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
(businessdictionary.com). 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. (Shukla, 2006).
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
simplicitys 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

The board structure and the tenure of the directors
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Required subscription of shares to become a director

Qualification and number of independent directors
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 Registrars Office. Private companies need to submit an auditors 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
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Auditor. The Act also allows shareholders holding 10%of the paid up capital or 25% of the total
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
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provisions in the AOA. Public companies need to have a minimum of 6 board meetings in a year
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 courts 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

Not declared insolvent
Able to pay all the liabilities within one year
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 Registrars 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.

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.
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.

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.