Company Act 2063 Highlights- For Banking Preparation

Company Act was first introduced in Nepal in 1993 BS. Company act covers wide range of provisions relating the incorporation, operating, registering, winding up of an organization. The latest company act in use in Company Act 2074.

Latest act – Company Act 2074

What is a company?

Company is an artificial person incorporated under the provision of company law. Incorporation means the process of registering the firm, organization, institution under the provision of law. In Nepal, companies are incorporated under the law of Company Act 2063.

What are the features of the company

Company has legal personality
Company is incorporated association
Company has limited liabilities but for sole trading company hold unlimited liabilities
Perpetual succession (It lasts for long life until the liquidation but BOD keeps changing)
Legal capacity to sue and to be sued
It has contractual capacity
Common seal
It has its own signature
Ownership is divided into a unit of shares and share capital. Share are transferable and there will be number of shareholders.
Management by representative
Company has permanent existence
Registered office
Must have MoA, AoA – प्रवन्धपत्र र नियामावली हुन्छ।
Driven by formalities (operated formally)

Objectives of the Company Act 2064

To create dynamism in the economic development of the nation by promoting investment in industries, trade, and business.
To promote the use of economic liberalization.
To make legal provision relating to incorporation, operation, management, and administration of the company much simpler, easier and more transparent.

Major Provisions/Features of the Company Act

It has the provision to promote corporate good governance.
It has the provision of the company incorporation in which various types of companies can be incorporated under its provision such as private, public, profit not distributing, investment, subsidiary, holding company etc etc.
It defines the management tools of the company such as AoA, MoA, and BoD.
It creates the features of a legal person.
All the company must use suffix as Pvt. Ltd. or Ltd as per their type.
Few companies should be incorporated only as a public company such as BFIs, Insurance, Stock Market, Mutual Fund, Retirement funds.
Telecommunication service providers which has capital more than 5 crores can only be incorporated as public company.
It has provision relating to the conversion of private company into public and vice versa.
Provision of Office of Company Registrar (OCR) can provide service from branch office and outlets.
It has the provision relating to share, capital, and debenture of companies.
It has the provision of Board of Director (BoD) formation, Types of director and their rights and liabilities and also BOD meeting procedures.
It has the provision of general meeting its types and agendas of the company.
It has the provision of account record keeping and auditing.
Provision of company winding up as per the voluntary, compulsory and with de-registration process.
It recognize the online registration process.
It has the special provision of de-registration
- If the company are defunct they need to submit/providing 0.5% (as a fee) of their capital should be submitted to OCR for de-registration from the time of the last amendment. यदि 0.5% तिर्न नसकेमा Fine Fee तिरेर पनि दर्ता खारेजी गर्न सक्छ।
It has provision relating to the protection of shareholders.
It has provision relating to private, holding , subsidiary and foreign company.
It has provision relating to control the use of ultra vires by BoD. (Company should not go beyond the AoA & MoA)
It has provision relating to a proceeding of lawsuits and punishment.
Provision of the substantial shareholder .
- Hold 1% or more if capital is more than 25 Crore
- Hold 5% or more if capital is up to 25 Crore

(यदि कसैले २५ करोड सम्म पुजी भएको कम्पनिमा ५ % भन्दा बढी होल्ड गर्छ वा २५ करोड भन्दा बढी कुल पुजी भएको कम्पनिमा १ % शेयर होल्ड गर्छ भने तिनी हरुलाई आधारभूत शेयरधनि भनिन्छ। आधारभूत शेयरधनि हरुको लागि छुट्टै विशिष्ट व्यवस्था गरिएको छ।)

Must have company secretary for those companies which have more than 1 crore capital
It is in compliance with the Money Laundering Prevention Act.
It has the provision of merger and acquisition of the company.
Development committee can be converted into the public company if the government gives permission.
Compulsory appointment of female member in BoD.

Types of General Meeting

There are three types of general meeting.

First Annual General Meeting (FAGM) – पहिलो बार्षिक साधारण सभा
Annual General Meeting (AGM) – बार्षिक साधारण सभा
Special General Meeting (SGM) – विशेष साधारण सभा

1. First Annual General Meeting (FAGM) –

This meeting is held to approve all the documents which were submitted while registering the company.

2. Annual General Meeting (AGM)

Director/chairperson can call the AGM.
AGM must be conducted within 6 months after the end of the fiscal year.
It can be extended up to 3 months with the approval of OCR.
If a company can not conduct AGM within the predefined time, OCR re-schedule the time.
If the company still do not call for AGM, the stakeholders can file a case in court for calling up AGM.

Process of calling AGM

AGM notice should be published before 21 days mentioning the date, time, venue and agendas.
AGM notice should be published at least two times in the national level newspapers.
If any changes occur, notice should be published before 7 days of the AGM date.
AGM is hosted by the secretary, chaired by president and all the members will sign in the minute.
This minutes’ copy should be submitted to OCR within 30 days from the date of approval.

(Same process in the case of banks)

3. Special General Meeting (SGM)

Call by Board of Director, chairperson.
Three parties can call SGM with a written request – Auditor, Shareholders (at least 10% of share capital with minimum 3 shareholders), Shareholders (at least 25% of shareholders).
After the written request from the above three parties, the director or president must call a Special General Meeting within 30 days.

Process of calling SGM

SGM notice should be published before 15 days of the SGM date mentioning the date/time, venue and agendas.
AGM notice should be published at least two times in the national level newspaper.
If any changes occur, notice should be published before 7 days of the SGM date.
SGM is hosted by the secretary, chaired by president and all the members will sign in the minute.
This minutes’ copy should be submitted to OCR within 30 days from the date of approval.

Agendas of SGM

Increase or decrease capital
Share buy back
Distribution of bonus share
About , merger or acquisition
Company name change etc.

All the members of the BOD must attend the meeting physically. If not possible physically, use of video conference to use voting right.

Possible Questions – Company Act PDF File

What are the heading defined in AoA or MoA? – See Section 18, 20
Write about the process of calling AGM defined by the company act 2064. See Section 67,76, 82, 83

Q) What are the provision relating to the incorporation of the company?

Answer- for this question explain the following three points in detail

Nature of the company for incorporation
Process of incorporation and required documents
Provisions/conditions to refuse of company incorporation

Nature of the company for incorporation

i) For private company

No limitation of capital
No need to disclose financial or audit report publicly
Must have minimum 1 and maximum 101 shareholders

ii) For public company

Minimum capital 1 crore
Need to publish prospectus in the newspaper
Minimum 7 and maximum unlimited shareholders
Few special companies must be incorporated as public such as BFIs, Insurance, Mutual funds, Retirement fund, Telecom service provider which has capital more than 5 crores.

iii) Profit not distributing company

Minimum shareholder 5 and maximum unlimited
Rest of the rules the same as a public company

Required documents

Submit 2 copies of MoA and AoA of the proposed company
Mutual agreement document of promotors
Prior approval from respective office (NRB in case of BFIs)
Details of the promotors
Application letter and required fees.
If promotor is a legal person (organization) then must submit a copy of registration certificate.
In case of foreign promotor (person/institution) approval of investment, registration certificate and citizenship certificate needs to be submitted.

Process of incorporation

Submit the application along with documents and fees to the Office of Company Registrar (OCR).
Form can be submitted online as well.
OCR should provide a registration certificate within 7 days from the application received. Or provide refusal notice within 3 days after the registration timeline.
The company must be started within 1 year from the approval time.
For a foreign company, provide registration certificate within 30 days otherwise provide refusal notice within 7 days after the registration timeline.

What are the conditions to refuse of company incorporation ?

i) Due to its name

When name of the proposed company is same or almost similar with the other existing company.
When proposed name is is similar to other insolvent company [only for 5 years after the insolvent date].
When name of the proposed company does not comply with prevailing law.

ii) Due to its objectives

If the objective of the company violates the prevailing law.

iii) Other reasons

If the required fees and documents are not properly submitted.
If AoA and MoA are not completely filled up.