he/she subscribed for before the company calls
for it. Let say, the value of ordinary share is Rs. 100 per share. A shareholder pays application money of Rs. 20, allotment money
of Rs. 50 and also pays the remaining Rs. 30 at the time of allotment then such excessive amount of Rs. 30 is called as calls in
advance money.

MEANING OF FORFEITURE OF SHARES AND REISSUE OF SHARES:

FORFEITURE OF SHARES:

The condition of forfeiture arises when any shareholder fails to pay the allotment or call money asked by the company. In such
case, Company removes the name of shareholder from the member register list. The allotment is then cancelled and the
amount paid by shareholder is forfeited.

REISSUE OF SHARES:

When the shares are forfeited, it again issues those shares to meet their capital requirement. Such process is called as reissue
of shares.

MEANING OF DEBENTURES:

Debentures are debt instrument that is issued by a company to achieve its business objectives and carries a nature of long
term. In other word, debentures are a promise note of debt issued by a company to raise extra capital for its business. While
issuing debenture, company shall indicate its rate of interest, maturity period and principal amount.