Company:
A company is an artificial person created by law to carry on a business for
profit with distinct legal existence. The company has transferable shares,
limited liabilities, perpetual succession & a common seal. The company is
managed by the representatives of shareholders called the board of directors.
In other words “company is a voluntary association of individuals for profit
having a capital divided into transferable shares the ownership is the
condition of membership”. According to the Nepal Company Act 2053 “A Company
refers to any company formed and registered under this act”.
Characteristics of a
company:
The main
characteristics of a company are as follows:
Legal personality:
A company is an
artificial person, which is created by law. It exists only in contemplation of
law and, therefore, has no physical shape or form. Although invisible and
intangible, as a legal person, it enjoys almost all the rights of a natural
person. It has the right to enter into contracts and it can buy and sell the properties
in its own name. It can be sue and can be sued.
Perpetual existence:
Being an independent
body, the life of the company is not connected with the life of its
shareholders. The law creates the company and the law brings it to an end. It
is a corporate body. Its shareholders may transfer their shares and new persons
may come in their place but the existence of the company is not affected.
Limited liability:
Limited liability is
another important feature of a company. If anything goes wrong with the company,
the shareholder’s liability is limited by the amount of the shares held by him.
In other words, other than the money one has invested, one cannot be called
upon to pay even a single paisa more out of one’s pocket to meet the company’s
obligations.
Democratic management:
A company is a
democratic organization. The decisions are taken in the annual general meeting
and the board meeting by following the principles of democracy. The board is
elected and dismissed according to the interest of the majority of
shareholders.
Transferability of
shares:
The shares of a
company are transferable except in the case of private limited companies. The
shares, especially of a public limited company, are easily transferable from
one person to another without prior permission of the company management. A
shareholder can convert his shares into cash easily either by selling or
transferring the shares to other persons. This transfer of shares changes the
ownership but does not affect the regular functioning of the company.
Common seal:
As the company has no
physical form, it cannot sign any contract in its name. Therefore, originally,
all documents and contract papers require the affixing of the seal. Most of the
transactions are signed by the directors who act as agents of the company. It
uses a common seal for its official signature. Therefore, any document without the
common seal of the company is not taken into consideration and the company is
not liable for the same.
Types of the company:
The various types of
companies based on their nature are as follows:
Company promoters:
Company promoters are
the people who give birth to a company. Promoters generate the idea and
discover business opportunities. They make a detailed investigation of the
feasibility of the business, financial sources, and competitors. They prepare a
necessary document like the Memorandum of Association, the Article of
Association, and the prospectus for the incorporation of the company. The
promoters may be anybody such as an entrepreneur, a professional promoter,
government, and financial institutions. The main functions of the promoters are
as follows:
· To develop the idea of
starting a business.
· To investigate and
verify the feasibility of the business.
· To select the name and
the site of the business.
· To determine the
objectives of the business.
· To prepare necessary
documents for its registration.
· To make the plan of
financial sources.
Main documents of a
company:
Some important
documents are required and prepare to submit to the office of the company
register in the process of formation of a company. Some of these important
documents are as follows:
#In case of private
limited company:
i)Memorandum of
Association
ii)Article of
Association
#In case of public
limited company:
i)Memorandum of Association
ii)Article of
Association
iii)Prospectus
Article of
Association:
Article of Association
is another important document for the establishment of the company. It relates to
the internal rules and regulations of the company. It contains rules, regulations,
and by-laws for the internal management of the company. Every company has to
prepare articles of association along with other documents for incorporations.
Matters related in the Article of Association should not be against the
Memorandum of Association. Any content of the Article of Association which
disagrees with the Memorandum of Association shall be invalid to the extent of
such conflict. It shows the relation between the company and its member and
relation among the members.
According to the Company
Act 2053, the Articles of Association contains the following:
· A number of directors
and their terms and conditions.
· The amount of minimum
subscription by directors.
· Matters relating to
the procedure of calling the company’s meeting and notice to be given for the meeting.
· Director’s
remuneration and allowance.
· Rights and duties of
the managing directors.
· Provisions relating to
the rules and regulations of internal management.
Other necessary particulars.
Memorandum of
Association:
Memorandum of Association
is the first document in which the main objective and external rules and
regulations of the company will be stated. It is the constitution of a company.
The company should operate as per the terms and conditions mentioned in the MOA.
If the company does not operate as per the MOA, it will be considered as
illegal. In the case of a private limited company, at least, one promoter and
in the case of a public limited company at least seven promoters have to sign
on the MOA.
According to Lord Macmillan “The Memorandum of Association sets out the
constitution of the company. It is, so to speak the charter of the company and
providers the foundation on which the structure of the company is built.”
The main contents of
the Memorandum of Association are as follows:
· The name of the
company.
· The name of the place
where the company’s registered office is situated.
· The objectives of the
company.
· The liability clause
of shareholders.
· The amount of capital
of the company.
· Other necessary
particulars.
Prospectus:
Prospectus is another
major important document of the company. Simply, the prospectus is a brief
report of the company. In other words, Prospectus is an invitation to the
general public to participate or purchase the shares of the company. We know
that a public limited company will manage the capital from the general public
by issuing the shares. The prospectus should not be signed by all the
directors, but the prospectus which is to be published should be approved by
the concerned department of the Government of Nepal.
The main objectives of
the Prospectus are as follows:
· Information about the
company to the general public.
· Initiation of interest
from the public for investment by purchasing shares.
· Creation of confidence
towards the company to the general public.
· Make the general
public aware of the terms and conditions for purchasing shares.
Reviewed by Bijay Munikar
on
March 15, 2021
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