TU BBS 2nd year

8/10/2019 TU BBS 2nd year

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Unit-7

Incorporation of company and management

Incorporation of a company:-

Incorporation of a company means formation of a company by

law, section 3.1 of the Nepalese company act, 2063, reads that a

person desirous of undertaking an enter prize with profit motive

may, singly or jointly with others, incorporate with one or more

objectives as set forth in the memorandum of association.

It is clear from the provision of section 3.1 of the company

act 2063, that a singly promoter is adequate for the purpose of

establishing a private company but the provision made in section

9.1 reads that number of the. Share holders should not be more

than 50.

Likewise, as stated in section 3.2, at least 7 promoters are

required to incorporate a public company by another public

company & such number of promoter is not required to

incorporate a public company by another public company &

such incorporated company can remain as a single promoter.

But as stated in section 9.2 there is no maximum limitation of

the no. of the shareholders in a public company. So, the no. of

the promoters can be more than 7.

Moreover, according to section 166.3 of the act, in case of

company not distributing profit, at least 5 promoters are

necessary but there is no upward limit of members after


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incorporation of such company. However no. of. The members

must not less than 5.

procedures for incorporation of a company

No person can undertake any transaction through any firm or

institution using the word company under the Nepalese

company act, 2063. So, incorporation of a company are as

follow:-

1)application (section 4):-The persons desirous to

incorporate a company. Whatever private of public mustsubmit an application in the prescribed format to the office.

The following documents must be presented along with the

application:-

a)

MOA (memorandum of association) of the proposed

company signed by the subscribers.

b)

AOA(article of association) of the proposed company with

signature of the promoters.

c)

In case of a public company, the copy of the agreement

made between the promoters prior to incorporation of the

company, if any.

d)

Incase of a private company, a company of the unanimous

agreement, if any.

e)

A permission or a license required prior approval orpermission from any authority.

f)A certified citizenship certificate of incorporation &

decision of BOD, if the promoter is a corporate body.


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g)

A permission of concerned authority to conduct business in

Nepal, if the promoter is a foreign individual or a company

or an agency.

h)

In case of foreigner, the document evidential to prove thecitizen of the country.

i) Incase of body incorporated in other countries, the

certificate of incorporation & other documents of

incorporation.

2)Registration fee

At the time of submitting application, necessary fee must besubmitted to the office along with the application. The

government fixed free time to time by publishing notice in

Nepal gazette.

3)Inquiry and refusal to registration

Upon receipt of the application for incorporation of a company,

the registrar must within 15days of the receipt of the application,

investigate necessary things in respect of the application. The

registrar has a right to refuse to register a company if he finds

the followingcircumstances during the inquiry or investigation

over such application.

a)

If the name of the proposed company is identical to the

name of a company previously registered.

b)If the name or objective of the proposed company seems

contrary to the existing law.


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c)

If the name of the proposed company may create confusion

with the name of a company de-registered under this act or

declared insolvent under the existing law and 5 years of

such de-registered or insolvency has not elapsed.d)If the requirements for incorporation of the company under

this act are not fulfilled.

4)Certificate of incorporation (section 5 &10)

The registrar, after making necessary examination and finding

the application reasonable, must register the company within 15

days of the receipt of the application for the incorporation andprovide an incorporation certificate of the company to the

applicant in the prescribed format.

5)Certificate of commencement of business(section 63)

A private company generally can commence immediately its

business on incorporation. But a public company must obtain

artificer of commencement of business from the office before

commencing business. For obtaining this certificate the

promoters must submit an application to the full amount of the

shares undertaken to be subscribed by them.

meaning and legal importance of company meeting

simply, the term meeting refers to a gathering of two or morepersons at a place for discussing and acting upon some matters

in which they have a common interest.


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Dr. MM verma and R.K.agrawal defined, any validly

constituted gathering of share holders or their elected

representatives for the transaction of business of the company so

as to run it methodically or smoothly or efficiently andaccording to the law is called a company meeting.

Company meeting plays a vital role in day to day affairs,

operation and management of the company. So, company

meeting is only such medium where from its rules and policies

are formulated, its objectives are determined and amended

according to needs. The directors are elected, the auditor isappointed and his remuneration is fixed and future plan is made.

General meeting enjoys (once in a year) the powers of the

company as a legislative body of the company the board of

directors exercise (all over the year) the executive power given

by the general meeting. Therefore, meeting is the result of the

democratic structure of the company. However, meeting of thecompany has a tremendous support in respect of transactions of

the company.

Legal formalities of meeting of company

During the period of conducting legal proceedings on any matter

relating to meeting, some legal formalities must be satisfied. If

conducted without per suing such formalities, activity as regards

meeting may be invalid. Therefore, the meeting of a company to

be valid, the following formalities must be satisfied, according

to the company act 2063:-


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1)

Notice of the G.M (section 67.2)

While conducting G.M a public company must given

information to the parties concerned i.e. share holders, officials,

etc. about it. The notice must be made in advance of at least 21

days ordinary general meeting . but in the case of adjourned

meeting, which is not going to discuss any new agenda, 7 days

notice published in national daily newspaper is sufficient to hold

such meeting valid.

2)Venue of conducting the G.M(section 67.4)

The GM of a public company must be hold in the district where

its registered office is situated or any place, convenient to

substantial number of shareholders adjoining to such district

except with prior approval of the office to convene it in other

place.

3)

availability of list at the venue (section 67.5)

the company must make list available containing names of all

the existing shareholders, their address and the no. of share hold

by them at the venue of meeting for inspection.

4)Preparation of document for the AGM (section 79)

Every company shall at least 21 days prior to holding annualgeneral meeting AGM prepare and arrange for keeping annual

financial statement, directors report, auditors report to be

discussed at the annual general meeting.


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5)

Shareholders (section 84)

The company meeting of the share holders at their personal

address publish the repost of the company meeting at least twice

in a national daily newspaper at the time of publishing the notice

if meeting. If so, it need not be sent at their address.

6)

Submission of report to the office (section 78)

By section 78 of the company act 2063, every public company

must prepare a report and send the same to the office in advance

of least 21 days prior to the holding of the AGM, which theboard of director must approve and companys auditor must

certify.

7)Proceeding not being void (section 67.10)

Merely for and of the following reasons the proceedings are not

void or invalid:-

a)The accidental omission to give notice to any shareholder

of a listed company.

b)The non-receipt by any share holder of the notice sent at

the address supplied to such company by him.

8)

presence of directors in GM (section 68)

As for as possible all the directors of the company shall attain

the general meeting.

9)Quorum (section 74.1 and 74.2)


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With respect to quorum, the company act 2063 has made the

following provisions:-

a)In case of a private company, the forum is as prescribed in

its AOA.

b)In effect of public company unless a large number for

quorum is fixed in its AOA, the proceedings of the GM

cannot be conducted unless at least 3 shareholders out total

number of share holders representing more than 50% of the

total number of allotted shares are present either in person

or by proxy.10)

Chairman of the GM (section 74.1 and 74.4)

The chairman is compulsory meeting of the company and is

usually appointed by following the provisions of the AOA. So

the chairman , it exists of the BOD parasites over any GM. In

his absence, a director nominated by directors present at the

meeting can preside over the meeting.

11) To attend & cast vote (section 67,70 &71)

General every share holder has right to attend and cast vote at

the GM. Any share holder is entitled to exercise these rights n

person or by proxy.

12)

Discussion & decision (section 74.2 and 72.4)

Every matter to be discussed in the GM must be presented in the

form of resolution. The chairman of such meeting declares any


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subject voted upon is approved or not, the opinion of the

meeting is deemed to constitute the decision of the meeting.

13) Minute (section 75.1)

Every company must prepare minute of the proceedings of the

GM and keep it on the separate book.

Differences between ordinary general meeting and extra

ordinary general meeting.

Basis OGM EDGM

1)

Name This is also termedas 1stor statutory or

preliminary or

annual general

meeting.

It is also known as aspecial or

requisition or

emergent general

meeting.

2)Time limit It must be held

within 1 year after

the date of receiptof certificate

commencing

business & within 6

months from the

date of expiry of

financial year of the

company.

There is no such

time limit

prescribed forholding such

meeting.

3)Extension of

time limit

In case of difficult

to hold such

meeting within

limit, a time limit

may be extended to

Under this, there is

no utility &

provision for time

extension.


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conduct such

meeting.

4)

Obligation It is obliged by law

& is a regularmeeting. It is to be

convened every

year.

It depends on

necessity at it couldbe convened only in

the special or urgent

situation .

5)Calling party Generally, it is

called by the

company itself.

It can be called by

either the BOD

independently or

auditor or

shareholder or orderof the COR.

6)Time of notice To hold such

meeting, a notice of

at least 21 days

must be sent to the

share holder in

advance.

To call such

meeting a notice of

at least 15 days

must be sent to the

share holders in

advance.7)Matters Under this general

matters are

discussed &

decided.

Under this special

matters caused from

special

circumstances are

discussed &

decided.

Meaning of minute of a company

The term minute literally means a note to preserve the memory

of an event or transaction. The company act 2063 has not


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defined the term minute but recognized that every company

meeting must keep the minute of every general meeting

recorded in a separate book. Minute refers to the written record

of proceedings of company meeting.

In the words of M.M. verma & R.K. agrawal, minute

is clear, concise, accurate & permanent record of the

proceedings & decision of a meeting.

Hence, the minute is concise, accurate & written official record

of the business related with the company meeting.

Procedures for keeping minutes :-

Every company has to keep minute of business done at a

meeting property. The company act 2063 in section 75 has made

some legal provisions in respect of keeping minute. They are as

follows:-

1)

Every company has to prepare minutes of the GM and it

recorded in a separate book and it must be signed by the

chairmen and the company secretary. In case a company

has not a company secretary, it must be signed by the

chairman and one representative of the shareholder

appointed by majority of the GM.

2)

The minute must mention the manner in which the notice ofthe meeting was issued, the number of the shareholders

present, the percentage of total shares represented in the

meeting, the decision taken in the meeting, the result of the

voting, if any and so on.


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3)

After preparing minute must be sent to the shareholders

within 30 days of the GM. But if notice is published in

national daily newspaper, it need not be sent to the personal

address if the shareholders.4)The minute must be kept at a registered office of the

company, which any share holder can inspect during the

office hour.

5)If any shareholder wants to obtain copy of the minutes the

company provides such a copy by charging the fee as

prescribed in the AOA. Resolution of a company:-

Simply, the term resolution is a decision taken at a meeting of

the company. All matters to be presented for discussion &

decision at a meeting is called a resolution.

New websters dictionary defines resolution as, A formal

decision or opinion of a legistative body or other group, usuallyarrived at be voting.

In the words of R.C. chawala and K.C. garg, A resolution may

be defined as a formal decision of a meeting on any motion

before it.

From this, it appears that a proposal when accepted by the

requisite majority of votes by the shareholders becomes a

resolution. Thus, a resolution may be defined as the formal

decision of a meeting on any proposal presented for discussion

and decision before it.


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Types of resolution:-

The company act 2063 provides for two kinds of resolution that

may be passed n the general meeting of the company:-

1)ordinary resolution:-

matters to be discussed at the general meeting is presented in the

form of agenda. The chairman of such meeting shall declare

whether or not any agenda has been passed. Then it becomes

general resolution. A simple majority is required to pass such

resolution in the GM.

2)Special resolution:-

A resolution which requires special support of the shareholders

is called a special resolution. So, a resolution requiring special

majority to get passed in the GM is a special resolution.

legal provisions regarding boards reports:-

Board of directions is the supreme body of the company. Really

speaking, directors are the hands & legs, the heart & the brain of

the company. So, they are required to prepare their report &

submit them at the annual general meeting. This report is called

the brands report or the report of the board of director.

The boards report refer to :-

a)annual financial statement:-

The AFS must be prepared by the board of director of a public

company in a prescribed format every year at least 30 days


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before the holding of the AGM and in the case of private

company it must be prepared within 6 months from the date of

closer of its financial year. Contents of the AFS are as follows:-

1)

balance sheet up to the last day of the financial year.

2)Profit & loss account for the financial year.

3)Description of cash flow of the financial year.

b)Separate report of board (SRB):-

As provision by the company act 2063, the BOD of every public

company or, a private company with its paid up capital of 10

million rupees or more the annual turnover of 100 million rupees

must also prepare a separate report stating various matter or

contents in addition to the AFC.

Contents of such report are as follows:-

1)A review of the transaction of the previous year.

2)The impact cussed to the company transaction from

national & international situation.

3)Achievement of the company for the coming year till the

date of the report.

4)

Industrial professional relation.

5)

Alteration made in the board of the director.

6)

Principle matters affecting the company.

7)

Audit report and the directors comment.

8)

Percentage recommended for distribution of profit.


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Auditor:-

Audit means examination of books & accounts of the company.

The person who audits is called auditor. He is one of the

authorities and independent person of the company with the

authorities to audit account. The present company act has

provided the provision regarding the appointment, removal,

power & duties of an auditor.

Modes of appointment of auditor:-

An auditor can be appointed by applying the following modes.

1)Appointment by BOD:-

The BOD can appoint a person as an auditor before holding of

the FAGM of the company. An auditor appointed in this way is

called 1stauditor.

2)

Appointment by GM:-

In case of a public company, an auditor is appointed by the GM.

3)Appointment in a private company:-

In the case of a private company an auditor is appointed as

provided for in its MOA or AOA or in the UA and by the GM in

the absence of such arrangement.4)Appointment by the OCR (office of the company

registrar):-


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In certain cases an auditor is appointed by the OCR also. But,

this rule applies only in case where the BOD of a company

requests the OCR for any of the following reasons to appoint

another auditor.

a)If the AGM fails to appoint an auditor.

b)If the AGM itself cannot be held.

c)

If the auditor appointed under this act ceases to hold the

office for any reason.

Removal of auditor:-

A person once appointed as an auditor does not remain in the

office for live long. Nepalese company act 2063, has specified

some provision in this respect. So, generally, an auditor may be

removed or dismissed from the office in the following cases:-

1)Contradictory act:-

a)

If an auditor breaches code of conduct of auditor.

b)

If he does any act against the interest of the company which

has appointed him as the auditor.

c)

If he commits any act contrary to the existing law.

2)

Non-reappointment:-

An auditor appointed by the board of directors before holding of

the FAGM is removed from his office if the appointment is not

confirmed by the meeting.

3)Expiry of term:-


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An auditor appointed by the FAGM or OCR gets removed

automatically after organizing AGM of the company.

4)Removal by BOD:-

In case a person other than the auditors auditor or licensed

under existing law is appointed as the auditor of the company,

the BOD can remove him as per instruction.

5)Cease of certificate and license:-

In case of cease of certificate & license of auditing, the auditor

gets dismissed.

6)Provision for removing:-

In case of provision regarding removal of auditor provided for in

the MOA of AOA or UA of a private company, the auditor can

be removed by applying such prevision.

7)

Losing qualification:-

If an auditor seems to be disqualified due to any cause arising

disqualifying him after the appointment, he can be removed.

8)Special resolution:-

If the AGM passes a special resolution for the removal of

auditor, the auditor gets dismissed from his office.

9)Another auditor:-


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In case of OCR appoints another auditor issuing order to

liquidate the company, the former automatically gets dismissed

from his office.

10)

New auditor:-

In case a company liquidated voluntarily appoints new auditor,

the former gets ipso facto dismissed.

11) False particulars:-

If an auditor has been convicted of the charge of inserting false

particulars in report or omitting necessary comments while

auditing the accounts deliberately or recklessly or with melafide

(badly), he can removed.

12) Report :-

If an auditor has been punished on charge of failure to submit

the report, he gets dismissed.

13) Death or insanity:-

If the auditor dies of becomes insane, be gets dismissed.

14) Resignation:-

When the auditor resigns, he gets dismissed from the office.

15)

Indifference:-

In case an auditor has been convicted of the charge of

continuing to audit the accounts of a company, despite

knowledge of him disqualification, he can be removed.


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Rights & powers of auditors:-

Generally the following rights & powers can be enjoyed by an

auditor appointed due process in a company.

1)Right to access the account:-

An auditor is entitled to access the accounts & books of the

company appointing him. He can demand all the accounts, bills,

vouchers, ledgers, records and so on of the company with the

directors, employee at any time during office hours.

2)

Right to ask the explanation:-

In the course of auditing, the auditor can ask the concerned

officials to give explanation on the accounts as he finds

necessary.

3)Right to visit the branches of the company:-

If an auditor is appointed by a company having branches in

other localities , he will enjoy a right to choose the books of

accounts not only of the head office but also of all such

branches.

4)Right to get opportunities:-

The auditor cannot be removed before the completion of histerm. If he is removed from the post, he must be given a

reasonable opportunity to defend.

5)

Right to request for calling an extra-ordinary general

meeting:-


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In the course of auditing accounts of a public company, if the

auditor thinks it necessary to call the EGM due to any reason, he

can request the BOD for calling meeting.

6)

Right to attend the EGM :-

The auditor is entitled to attend the EGM called at the request

made by him , he can put forward his opinions in the discussion

held in respect of the accounts.

7)Right to make correction on the wrong financial

statements:-

If the auditor finds that the directors have given wrong statement

as regards to the financial activities of the company, he will

enjoy a right to make necessary correction on them.

8)Right to take legal or technical advise:-

In the course of auditing the accounts. The auditor is entitled toseek legal & technical counseling from the experts.

9)Right to get remuneration:-

An auditor is entitled to get remuneration for his service

provided to the company.

10) Right to prepare & submit an audit report:-

An auditor is entitled to prepare & submit an audit report

independently. He is independent to do auditing of the company.

Meaning & definition of dissolution of company:-


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Dissolution means the ending or liquidation of a company. The

liquidation or winding up of a company means termination of

the legal existence of a company be closing its business. Due to

the completion of the winding up or liquidation of a company itcomes to an end which is known as dissolution.

Dissolution of a company as defined by shopherd chris,

company, an artificial person comes into existence when the

registrar of incorporation. The existence ends after the registrar

removes its name from the register of active company. This is

called dissolution.

Thus, dissolution of the company is the liquidation or

termination of the company legally.

Methods of dissolution of company

Dissolution of a company takes place through different methods

i.e. a) liquidation b) de-legislation of company

a)Meaning & definition of liquidation

liquidation is a process to bring about an end to the life of the

company. The process of liquidation of the company leads to its

dissolution by the legal way. Liquidation is also termed as

warming up.

According to prof. L.C.B. Gower, the process where by its life

is ended and its property is administered for the benefit of its

creditors & members. An administrator called a liquidator is

appointed and he takes control of the company, collects its


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There should exist no situation where an application/ petition is

pending for the review of insolvency of the company.

c)Declaration to pay debt within 1 year

The directors of the company should have made declaration in

writing that the company is able to pay its debt & other

liabilities in full, to be made within 1year from the date of

adoption of the resolution.

d)Submission of declaration in the G.M.

The declaration being made in the writing by the director should

be submitted in the G.M.

Procedures

As made in the company act 2063 some procedures have to be

fulfilled in respect of voluntarily liquidation of the company.

Some important procedures are as follows:-

a)Submission of copy of decision to office

In case of a special resolution is passed in connection with the

liquidation of a company voluntarily & the directors make a

declaration in writing. The company has to submit 1 copy each

there of to the office no later than 7 days after the date of

adoption of the resolution.

b)Appointment & remuneration of liquidator

While adopting a resolution to liquidate a company voluntarily

the company has to appoint one liquidator to conduct the


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liquidation proceedings & fix remuneration receivable by such

liquidator.

c)Appointment of auditor

While appointing a liquidator, the company must appoint one

auditor amongst the auditors license to audit the report being

prepared by the liquidator.

d)Notice of appointment to office

The company must give a notice or information of the

appointment of the liquidator & auditor to the office no later

than 7 days & 15 days respectively after the date of such

appointment.

e)Time for completing liquidator proceeding

The liquidator has to complete the liquidation proceedings

within the period of time specified at the time of hisappointment.

f)Submission of report to office

The liquidator must submit a report along with the auditors

report certifying that the company has been liquidated to the

office.

Compulsory winding up

A company which is wound up without its will is called

compulsory winding up of the company. A company may be

wound up at an order of the court. In the absence of adequate


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evidence to prove that the company has become insolvent, the

court doesnt permit to initiate proceeding for insolvency against

the company.

l) winding up by the court

this mode of winding up of a company can also be adopted as a

part of compulsory winding up. Under this only the shareholder

aggrieved due to the activities of the company can file an

application in the court. The company act 2063, has stipulated a

provision under the section 139 that the court can issue an

appropriate order for winding up to the company.

ll) winding up by the OCR

A winding up of a company by the OCR is also a part of

compulsory winding up of a company. The OCR can issue an

order for winding up or deregistering a company exercising

Its discretion power.

b)De-registration of company

A company is de-registered by company registrar office under

section 136 of the company act 2063.

TU BBS 2nd year

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