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

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 must
submit 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 or
permission from any authority.
f) A certified citizenship certificate of incorporation &
decision of BOD, if the promoter is a corporate body.

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 the
citizen 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 be
submitted 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 following circumstances 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.

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 and
provide 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 more
persons at a place for discussing and acting upon some matters
in which they have a common interest.

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 and
according 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 is
appointed 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 the
company 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:-

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 annual
general meeting AGM prepare and arrange for keeping annual
financial statement, directors report, auditors report to be
discussed at the annual general meeting.

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 the
board 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)

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

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
1) Name

2) Time limit

3) Extension of
time limit

OGM
This is also termed
as 1st or statutory or
preliminary or
annual general
meeting.
It must be held
within 1 year after
the date of receipt
of certificate
commencing
business & within 6
months from the
date of expiry of
financial year of the
company.
In case of difficult
to hold such
meeting within
limit, a time limit
may be extended to

EDGM
It is also known as a
special or
requisition or
emergent general
meeting.
There is no such
time limit
prescribed for
holding such
meeting.

Under this, there is

no utility &
provision for time
extension.

conduct such
meeting.
It is obliged by law
& is a regular
meeting. It is to be
convened every
year.
Generally, it is
called by the
company itself.

It depends on
necessity at it could
be convened only in
the special or urgent
situation .
It can be called by
5) Calling party
either the BOD
independently or
auditor or
shareholder or order
of the COR.
To call such
6) Time of notice To hold such
meeting, a notice of meeting a notice of
at least 21 days
at least 15 days
must be sent to the must be sent to the
share holder in
share holders in
advance.
advance.
Under this general Under this special
7) Matters
matters are
matters caused from
discussed &
special
decided.
circumstances are
discussed &
decided.
4) Obligation

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

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 of
the 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.

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, usually
arrived 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.

 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

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.

 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 1st auditor.
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):-

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:-

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:-

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.

 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 his
term. 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:-

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 to
seek 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:-

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 it
comes 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

assets, pays its debt & finally distributes any surplus among the
members in accordance with their rights.
According to blacks law dictionary, the winding up of a
company as defined by his dictionary, the process of setting the
accounts and liquidating the assets of partnership or for the
purpose of net assets to shareholders or partners and dissolving
the concern.
From the above definitions, it appears clear that a winding up or
liquidation is a process under which the management of
company are controlled by an independent official called
liquidator.
In conclusion, the process of liquidation, winding up of consist
of the realization of the assets, determination & payment of the
liabilities as well as distribution of the surplus if any among the
member of the company in proportion.
Cases for liquidating a company:By section 126.2 of the company act 2063, some conditions
must be satisfied or there must exits some cases for liquidating a
company voluntarily. They are given below:a) Ability to pay debt & liabilities
The company should be able to pay its debt or other liabilities
in full.
b) No possibility of insolvency

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

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 his
appointment.
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

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.