Company formation account. Company and its formation. Various types of companies. Characteristics of a company.

1. Utsab Shrestha
Adjunct Faculty- MBA/BBA @ Kathmandu
shresthaautsab@gmail.com
Company and its formation

2. Background
 The industrial revolution that happened during
18th and 19th century England paved way for large
scale production and modern factory system.
 The modern factory system required huge capital
and professional management.
 The concept of joint stock company or simply
companies prevailed to overcome the limitations
of sole proprietorship and partnership.

3. Meaning and definition
 According to James Stephenson-
“ A company is an association of many persons
who contribute money or money’s worth to common
stock and employ it in some trade or business and
who share the profits and losses arising therefrom.”
 According to Prof. L.H. Haney, “Company is an
artificial person created by law having separated
entity with a perpetual succession and common
seal”
 Nepal Company Act 2063, “ A company refers to
any company formed and registered under this

4. Characteristics of a company
An artificial person
• Separate existence, can buy and sell property on its own name and enter into contracts.
Separate legal entity
• A company is treated separate from its owners as far as law is concerned.
Perpetual succession
• Death, inability or lunacy of members does snot affect the life of a company
Limited liability
• Liability of owned is limited to the extent of face value of shares purchased.
Transferability of shares
• A shareholder can transfer the ownership of shares to another by sales.
Common seal
• It is the official signature of a company used to affix documents to make it official.
Representative management
• Shareholders elect their representatives who manage company on their behalf

5. Typesofcompanies
On the basis of
incorporation
Chartered company
Statutory company
Registered company
On the basis of
liability
Unlimited company
Company limited by
shares
Company limited by
guarantee
On the basis of
number of members
Private company
Public company
On the basis of
ownership
Government
company
Non-government
company

6. Onthebasisof
incorporation
Chartered company
East India company,
bank of England
Statutory company NRB, ADB, NIDC
Registered company
Himal cement, Bhrikuti
pulp and paper mills ltd.

7. Onthebasisofliability
Unlimited company
Shareholders liable to
pay from personal
property
Company limited by
shares
Limited liability of
shareholders
Company limited by
guarantee
Shareholders promises
to pay specific sum as
guarantee.

8. Onthebasisofnumberof
members
Private company
Members not more than
50.
“Pvt. Ltd.”
Prohibits sale of shares
to general public
Public company
Shares are offered to
general public
Shares are
transferrable.
Nepal Bank Ltd, NIBL
etc

9. Differences- Public vs Private
company

10. On the basis of
ownership
Government company
No less than 51% paid
up share capital held by
gov.
Himal Cement, Janakpur
Ciggarate Factory
Non Government
company
Company owned,
managed and controlled
by the private sector
CG, Panchakanya etc

11. Company
Promoters
Give birth to the company
Generate the business ideas and discover
business opportunities
Investigate and perform feasibility analysis of
business
Select the name and location of business
Determine objectives, mission and vision of
business
Prepare necessary documents like AOA, MOA
etc.
Perform various financial planning and business
planning.

12. Maindocumentsofa
company
For a Pvt. Ltd.
Company
MOA
AOA
For a Public
Ltd. Company
MOA
AOA
Prospectus

13. Memorandum of Association (MOA)
 It is the main document of a company.
 It defines the objectives, powers and relationships
with the outside world.
The
main
contents
of MOA
are:-
Name of the company
Location of the company’s registered office .
Objectives of the company
Liability clause of the shareholder
Amount of capital of the company
Other necessary particulars

14. Articles of Association (AOA)
 It is a document that defines the rights, powers
and duties of the management.
 The modes of carrying company’s business.
Contents
of AOA
No. of directors and their terms and conditions
Amount of minimum share subscription of directors
Procedures for calling company’s meeting, AGM, EGM and notice
for the meeting.
Director’s remuneration and allowance
Rights and duties of MD
Provisions related to rules & regulations of internal management.
Other necessary particulars.

15. Prospectus
 It is an invitation to the general public to purchase
shares and debentures of the company.
 Circular
 Advertisement
 Offer
 Or any other document for invitation to general
public.

16. Prospects
consist of
these
information
Info related to management and
objectives.
Capital structure of company- authorized,
issued, subscribed and paid-up
Terms and modes of payment, issue of
shares on discount or premium.
Details about brokerage, underwriting
commission and preliminary expenses.