Companies Act, 2063

COMPANIES ACT, 2063

Simplified 1 Day Revision Book

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 Companies Act, 2063

1. Characteristics of Company
a. Perpetual Succession
 Companies go on forever,
 Does not depends on the life of its member
 Can come to an end only by the way of legal proceeding i.e Liquidation

Q.N. ABC Private Limited Company is a private company having five members only. All the members of the
company were going by car to Dharan in relation to some business. An accident took place and all of them died.
Answer with reasons, under the Companies Act, 2063 whether existence of the company has also come to the
end?

b. Limited Liability
 Liability of SH = Max. value of share subscribed or undertaken to
subscribe
 Eg. FV=100, Issue Price = 120, Liability is limited to Rs. 120 (not more than
it)
c. Contract
 Can enter into contract as a normal person
 Can validate the contract
d. Separate Legal Entity
 Separate than it’s member, shareholder, owner, promoter, director, etc.
 Liability of Company Liability of SH, BOD, Promoter, etc.
e. Separate Seal
 Seal = छाप
 Used Instead of Sign
 Should be used in every official documents
 Should be unique and clearly identifiable
f. Can sue and be sued
 Company can Sue other entity or person
 Other person or entity can also Sue company

Q.N. CEO of the Reliance Hydro-power Limited is in the process to sue against the supplier of the Electro-
mechanical equipment to the company for breach of the contract. But he is not sure about the legal provision of
the Companies Act whether the company can sue or not. Advise the CEO of the Hydro-power company regarding
the relevant provision of the Companies Act whether the company can sue or not?

g. Transfer of Share
 Share of any company is transferable
 Eg. Ram purchased 100 share and he sold the same whereby got
purchased by Shyam…..!

Q.N. What are the basic characteristic of a company?

2. Case Study
a. Creasy VS Breach Wood

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 Companies Act, 2063

Let’s understand through simple example:

Existing Company = ABC Pvt. Ltd
New Company = BCA Pvt. Ltd

Case: Mr. Ram a senior executive director of ABC Pvt. Ltd is dismissed from his office. He filed
a case, stating it as an wrongful dismissal. Shortly thereafter, ABC Pvt. Ltd sold it’s business to
newly formed BCA Pvt. Ltd.

Held: Mr. Ram can file a case and claim his consideration from BCA Pvt. Ltd !

Q.N. CEO of Himalaya Heights Pvt. Ltd. was dismissed as against the service contract. He filed a case for
damages against the wrongful dismissal. Shortly thereafter, the company ceased trading; it paid of all its
creditors and then transferred its remaining assets to Park View Ltd. When he obtained a judgment against the
company, it had no assets and stood dissolved. Therefore, he charged against the Park View. Decide whether the
transferee company is liable.

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 Companies Act, 2063

3. Public and Private Limited Company

S.N. Basis Public Company Private Company
1. Min no of director 3 As per AOA
2. Max no of director 11 11
3. Min no of member 7 1
4. Max no of member Unlimited 101
5. Last word on name Limited Private Limited
6. Restriction on Issue of share No restriction Pre-emption Right
7. Can issue share publicly Yes No
First: within 1 year after obtaining
Business Commencement
Certificate
Annual General Meeting As specified in Article of Association
8. Subsequent: Within 6 months after
end of every fiscal year
9. Issue of Prospectus Mandatory Not Mandatory
10. Min Paid up Capital 1 Crore ( 10 Million) Any

Q.N. What are the basic difference between public and private company?

4. Holding Company Vs Subsidiary Company Vs Associate

Company
Holding Company

Holds Holds

More than 50% More than or

share equal to 20%

Subsidiary Company Associate Company

Q.N. Explain Holding and Subsidiary company as per the companies act, 2063.

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 Companies Act, 2063

Section 1: Short Title and Commencement

 This act may be called as the “Companies Act, 2063(2006)”.
 This Act shall be deemed to have come into force on “20 Ashwin, 2063”

Section 2: Definition
 Company means a company incorporated under this Act.
 Private company means a private company incorporated under this Act.
 Public company means a company other than a private company.
 Holding company means a company having control over a subsidiary company.
 Subsidiary company means a company controlled by a holding company.
 Foreign company means a company incorporated outside Nepal.
 Listed company means public company which has its securities listed in the stock
exchange.
 Company not distributing profits means company incorporated under Chapter 19
on conditions that it shall not be entitled to distribute or pay to its members any
dividends or any other moneys out of the profits earned or savings made for the
attainment of any objectives.
 Promoter means a person who, having consented to the matters contained in the
Memorandum of association and the articles of association to be furnished in the
Office for the incorporation of a company, signs the same in the capacity of
promoter.
 Office means the Office of Company Registrar established by the GON for the
administration of companies and it also includes the branch office of the Office.
 Net worth means the assets of a company remaining after deducting the paid up
capital, reserve, fund or free reserve of whatever designation to which
shareholders have right or all other liabilities other than goodwill, if any, of the
company as well as loss provisions, if any, from the total assets of the company for
the time being.
 Consensus agreement means an agreement made unanimously by all the
shareholders of a private company existing for the time being in respect of the
operation of the company.
 Debenture trustee means a body corporate undertaking the responsibility for the
protection of interests of debenture-holders at the time of issuance of debentures
by a company.

Section 3: Incorporation of Company

a. Private Company
 Any person either singly or jointly, for attaining one or more objective
b. Public Company
 Min. no of promoters = 7
Exception= In case if existing public company desires to incorporate another public company,
there need not require 7 promoters for incorporation.

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 Companies Act, 2063

c. Company not distributing profits

 Can be incorporated for the attainment of one or more objectives.

Section 4 & 5: Application to be made for Incorporation of

Company
Step 1: Apply to OCR through online medium for approval of name,
Step 2: OCR can go through section 6 (refusal of name),
Step 3: After approval of name, submit following document + prescribed fees to OCR:

 MOA of Proposed Company,

 AOA of Proposed Company,
 In case of Public Co, a copy of agreement, if any, entered into prior to the
incorporation of company,
 In case of Private Co, a copy of consensus agreement, if any, entered into,
 License or Prior approval, if required by regulatory body,
 Where promoter is:
a) Nepalese Citizen Copy of citizenship certificate

b) Corporate body: Certificate of registration of incorporation,

decision of BOD, other documents as required
c) Foreign Person: Copy of foreign citizenship certificate
d) Foreign Corporate body: Certificate of registration of incorporation +
other documents as required

(Note: In case of foreign case, permission to carry on transaction in Nepal shall be required to
be obtain from the concerned body)

Step 4: Office shall:

 Make necessary inquiries,
 Register such company within 7 days after collecting registration fee &
 Grant company registration certificate
OR
 If not registered, Office shall provide notice to proposed company accompanied
by rejection reason within 3 days.
Q.N. Mr. Salil is interested to carry some business. He has no knowledge of the business organizations. However
he could notice that some of his friends are carrying business by incorporating a company. So he approached you
regarding the incorporation of a company as an expert of the company law. How would you suggest him
regarding the process of the incorporation of a company as to his interest as per the prevailing law?

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 Companies Act, 2063

Section 6: Power to Refuse to Register a Company

(a) If the NAME of proposed co. is:
 Identical with the name or trademark of existing co., OR
 Resembles the name or trademark of that company as it might cause misleading,
(b) If NAME/OBJECTIVE of proposed co. is:
 Contrary to prevailing law, OR
 Appears to be improper/undesirable in view of public interest, morality, decency,
etiquette etc., OR
 Reflects criminal motive,
(c) If NAME of proposed co. is:
 Identical with name of a co. of which registration has been canceled, OR
 Of a co. which has been insolvent, OR
 Resembles such name as it might cause misleading.
(NOTE: Period of 5 years, till not expired after such cancellation of registration or insolvency)
(d) If the requirements for the incorporation of a co. under this act are not fulfilled.
(e) If OCR:
 Refuses to register, Or
 Fails to give a refusal notice,
(Then the dissatisfied person may complaint to court within 15days.)

Q.N. A group of 7 people have agreed to register a company in the name of Stolen Goods Pvt. Ltd. with the
objectives to import stolen goods from foreign countries and sell it at a lower price in Nepal. They claim that
stolen goods imported are good in quality and will be imported at 75% lower price. Thus, foreign currency to be
paid for import will be lower helping to the current economic condition of the country. The OCR official is
confused whether the company can be registered. Suggest him with regard to Companies Act, 2063.

Section 7: Company to be a body corporate

Mnemonics: CAPS
1) A= Autonomous and body corporate with perpetual succession.
2) P= Deal with any movable/immovable Property like an individual.
3) S= Can Sue and be sued by its own name.
4) C= Can enter into Contract.

Section 8: Limited Liability

Liability of a shareholder of a company in respect of transactions shall be limited to the :

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 Companies Act, 2063

 Maximum value of shares which he has subscribed or undertaken to subscribe.

Section 9: Number of Shareholders

a) Private Company
 Min: 1
 Max: 101
b) Public Company
 Min: 7
 Max: Any
(Note: Share subscribed by employee shall not be counted as a shareholder whether he/she is
in the service or retired from there !!)

Q.N. ABC pvt ltd company is incorporated on 12/07/2080 with paid of capital of Rs.20 million. While scrutinizing
the documents maintained by the company, there found that the total no. shareholders was 110. Later on, while
going through shareholder register maintained as per section 46, it was found that 10 of the shareholders were
employees of that company. One of the shareholders object in the requirement of minimum and maximum number
of shareholder in case of private company stating that the incorporation of ABC pvt ltd is not in accordance with
companies act, 2063. Examine the validity of such shareholder.

Section 10: Terms to be abided by company

a) Company shall carry on all of its activities and transactions by its own name.
b) A company shall not open a partnership or private firm.
c) Private Company:
 A private co. shall add the words “private limited” to its name as the
last word;
 A private company shall not sell its shares and debentures publicly!
 A private со. shall not pledge or transfer title or its securities to any person other
than its shareholder.
d) Public Company:
 Public company shall add the word “limited” to its name as the last
word
e) Company not Distributing Profit:
 “Limited” provision shall not apply to a company not distributing profit,
 A Cо. not distributing profits shall not distribute:
I) Dividends among its members, OR
II) Pay indirectly any amount to member or his/her close relative.

Q.N. What are the terms to be abided by any company incorporated under the companies Act, 2063 ?

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 Companies Act, 2063

Q.N. Ram construction Pvt. Ltd. wants to open partnership firm with Hari and Shyam. Comment:

Section 11: Paid up capital for Public Company

a) Minimum: 1 Crore (10 million)
b) Exception: Shall be excess than above in case:
 Required by prevailing law
 Notified by GON in Nepal Gazette

Q.N. A Proposed Sagarmatha silk public limited company applied to the Company Registrar’s Office (CRO) for
the registration of a public company with authorized capital Rs. 50 lacks only. After scrutinizing all the relevant
papers Company Registrar refused to register the company. Answer, what was the reason to refuse registration of
that proposed company

Section 12: Incorporation as a Public Company

* Mandatory required for following business to be registered as a public company:
1) Bank and Financial Institutions

2) Insurance business

3) Stock exchange business

4) Pension Fund

5) Mutual Fund

6) Telecommunication Service provider exceeding paid up capital Rs. 5 crore

Q.N. Mr. Ramesh Mahato, a renowned businessman is planning to carry out insurance business in Nepal by
establishing a private company. Give your suggestion/opinion to Mr. Mahato on his plan by citing the relevant
provision of the Companies Act, 2063.

Q.N. A telecommunication company wants to incorporate in Nepal having paid up share capital of Rs. 100
million by registering as a private limited company. Give your opinion whether incorporation of
telecommunication as private limited company is allowed by Companies Act, 2063 or not?

Section 13: Conversion of Private Company into Public Company

Step 1: Pass SR in GM of pvt.co,
Step 2: In case GM not held, pass consensus agreement,
Step 3: Fulfill the requirement to be incorporated as public co:
 Min. Paid up capital: 1cr
 Min. No. Of member: 7
Step 4: Make application to OCR within 30 days after the date of resolution accompanied by:
 A copy of resolution,
 A copy of altered/proposed AOA, MOA, Tin Mahale,

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 Companies Act, 2063

 Audited balance sheet,

 Written certification by Auditor,
 Written declaration from the directors that all the provision of companies act has
been complied with.
Step 5: After getting application, if OCR deems satisfactory:
 May update the register and convert the same &
 Provide the notice within 60 days of such application for conversion &
 Issue an conversion certificate.
Step 6: After conversion:
 All the assets and liabilities of private company shall be transfer to the newly
converted public company.

Q.N. Running Bulls Pvt. Ltd. is an emerging investment company having sound track record in profit earning
established by a group of new investors five years ago. Now they have intended to convert this private limited
company to public limited company but have no idea about the relevant legal provisions; therefore, they
appointed you as an expert on this matter. Advise them on the basis of the relevant provision of the Companies
Act, 2063.

Section 14: Conversion of Public Company into Private Company

Step 1: Conversion is possible only if following two situations happens:
 Min. No. Of SH: less than 7
 Min. Paid up capital: less than 1 crore
Step 2: If any of above one situation happens, then the company need to:
 Alter it’s MOA/AOA &
 Go for conversion within 6 months of such happening,
Step 3: Make application to OCR within 30 days after the date of alteration accompanied by:
 A copy of resolution
 A copy of altered/proposed AOA, MOA, Tin Mahale,
 Other documents as prescribed.
Step 4: After getting application, if OCR deems satisfactory:
 May update the register and convert the same &
 Provide the notice within 60 days of such application &
 Issue an conversion certificate,
Step 5: After conversion:
 All the assets and liabilities of public company shall be transfer to the newly
converted private company.

Q.N. Namaste telecom company is a leading telecom public company with notable profits. The majority of
shareholders have intended to convert their company into a private limited company, but they have no idea what
the legal requirements are; therefore, the company wants your advice. Assist them with the conversion of a public
limited company to a private limited company under the Companies Act, 2063.

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 Companies Act, 2063

Section 15: Service of Summons, Notice, etc.

a) At Company related matters, send:

 To registered office
 If unable, send via Media e.g, TV, Radio, Newspaper

b) At Individual related matters, send

 To address supplied to the co.,

 Via Electronic Communication
 If unable/refused, send via registered post or reliable means

Q.N. Explain Service of notice under the companies act.

Section 16: Functions and Duties of Registrar

a) Implement this act,
b) Frame necessary directives,
c) Framed directives:- Make available to general public,
d) May delegate powers conferred to him/her:- To any officer or employee of OCR
Exception: Direction given by regulatory body shall be applied to any company:
 Means registrar cannot deny the direction of regulatory body stating that only OCR
can direct companies.
OCR Company NRB
(Bank)

Both can direct

Q.N. What are the functions, duties and power of registrar as per companies act, 2063.

Section 17: Pre-incorporation Contract

General Provision:
 A proposed contract only and such contract shall not be binding on company.
Special Provision:

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1) Personally liable for any contract related transaction done prior to incorporation of co., if not
accepted by such concerned company.
2) Any transaction done prior to incorporation of company shall be binding on the company
if the company:
 Accepts, OR
 Endorses such act or action +
 Personal Liability as per point no 1) shall be released.
3) Consensus agreement of a private co. shall govern:
 Any contracts made prior to incorporation of such company.

Q.N. A Company was in the process of incorporation. Promoters of the company signed an agreement for the
purchase of certain furniture for the company and payment was to be made to the suppliers of furniture by the
company after incorporation. The company was incorporated and the furniture was used by it. Shortly after
incorporation, the company went into liquidation and the debt could not he paid by the company for the recovery
of money. Examine whether promoters can he held liable or company be liable for payment under the following
situation:
i. In case of a Public Limited Company?
ii. In case of a Private Limited Company?

Section 18: Memorandum of Association

1) The MOA of a company shall state the following matters:
 Name, address of the registered office of the company,
 Objectives of company,
 Authorized capital, share capital to be issued & figure of undertaken to be paid by
promoter,
 Types of shares of company, rights &powers inherent in such shares,value of each
share & number of shares of different types,
 Restrictions, if any, in the purchase or transfer of shares,
 Number of shares promoters have undertaken to subscribe for the time being,
 Terms of payments of share amounts,
 Statements that liability of SHs shall be limited, max.no.of SHs in case of a pvt co.,
 Other necessary matters.
2) MOA shall also state:

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 If payment for shares is made in other manner than cash by promoter or any
other person,
 If the company is to acquire any property from any promoter or person,
 If company itself bear it’s incorporation expenses,
 If any promoter or person is entitled to any special privilege or any right.
3) In case of Public Company such consideration other than cash and property shall be
evaluated by engineer or accounting professional holding certificate.
4) If MOA is inconsistent to this act, MOA shall be ipso fact void (Automatically) to the
extent of that inconsistency.

Section 19: Signature to be affixed in MOA

Personal Details:
 MOA of a co. shall state:
I) Full names and addresses of its promoters, OR
II) Indicate no.of shares which each promoter has undertaken to
subscribe (Refer sec 63) &
III) Signed of each of them.
 MOA shall clearly contain:
I) Names and address of a witness for each promoter and
II) Bear the signature of such witness.
 Each promoter shall undertake to subscribe the shares as mentioned in AOA of
the company and at least 100 if no provision is so mentioned.

Rectification:
 After 1 year of incorporation, no rectification of :
I) Minor mistake, OR
II) Printing, OR
III) Typing Error in MOA/AOA
 If deems satisfactory, OCR may rectify the same,
(Note: Objective clause cannot be rectified by this process, shall have to go through section 21
for amendment in objective clause)

Q.N. Himalayan ltd is incorporated by 8 promoters. While incorporating the company, they forget to make a
provision in AOA regarding the number of shares to be subscribed by the promoters. Based on this line, Mr.
Ghanashaym, a promoter of Himalayan ltd, did not subscribe any shares of concerned company and still act in a
position of a promoter. Evaluate the validity of action taken by Mr. Ghanashaym.

Section 20: Article of Association

1) Every co. shall frame AOA for attainment of it’s objective.
2) AOA shall contain the matter related to following section:

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 Section 67, 76, 82,

 Section 86, 87,
 Section 88,
 Section 95
 Section 56, 61, 30
 Section 108 and many more !
3) If AOA is inconsistent to this act, AOA shall be:
 Ipso fact void to the extent of that inconsistency.

Section 21: Amendment to MOA and AOA

General Provision:
Step 1: Pass SR in GM for the same,
Step 2: Co. need to provide the info. relating to amendment to MOA & AOA to OCR within
30 days of such amendment and OCR need to record and provide notice for the same
to the co. within 7 days,

Amendment in Name Clause:

Step 1: Pass SR in GM for the same,
Step 2: Apply to OCR with prescribed fees for prior approval for amending the same,
Step 3: If approval granted, amend the same (name)

Amendment in Objective Clause:

Step 1: Follow general provision as mentioned above for amendment,
Step 2: In case of Public co., if any SH does not satisfy with amendment in objective clause,
he/she may file petition to the court to make such amendment declared null or void,

Provided:
 Dissatisfied SH/SH’s shall hold at least 5% of PUC of co. in order to file petition
 Petition to be filed: Within 21 days of adoption of resolution for amendment,
 Where anyone is to file a petition on behalf of 1 or more than 1 SH entitled to make
petition, petition has to be filed by a person who is authorized, in writing.

1) Until SH provide the info. regarding petition filed against the co., court will not hear the
same,

2) If co. deny or otherwise refuse to acknowledge the info. Provided by the SH, now nothing
shall prevent the court from hearing the petition,

3) The amendment shall remains in halt, until the final decision from court comes out after
making petition by such SH/SH’s

4) Court may issue an appropriate order, specifying following terms and conditions:
 Declaring amendment made to objective of company, fully or partly valid or void,
 Requiring the co. to subscribe the shares & other rights held by such SH/SH’s,

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 Companies Act, 2063

 While subscribing as an above, it shall be done through free reserves as specified

in sec. 61 OR otherwise reduced the SC by the same amount.

5) If there is any alteration in MOA/AOA due to the order of court, then it shall be deemed to
be done by the GM of such co.

6) Once incorporated as limited liability co., then such limited liability clause cannot be
altered.

Q.N. A resolution was passed by the general meeting of Civil Powers Pvt. Ltd. amending some clauses of its
memorandum and articles. The company by next day gave information of the amendment to the office of the
company Registrar. Some of its shareholders who were dissenting to the resolution intend to challenge the
resolution.
Advise them in the following matters as per the Companies Act, 2063:
I) When the amendment takes place effectiveness? I
II) Can the amendment be challenged?

Section 22: MOA/AOA to be published by Public Co.

1) Publish publicly within 3 months from date of:
 BCC obtained u/s 63
 If amended, from date of amendment
2) Keep them at Registered Office of the company [Read along Sec 108(3)]

Q.N. Proposal Company Ltd. is a newly incorporated company. The promoters had no information about the
publication of its MOA and AOA and thus requested you to give necessary suggestion on the following matters as
per the Companies Act, 2063.
1. Is a newly incorporated company required to publish its MOA and AOA? If yes, what is the time limit?
2. Will the answer be different if an existing company makes amendment in its MOA and AOA?
3. Where should the company keep the amended MOA and AOA?

Section 23: Prospectus to be issued

Procedure for Publication of Prospectus:
Step 1: In case of Public co, mandatory to issue prospectus, prior to issuance of it’s securities
Step 2: Signed by all directors
Step 3: Obtain it’s approval from SEBON
 Declaration by co. that the provision of this act has been complied with
 SEBON shall require to amend or alter the prospectus as per necessity
Step 4: Got registered such prospectus with OCR
 OCR may refuse to registered the same, if there seems non-compliance of this act
Step 5: Publish the prospectus

Points to be considered:
1) If anyone demands copy of Prospectus, co. shall provide the same after obtaining the
prescribed fees,
2) Co. shall mention in the covering page of prospectus:
 That it is approved from SEBON
 Registered with OCR
 Date of such approval and registration

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 Companies Act, 2063

 SEBON & OCR shall not bear any kind of responsibility in respect of matters
contained in such prospectus

Q.N. You are the legal advisor of the Dev Limited. Mr. Ram Lal, chairman of the company wants to know the
following:
I) When a public limited company is required to issue the prospectus?
II) Who shall sign the prospectus?
III) What are the procedures of publication of prospectus?

Section 24: Liability for matters contained in prospectus

1) Duty and obligation of the concerned company to:
 Abide by the matters contained in the prospectus,
2) Directors who have signed the prospectus shall be:
 Liable for the matters mentioned in that prospectus.
3) If any published prospectus:
 Contains false statements made maliciously or deliberately and
 Any person sustains any loss or damage by reason of his/her subscription of
securities on the faith of that prospectus,
(The directors who have signed that prospectus shall be personally liable to pay
compensation for the actual loss or damage so sustained)
(i.e. Lifting of corporate veil)

Exception: Directors, not to be liable to pay compensation:

 Who resigns before the decision made by the co. to publish the prospectus OR,
 Who on becoming aware of any false statement in the prospectus, publishes a notice of
that matter to the information of the general public prior to the sale or allotment of
securities OR,
 Who proves that he/she did not know that the prospectus contained any false
statement.

Q.N. Suravi, a director of River Palace Ltd. was involved in preparing prospectus and with her some objections
she signed on it. The prospectus is approved and registered to the Office of Company Registrar and accordingly
published. When she knew that the director signing on the prospectus with false contents shall be liable
personally for loss caused to the investors, therefore, asked you whether she can be freed from such obligation.
Advise her.

Section 25: Duplicate copies to be issued

1) Demand duplicate Documents submitted by company to the Office to:
 Concern Company.
 If it denies, to OCR
2) Who may demand such documents?
 Pvt company: SH/Concern Person
 Public company: Any person

Section 26: Seal of Company and it’s use

1) Seal:
 Use seal, if intends (i.e. prescribes at AOA)

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 Name in clear legible letters

 Use at all official documents
2) Signatory is personally liable, if fails to indicate name of company

Section 27: Face value of Shares

1) Pvt Co: As mentioned in AOA
2) Public Co.:
 Min. Rs. 50 per share
 If >Rs 50, divisible by 10.
 Call amount at the time of application: not more than 50% of FV of shares
(Max 50% of FV)
Exception: Call amount to be more than 50% of FV:
 Operation since at least 3 yrs ago,
 Audit it’s f.st for last 3 yrs &
 Publishes audited f.st for it’s last 3 yrs
3) Person intends to subscribe the share of the co. shall apply for the same with the co.

Q.N. Sanu Laghubitta Bittiya Sanstha Ltd. is in operation since 5th Ashwin 2075 and has been regularly
publishing its audited financial statements from the date of operation. The company published a notice on 4th
Poush 2079 regarding its initial public offer inviting for subscription of its shares with payment of full value of
shares along with the application. However, section 27 of the Companies Act, 2063 states that in inviting an
application by a public company for the subscription of its shares, no amount exceeding fifty per cent of the face
value of each share shall be demanded with the application. Is the issue of share by the concerned company
inconsistent with the Companies Act, 2063?

Section 28: Allotment of shares

Step 1: Allot the shares within 3 months after the date of closure of share issue,
 If min 50% subscription
Step 2: If fails to allot, apply to OCR within next 7 days of expiry of above 3 months for:
 Extension of time period up to 3 months
(i.e. In total 6 months for allotment)

Reason for failure to allot the shares:

 Min. Subscription is less than 50%, OR
 Min. Subscription is at least 50% but for any other reason could not allot the same
to at least 50% subscription.

Step 3: If again fails to allot within extended 3 months:

 Allot the shares through any other means
Step 4: If again fails to allot:
 Refund the money to SH’s who has subscribed the shares along with interest
Step 5: If fails to refund:
 Promoters & directors liable personally to refund
(i.e. Lifting of corporate veil)
Step 6: If allotment is done discriminatorily or with intent to cause loss or damage:
 Such person may file petition to the court along with reason for the same.

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 Companies Act, 2063

Step 7: Court may order for realization of loss or damage + expenses incurred in legal
course of action to be compensated to the person who has filed petition from the
Officer or any Employee violating the provision or causing investor to sustain loss.

Q.N. What do you mean by allotment of shares? Write down the process of allotment of shares as per Companies
Act, 2063.

Section 29: Power to issue shares at Premium

Step 1: For public company who can publicly issue shares:
 They can issue shares in premium if the conditions as per the Securities Laws are
fulfilled.
Step 2: For other public companies and all private companies:
 Net worth should be positive &
 Approval of GM required.
Step 3: Share premium should be deposited in separate account.
Step 4: Use share premium shall be used only for:
Mnemonics: PBCDEP
 P= Preliminary Expenses, written off,
 B= Issue of Bonus Share,
 C= Commission payable while issuing the shares,
 D= Discount on issue of shares, written off,
 E= Expenses incurred while issuing the shares,
 P= Premium payable on redemption of preference shares, written off.

Q.N. PQR Company is making profit for the last two years, the Board of Directors (BOD) of PQR Company
wants to issue premium shares. The BOD consults you regarding the pre-conditions of and the procedures for
issuing premium shares. Suggest the BOD of PQR Company about the pre-conditions to and the procedures for
the issue of premium shares under the Companies Act, 2063, and also subject to it whether PQR Company can
premium shares or not.

Section 30: Shares with different rights and rights of such

shareholders
Substantive Law:
 By making provision on it’s MOA/AOA, Co. can issue different class of shares
with different rights

 The BOD shall submit a proposed resolution on the alteration in the rights of
the shareholders of any particular class to the GM of the SH’s of the concerned
class and adopt such resolution as SR by GM

Procedural Law for Alteration in rights of SH:

Step 1: Approval of SH of any particular class, required to make any alteration in rights of those
SH’s of that class.

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 Companies Act, 2063

(Provided that no alteration maybe made in rights of SH’s of any particular class in a manner to
adversely affect rights of shareholders of any other class)

Step 2: SH’s representing at least 10% share of any particular class who are dissatisfied with
the alteration, may file petition to the court to make such decision void,

Step 3: The decision shall remains in halt, until the final decision from court comes out after
making petition by such SH/SH’s

Step 4: Petition shall be filed by such SH’s within 30 days after the decision of such alteration

Step 5: If seems in favor of dissenting SH’s, court may quash the decision of such alteration

Step 6: In privatizing a company fully or partly owned by the GON, as a shareholder, GON
may have special voting right in making decision on the following matters,

 In making decision pursuant to clause (a) of subsection (1) of section 105,

 In making decision on voluntary liquidation of the company,
 In making decision to amalgamate the company into another company.

Q.N. Can a company issue shares with differential rights? What can do if the rights of different shareholders
have been affected?

Section 31: Return of shares to be filed with office

1) A co. shall file, within 30 days after alloting shares, with OCR a RETURN of allotments
stating:
 No. of shares issued and allotted,
 Total amount of shares,
 Names and addresses of the allottees,
 Amount paid on each share,
 Amount due and payable on each share.
2) If share were sold by other than cash consideration, details of the value/consideration
deemed received and receivable should also be included in above.

Section 32: Dealing Securities

Public issue by public company:
 Step 1: Conclude agreement with securities dealer
 Step 2: Submit such agreement copy to OCR within 7 days

Section 33: Share certificate

Step 1: Issue share cert. within 2 month from allotment
Step 2: Signature at Share certificate:
i) Public Co: Any 2 out of director, company secretory or CEO,
ii) Private Co: As per AOA, Consensus Agreement.
Step 3: Shall act as Prima facie evidence (On sight evidence) of ownership, conclusive
evidence as per sec 46,

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 Companies Act, 2063

Step 4: In case of Joint SH:

 Issue SC to any one of them specifying their name in such SC
Step 5: In case SC lost due to any divine act:
 Apply to the RO of co.
Step 6: Listed company:
 Issue securities deposit passbook or any other certificate instead of a share
certificate

Q.N. Give your opinion on the followings questions regarding share certificate:
A. What do you mean by Share Certificate?
B. Within what time limit share certificate need to distribute?
C. Who shall sign in the share certificate?
D. What need to be done by shareholder in case of share certificate is lost/destroyed and damaged?
E. To whom share certificate need to be distributed in case of joint shareholders?

Section 34: Raising loans or issuing debentures

Process:
Step 1: Fulfill following criteria by Public co.
 BCC Obtained u/s 63
 Issued capital fully paid, &
 Frame Work Plan & Budget
Step 2: Make written deed with loan lender or Deb. Trustee, if deb., stating:
 The time and mode of repayment of loan or interest and provide the info. to
SEBON & OCR.
Step 3: May obtain Additional loan/deb. against same earlier pledged security by providing
the info:
 To the new loan lender about previously pledged one

Q.N. Power Ltd., a public company, received its certificate of incorporation on 2078.06.05 and certificate of
commencement on 2078.09.04. It has authorized capital of Rs. 100 million, issued capital of Rs. 80 million and
paid up capital of Rs. 50 million. The company is facing financial difficulties and for mitigating its financial
problem, the meeting of Board of Directors decided to issue debenture on 2079.01.21.
Please comment with reference to the Companies Act, 2063.
1. Provision for raising loans and issuing debenture.
2. Can the company issue debenture to mitigate its financial problem?

Section 35: Procedure for issuing debentures

Step 1: Make a provision of debenture trustee, i.e. licensed from SEBON
Step 2: Conclude an agreement with DT, stating:
 The matter relating to the creditor and borrower
Step 3: If debenture can be converted into shares:
 Such shall be provided in MOA/AOA
Step 4: If debenture can be converted into shares:
 Such shall be provided in prospectus too
Step 5: Court can issue an order to perform:
 Specific performance in a contract concluded between public company and any
person in respect of subscription of debenture issued by that co.

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 Companies Act, 2063

Section 36: Agreement to be concluded between Company an DT

Step 1: Agreement to be concluded
Step 2: Matters to be set out in agreement:
 Valuation of company’s assets, project analysis or management analysis,
 Period of repayment of principal, interest of deb., int. rate, mode of repayment,
conversion of deb. into shares,
 Rights of other creditors over assets of Co. and liabilities that may arise there
from in the future,
 Actions/Remedies at breach of contract by company,
 Service charges and other direct expenses of DT,
 DT not be liable to any loss or damage,
 DT entitled to take such legal action on behalf of DH,
 Other necessary matters.
Step 3: DT has power to take:
 Security of assets & get registered in his name for the protection of interest of
investors

Q.N. Chief Executive Officer (CEO) of ABC Company Private Limited wants to raise debenture from general
public. Give answers on the following:
A) Can the Private company issue debenture?
B) Does the CEO have authority to issue debenture?
C) What will be the situation, in case of the public company?
D) Whether the approval needs to be obtained or not?
E) Is there agreement need to be concluded with any party before issuance of debenture?

Q.N. What do you mean by Debenture Trustee? What are the matters to be included in agreement between
company and debenture trustee.

Section 37: Inquiry and demand of statements by DT

(Prior to concluding as agreement to act as DT of co., DT shall inquire and demand:)
1) If MOA or AOA of company authorizes, and if so, if BoD has powers to make decision to
raise debentures,
2) If MOA or AOA prescribes that deb. maybe raised through DT,
3) If existing assets of company can cover value of deb. raised,
4) Matters relating to other creditors & liabilities
5) Company’s balance sheet and auditor’s report.
6) Such other necessary matters as DT consider being appropriate.

Section 38: Company to submit periodic statements to DT

After concluding agreement:
 Submit its statements of financial transactions to DT in every 6 months.

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 Companies Act, 2063

 If change in the management or ownership of the co. after rising of debentures,

give information thereof to DT within 7 days after such change.

Section 39: Rights and Liabilities of DT

Rights:
 If co. violates sec 36, DT shall make the co. to make repayment of principals +
interest to the DH’s
 Power to take the financial transactions of the co. under control and possess the
security and sell such assets by auction
 Make payment to the DH’s from the auctioned money and if remains any, return
the same to the co.
Duties:
 Act properly at interest of DH.
 If auctioned amount is not sufficient, DT shall make the payment in pro-rata basis
 DH’s can not recover the unpaid amount from DT (i.e. DT not liable for any loss)

Removal of DT:
 DH/DH’s holding 50% of debenture may remove the DT by showing the reason
that DT is unable to act in the interest of DH’s by making application to SEBON,
 If SEBON deems satisfactory, may remove the DT and arrange for another DT.

Q.N. What are the rights and duties of debenture trustee? Is there any provision for removal of appointed
debenture trustee? If yes, write in accordance with companies act, 2063.

Section 40: Service charges to be collected by Debenture Trustee

To be paid by company:
 Service charge
 Actual expenses

Section 41: Debenture Trustee to have rights of Debenture Holder

To represent DH at:
 Liquidation or Insolvency of company
 Filing case to court against company

Section 42: Sale or Pledge of shares or debentures

Substantive Law:
 Yes, can do so, by providing the same in MOA/AOA

Applicability of Sec 42:

 Public Co.
 Private Co. taking loan from another co.

Restriction to Promoter:
Shall not sale or pledge his/her share:
 Till 1st AGM held

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 Companies Act, 2063

 Promoter’s share is fully paid up

Procedural Law for selling or pledging the shares or debentures:

Step 1: Pledgee apply to co. for recording the pledge with:
 Application at prescribed format
 Fees as maybe prescribed at AOA
 Copy of deed relating to the sale/purchase of share or debenture
 Share or debenture certificate
Step 2: Co. record/reject such application of pledgee within 15 days of such application
Pledger: Debtor
Pledgee: Creditor

Q.N. Mr. Subash Nepal, a promoter of Nepal Ltd has taken loan of Rs. 5cr at the time of incorporation. Shorty
after incorporation (within 4 months), COVID came and the whole business got shut down. Mr. Bigyan K.C.,a
financial and economical analyst, friend of Mr. Subash Nepal, suggest him to come out of that company since
COVID seems to go for a long period and will effect the economical condition of that business adversely.
Knowing these fact, Mr. Subash Nepal wants to sell his shares and wants to get relief from Nepal Ltd. Is the
action taken by Mr. Subash Nepal is in the light of provision mentioned in Companies Act, 2063? Explain.

Section 43: Transmission of Share or Debentures

Step 1: Buyer apply to co. for transmission along with:
 Application at prescribed format
 Fees as maybe prescribed at AOA
 Copy of deed relating to the sale/purchase of share or debenture
 Share or debenture certificate

Step 2: Co. transfer/reject within 15 days

Step 3: Seller also may apply for transmission

Q.N. What do you mean by Transmission and Transfer of shares? (Refer difference between part at the end)

Section 44: Refusal to register transmission of share/debenture

Grounds for refusal by co.:
 Call on share, if not paid,
 Contrary to AOA/Agreement between SH &
 Transfer Fee, if not paid
(Refusal Notice to both (seller & buyer or pledger & pledgee) parties within 15 days)

Q.N. Hari Krishna, a shareholder of a private company wants to sell and transfer all his shares to Buddhi
Prasad, another shareholder of the company. He has no knowledge regarding the transfer of the share of a
private company and wants your advise on the followings:
a. If Hari Krishna is entitled to sell and transfer all his shares to Buddhi Prasad?
b. Are there any restrictions imposed by law in the sell and transfer of shares?

Section 45: Other circumstances where shares or debentures may be

transmitted
Other than sell and purchase of share and debenture:

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 Companies Act, 2063

CASE:
 Death
 Insolvent
 Or Other conditions as per prevailing law

Process for Transmission:

Step 1: Due to happening
The person so entitled to share and debenture due to happening of any of above condition to
any SH/DH, such entitled person is required to:
 Make application to the co.,
 Submit evidence of such entitlement,
 Make payment of prescribed fees
Step 2: If co. deems satisfactory, may transfer the share and debenture in his/her name.
Exception:
 However, if share has not yet been transferred to successor so acquiring title, if
an instrument of transfer of share held by previous shareholder and his/her other
rights over such share is executed by his/her heir established under prevailing law,
such transfer shall be deemed to have transferred to such successor.

Q.N. Mrs. Durga Kandel is daughter of Mr. Hemprasad Kandel, who is a substantial shareholder of Chitwan
Hydro-power Pvt. Ltd. located on Muglin, Chitwan. On 5th Ashoj, 2080, company announced dashain vacation
from 7th Ashoj to 17th Ashoj. At the evening of 6th Ashoj, Hemprasad left Chitwan. On meanwhile, the road in
under construction and due to foggy night, the bus got into an accident and Mr.Hemprasad Kandel dies on the
spot. Being the person subscribing substantial shares of the company is no more, the directors of Chitwan Hydro-
power Pvt. Ltd. erased his name from shareholder register and cancelled the share to the extent of his
subscription. Examine the action taken by board of directors of Chitwan Hydro-power Pvt. Ltd. in accordance
with companies act, 2063.

Section 46: Register of Shareholders and Debenture holders

Step 1: Mandatory requirement to every co. to maintain SH/DH register at it’s RO
Exception:
 Listed co. May have such register maintain by it’s Securities Registrar (SR)
 In case of false maintenance by such SR, liability to be borne by it not by co.

Step 2: Contents of SH/DH register

 Full name and address of shareholder,
 No. of shares subscribed by the shareholder,
 Total amount paid by SH and outstanding amount payable by him/her for share,
 Date of registration of his/her name as SH,
 Date when his/her name was struck off,
 Name and address of the nominee after death of SH, if such nominee is appointed.

General Provision:
 SH/DH can inspect the register as maintained above by the co.
 SH/DH can have the duplicate copies of such register after paying the prescribed
fees to the co., except in case where inspection is closed.

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 Companies Act, 2063

Exception:
 Closure of Inspection Period:
I) Max. 30 Consecutive days at a time, OR
II) 45 days in total in a FY

Procedure for book close:

 Public co: 7 days advance notice in national daily newspaper
 Private co: As per AOA or consensus agreement

Q.N. Mr. Prakash, a shareholder of close up limited was denied inspection of the shareholder’s registration book
by the company because it had closed inspection for 40 days (April 01, 2017 to March 10, 2017) due to its
impending AGM. Is the company’s action valid? Can a shareholder also demand a copy of the registration book?

Section 47: Information on title to share

Shares with full voting rights only:
Step 1: Co. may ask any info. to such SH having full voting rights,
Step 2: Duty of SH to give info. within 30 days to the co.,
Step 3: Co. shall forward it to OCR within 7days after recording it at register by the co.

Q.N. Mr. Kundan is a new shareholder of XYZ Real Estate ltd. who has subscribed 15,000 unit of shares having
par value of Rs. 100 with full voting rights. The directors of company suspects that the fund used in subscribing
the shares might have been invested by a corrupted person. So, they are planning to enquire Mr. Kundan to
identify the real owner of the shares.
Suggest the company if it is entitled to enquire him regarding the identification of beneficiary of the shares
pursuant to companies act, 2063. Will your answer be different if the shares subscribed by him were without
voting rights?

Section 48: Address of Shareholders

Step 1: Address of SH = Address mentioned at SH Register
Step 2: If address Change, inform registered office immediately by such SH
Step 3: Director/Co. Secretory shall record address so changed at SH Register.
Step 4: When a notice is sent to such address, a notice required to be sent by a co. to SH under
this Act shall, unless otherwise proved, be deemed to have been duly sent and received
by the concerned SH.

Section 49 : Index of Shareholders

Mandatory Requirement: Every Co. having > 50 SH’s
Not Required: If SH register is so maintained that it clearly constitutes
alike an index itself.
Alteration in SH register: Necessary alteration to be made in such index within 30 days of
alteration.
Maintained: In such manner that info. can be readily found regarding any SH
Kept together: Along with SH register.

Q.N. Cosmos Cement Industries Pvt. Ltd. consisted 79 shareholders from the starting of it’s business till today.
Since, the director are not literate enough to figure out the provision mentioned in companies act, 2063, they
hired CA. Bishnu Prasad Pandey on the next day of it’s incorporation, for operating it’s business as per laws and
regulation . CA. Bishnu, while studying on CAP II and CAP III, always used to bunk his class during law period

SUBASH NEPAL ２５
 Companies Act, 2063

and do not know the provision mentioned in companies act, 2063. Therefore he did not maintain the index of
shareholder stating there are only 79 shareholder for whom we can easily find out the required documents from
the drawer. Examine the validity of action taken by CA. Bishnu Prasad Pandey in accordance with companies
act, 2063.

Section 50: Substantial Shareholders

Public co.:
SH or his/her agent, holding shares with full voting rights:
 5% or more, if PUC upto Rs 25 Crore (Rs. 250 million)
 1% or more,if PUC more than Rs 25 Crore (>Rs. 250 million)

Information to Co. about entry or exit into/from being Substantial SH to be provided by such
SH to the co:
 within 30 days of knowledge of such entry/exit

Q.N. Mr. CP Mishra, shareholder of ABC Limited, a public company, holds 2% ordinary shares out of total paid
up capital of Rs. 300 million. Mr. Mishra is of the opinion that since his holding in less than 5%, he is not the
substantial shareholder of the ABC Limited and not required to give any information to the company. Critically
examine the opinion of Mr. Mishra citing relevant provision of the Companies Act, 2063.

Section 51: Inventory of Shares, Debentures and Loans

Step 1: Prepare before 21 days of AGM as on of 30th day before AGM

30 days 21 days Submit to OCR

AGM 30 days
Prepare

Step 2: Inventory of record:

 Authorized Capital and no. of share,
 Issued share capital,
 PUC capital,
 Calls made on every share,
 Total amount of installments paid,
 Total amount due and recoverable,
 Loans borrowed from any BFI’s,
 If investment in another co’s shares/debentures, amount so invested,
 Name and addresses of existing directors.
Step 3: Signed by at least 1 director
Step 4: Submit it to OCR:
1) If AGM held: Within 30 days after AGM:
2) If AGM not held:

For first time:

 As per relevant law: If co. need not hold AGM,
 Within 1 year of obtaining permission: If AGM is not held till date

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 Companies Act, 2063

 Within 1 year of date of registration: If AGM is not held till date by such
co. where permission is not
required
For subsequent time:
 Within 6 months: Annually

Q.N. What are the matters of inventory to be published by a public company? What is the time period for such
publication? When it should be submitted to OCR? Is there any provision regarding validation of such inventory
before publication? If yes, discuss such matter as per companies act, 2063.

Section 52: Lien on Shares

If any SH defaults to pay to Company, it may recover such receivable moneys:
 By attaching (seizing) a share registered in the name of SH and dividends
payable thereon,
 By deducting same from dividends setting off of money receivables from such
SH

Section 53: Payment of amount of Shares

Requirement of SH/SH’s:
 To pay the call amount as per mentioned in AOA

Requirement of Company:
 At least 30 days prior notice to be given stating
a) Call amount,
b) Time period for payment &
c) Place.

 In case of Public Co: Publish the notice in national daily

newspaper for at least 2 times
 If paid by SH/SH’s: Fine
 If not paid by SH/SH’s:
a) Extend the time period for max 3 months
b) Accept the call amount, if paid within 3 months, along with interest

 If paid within extended time period: Fine

 If not paid within extended time period:
a) Provide a notice to such SH who defaults in payment, stating their
share can be forfeited, if not paid the call amount shortly thereafter,
b) In case of Public Co: Publish the notice of forfeiture in
national daily newspaper for at
least 3 times

 If paid after notice of forfeiture: Fine

 If not paid even after notice of forfeiture:
a) Forfeit the all share

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 Companies Act, 2063

b) If co., has distributed dividend, forfeit the share beyond dividend

amount

 If any co. has gone on liquidation prior to forfeiting the share, it shall recover such
unpaid amount as a “loan”.
 After forfeiture, co. is required to:
a) Refund the money already paid up on such forfeited share within 3
months of such forfeiture OR
b) Re-issue the new share to the extent of paid up amount

 If refunded within 3 months by the co: Fine

 If not refunded within 3 months by the co: Liable to pay interest thereon

Special Power to the co: (to be kept as Reserve Capital)

 Having profit for 3 consecutive years
 Pass SR in AGM
(To call the unpaid amount on each share at the time of liquidation only)
Exception:
If unpaid amount on share is required before liquidation, can be called by passing SR in
AGM.

Q.N. 10,000 shares of Koshi Hydropower Ltd. with Face Value of Rs. 100 each and Rs. 50 paid up were jointly
held by Mr. Tapan Niroula and his friend Ms. Sangita Thapaliya. The meeting of Board of Directors of the
company decided to make calls on share of Rs. 25 each. The company issued notice to the shareholders to pay the
calls in arrears within 15 days of the notice but Ms. Sangita disagreed to pay the proportionate amount of the
calls on arrears. Advise Mr. Tapan and Ms. Sangita on their liability to pay the amount of call on shares held by
them jointly in the light of the provisions of the Companies Act, 2063. (Refer Section 54 too)

Section 54: Payment of Shares held jointly

Step 1: Pay call amount in proportion to his/her ownership.
Step 2: Ownership proportion:
 As per contract made between them.
 If no contract executed, equal ownership.

Section 55: Ownership of Shares and Debentures

If dispute upon ownership arises, SH/DH register is conclusive evidence to regard the actual
owner of such shares and debentures, unless otherwise proved.

Q.N. Mr. Baburao Ganapatrao Aapte has subscribed 2,200 units of share of Vivo Nepal Pvt. Ltd on 31st sharwan
2080. The company went for allotment within 3 months of closure of issue date and alloted the total no. of share
as is applied by Mr. Baburao Ganapatrao Aapte, to him. After 2 months of allotment, the company issued a share
certificate stating his name properly. Later on, it is found that Mr. Baburao has changed the name in share
certificate stating Mr. Kaburao Ganapatrao Aapte, son of his uncle, instead of his name by smoothly changing
“B’” to “K” and gives the share certificate to Mr. Kaburao. When Mr. Kaburao went in company, he saw the
name of Mr. Baburao in shareholder register for his share, which Mr. Baburao has given to him. Then Mr.
Kaburao filed a petition on court stating wrongful mention of name for his share. Evaluate the situation in
accordance with companies act, 2063.

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 Companies Act, 2063

Section 56: Alteration of Share Capital

Step 1: Co. can alter it’s SC as follows by passing SR in it’s AGM:
 By increasing it’s authorized SC as it thinks appropriate
 By consolidating or dividing all or any of it’s SC into shares of lager or smaller
amount
 By canceling the shares which is not yet subscribed or by canceling such shares
which is forfeited as per sec 53.
Step 2: If alteration is made in SC as above by passing SR in GM:
 Then it is deemed to be altered the MOA/AOA of the co.
Step 3: Requirement:
 Co. is required to provide the info. to OCR about the matters contained in SR,
 OCR need to make necessary alteration in MOA/AOA &
 OCR also need to provide the info of such alteration to the co. within 7 days.
Step 4: If there is any alteration in SC of any co. due to 3rd point of Step 1:
 Then it shall not be considered as done for reducing SC as per sec. 57 of this act.

Issue of Right Shares and Bonus Shares: (Pre-emptive Rights)

 In case of public co, prior to issuance of right shares:
Publish notice in national daily newspaper:
At least 3 times, prior to 15 days of such issuance for subscription by
it’s existing SH’s
 If co. is to issue Share as per this section, then provide notice at least 35 days
prior to issuance of such shares for subscription by it’s existing SH’s
 If subscribed: Fine
 If not subscribed: BOD may make such issue in any other manner i.e
Public Issue
 In case of right shares, existing SH’s holds pre-emptive right to subscibe such
share as per their holding i.e. cannot be issued to other person other than existing
SH’s
Exception:
 No co. is allowed to issue Bonus Share or Right Share from the Revaluation
gain

Q.N. Wild Fibers Pvt. Ltd. has intended to issue right shares but there was no unanimity within the Boards of
Directors. Hence, the Directors who were opposed to issue right shares asked you for your opinion regarding the
benefits of issuing of right shares. How can you give your opinion regarding the benefits of right shares?

Benefits of Issuing Right Shares

 More control on existing SH’s
 No loss to existing SH’s
 No cost for issuing shares to general public
 Helpful to increase the goodwill of the co.
 Capital formation

Section 57: Reduction in Share Capital

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 Companies Act, 2063

Step 1: Condition to be satisfied for reduction: (All condition to be satisfied)

 SR passed at AGM
 Court’s Permission
 Necessary amendment/alteration in MOA/AOA
Step 2: After court’s approval + satisfaction of other criteria as mentioned above, co. can
reduce it’s SC as:
 By reducing the SC to such an amount Paid up in issued SC
 By paying back any PUSC
 By devaluating the FV of share where the co. has sustained a huge loss.
Exception: Insolvent co. cannot reduce it’s SC.

Q.N. Jumla Apple Public Limited want to reduce the paid up share capital of the Company, but do not aware of
the provisions of the Companies Act. Give your suggestions on the followings:
a. How can a company reduce it's paid up share capital?
b. Can Board of Directors decide to reduce share capital?
c. Is there need to take approval from any authority?
d. What words shall be added as part of its name after reduction of share capital?
e. What is the liability of the shareholders in respect of reduced share capital?

Section 58: Procedure for obtaining approval of court to reduce

Share Capital
Step 1: If SR has been passed as per sec 57, co. shall file a petition in court for approval.
Step 2: Prior to hearing from court, co. is required to publish a notice at least 3 times in
national daily newspaper setting out the place and date of hearing,
Step 3: Any person having right to claim at the time of insolvency of co., can object in
reduction of SC of the co.
Step 4: Before hearing from court, co. required to submit the following list to the court:
 List of creditors
 Their Names
 Their Address &
 Amount of debt to be payable
Step 5: Court will provide permission + No creditors have right to object in SC reduction if:
 Co. agrees to pay the due amount to creditors
 Co. have made provision for payment to creditors
Step 6: If any fault seems in list of creditors:
Punishment to: All Directors + Person who signs such list

Exception: Not to be punished:

 Proves that he/she does not has knowledge of such omission
 He/she after knowledge of such fault, gives notice to the court, prior to make an
order by court
 He/she had exercised all reasonable care to avoid such omission or mistake
Step 7: Add the word “Capital Reduced” to the name of the co. and make publish a notice for
general public.
Step 8: Co., shall after reduction in SC, amend every issued Share certificate mentioning
about such reduction and authenticate the same.

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 Companies Act, 2063

Step 9: Co. shall not reduced it’s SC by reducing the reserve capital maintained as per sec
53(6).

Section 59: Liability of Shareholder in respect of reduced SC

 A SH of co., shall not be liable at the time of reduction of SC an amt exceeding:
Fixed amt of share - (Actually paid amt on such share )
OR
(Deemed amt that is considered to be paid)
 If the name of any creditors omits in the list before submitting it to the court and
later on if co. becomes unable to pay the same to the creditor, then the SH’s shall
be held liable to pay to the creditor to that extent as is payable towards the co.
 SH’s liability to pay to the creditor = Max FV of shares at the time of
subscription.
Exception:
 If the name of any creditors omits in the list before submitting it to the court due
to own negligence of creditors, then SH would not be liable to pay.

Q.N. Apple Public Limited want to reduce the paid up share capital of the Company, but do not aware of the
provisions of the Companies Act, 2063. Give your suggestions on the followings:
i. How can a company reduce it's paid up share capital?
ii. Can Board of Directors decide to reduce share capital?
iii. Is there need to take approval from any authority?
iv. What words shall be added as part of its name after reduction of share capital?
v. What is the liability of the shareholders' in respect of reduced share capital?

Section 60: Directors to be responsible in case of loss of net-worth of

company
Step 1: If the net-worth of a public co. is half of PUC or less, directors of co. Shall:
 Prepare an appropriate strategy for the interest of co. and SH’s
 Within 35 days of knowledge of this matter, present as separate resolution at
GM to be held immediately after knowledge of such matter
 In case AGM’s approval is necessary to implement such strategy, then EGM can
be called promptly

Step 2: Directors to be liable for punishment if:

 They fails to prepare strategy
 They fails to present a separate resolution at GM
 They knowingly permit the existence of situation where such meeting can not be
called

Step 3: If it is held that the net-worth of the co. has been reduced as a result of malafide
intention or malicious recklessness of any director, the directors who commits such
acts shall be liable to pay the compensation for the same.

Q.N. Write short notes on: Director’s Responsibility for the loss of Net-worth of the company

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 Companies Act, 2063

Section 61: Prohibition on purchase of it’s own shares by company

General: No co. Shall:
 Purchase it’s own shares
 Lend money against the security of it’s own shares

Exception:
A co. may buy back its shares out of it’s free reserves available for being distributed as
dividends, by giving info. to OCR, if following all condition gets satisfied:
 Fully paid up
 In case of public co., Listed
 Buyback is authorized by AOA
 SR has been passed at GM to buy back the shares
 Ratio of debt owed by the co. is not more than twice the capital & GR after
buyback
 Value of buyback shall not be more than 20% of [PUC + GR].
 Buyback is not in contravention of directives issued by OCR

Other points to remember:

1) While passing resolution of buyback, state the following matter:
 The reason and necessity of buyback
 A statement of evaluation of possible impacts of the financial situation of the co.
after buyback
 The class and no. of shares intended to be bought back
 The max. and min. amount required to buyback and financial source of such
amount
 Time limit for buyback
 Mode of buyback
2) Co. shall buyback the shares within 12 months after passing SR.
3) Co. can buyback it’s shares in any following manners:
 Purchasing from stock exchange,
 Purchasing from concerned employee of the co., the shares alloted to him/her,
 Purchasing from existing shareholders in a proportionate basis.
4) Co. is required to provide the info. of buyback to OCR within 30 days about no. and
amount of shares bought back.
5) Co. is required to create CRR equal to the amount of shares bought back. (CRR is alike PUC)
6) Co. is required to cancel such bought back shares within 120 days of buyback.
7) Co. shall not re-issue the same class of shares as bought back, within 2 years of such
buyback,

Exception: Co. can issue such shares:

 To issue bonus shares,
 To pay to the creditors.

Exception: No public co. shall buy back it’s share in a manner that:
 Min no of SH’s < 7
 Min PUC is < 1 crore

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 Companies Act, 2063

Q.N. Board of Directors of the Koshi Company Ltd. is in view that the company is over capitalized and advisable
to consider to buy back its own share. Give your opinion to the company's Board of Directors regarding the
provisions of the Companies Act, 2063 about buy back its own shares by the company

Q.N. PQR Limited has a paid up capital of Rs. 30 lakhs, reserves of Rs. 10 lakhs and total loans of Rs. 70 lakhs in
it’s balance sheet. The company desires to buy back it’s capital amounting to Rs. 10 lakhs. Examine the legality of
the extent of the proposed buy back by PQR Limited.

Section 62: Prohibition on Providing Loan or Financial Assistance

by company to purchase it’s own shares
General Provision: Shall not provide to purchase shares of it’s own, Holding or Subsidiary co.
Exception: Shall be provided to employees subscribing fully PUS, under employee share
scheme

Q.N. Hamro Company Pvt. Ltd. provided loan to its employees and directors to purchase the shares of its holding
company under the scheme of selling shares to its directors and employees. Explain the validity of the transaction
with reference to Companies Act, 2063.

Section 63: Business Commencement Certificate

Public Company:
Mandatory: Public co., to commence it’s business.
(i.e. only after obtaining approval from OCR)

Procedure for obtaining approval by Public Co:

Step 1: Make application to OCR
Step 2: Calls on promoters share to be fully paid,
Step 3: Provide for evidence to OCR of payment of calls amount by promoters
Step 4: If OCR deems satisfactory, grant approval for commencing it’s business

Exception:
 If PUC < 1 cr, OCR may not grant approval to commence it’s business.
 If regulatory body regulating such co. has specified any terms and condition
while issuing licenses under prevailing law, if such terms has not complied with.

Activities not to be carried on without obtaining approval:

 Publishing Prospectus
 Activities that may create liability to the co.

Exception: Allowed to carry:

 Convene EGM
 Meeting of BOD
 Management of the co.

Private Company:

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 Companies Act, 2063

 Shall commence it’s business after getting certificate of registration

 If required to obtain approval under prevailing law, such shall be obtained prior
to commence it’s business

Q.N. Nepal Insurance Ltd. is registered at the office of the company registrar (OCR). It has also applied with the
insurance board for the license to operate a non-life insurance business. Pending the issuance of the license from
the board, it held it’s first annual general meeting which is objected by some of the shareholders on the ground
that a public company having special objective cannot start it’s business activities unless license permission is
received from the concerned authority and a certificate of commencement of business is issued by OCR. Give
your opinion on the issue.

Section 64: Prohibition on issue or sales of shares at discount

General Provision: Company shall not issue or sale shares at discount.
Exception: Condition where issue or sale of shares at discount are allowed:
 Capital Restructuring of the co.,
 Conversion of loans into shares with approval of creditors,
 Issue to employee on employee share scheme
 Other condition as is approved by OCR

Q.N. Mount Everest Ltd. passed a special resolution at the meeting of the shareholders to issue shares at a
discount to a commercial bank. The objective of the issue is to convert the loan borrowed by the company from
the commercial bank to equity share. Discuss the validity of resolution passed in the context of the provisions
regarding prohibition to issue shares at a discount as specified in the Companies Act, 2063?

Section 65: Preference Shares (PS)

General Provision:
 Any co. can issue PS if provided in MOA/AOA of the company
 PS can not be converted into ES
Exception: Converted if provided by MOA/AOA

Matters to be disclosed while issuing PS:

 Dividend Receivable before ESHs or not,
 % of dividend receivable by PSHs,
 Dividend to be cumulative each year OR to be distributed only in profitable year,
 Whether preference is be given while paying the amounts of shares at the time of
liquidation,
 Whether entitled for voting rights or not and if were entitled, whether such right is
applicable in case of PS only or in other cases too,
 If applicable in other cases too, then to the what extent it can be used (i.e
10%,50%,80%….etc.),
 Whether PS can be converted into ES or not,
 Whether PS is redeemable after certain time or is irredeemable,
 Whether premium is payable on redemption or not,

Point to be considered:
1. RPS can not be redeemed unless it is fully paid up, (RPS=Redeemable Preference Share)
2. RSP to be redeemed only from:

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 Companies Act, 2063

 Free Reserves, which is otherwise to be distributed as dividend, OR

 From ES issued to redeem PS
3. If to be redeemed in premium:
 Create a separate a/c name “Premium payable on redemption of PS”
 Set off from Securities Premium or Free profits
4. If co. does not make fresh issue for redemption, then co. is required to create CRR with
such redemption value from free profits of the co.
5. CRR to be act alike PUC
6. Provide notice of redemption of RPS to OCR within 1 months of such redemption
7. Co. can issue fully paid Bonus Share from CRR

Q.N. The meeting of the Board of Directors of Royal Tours Ltd. decided to issue preference share as it was
authorized by its memorandum and articles of association. Advise them regarding the matters to be disclosed
while issuing the preferential shares.

Section 66: Restrictions on minor and person disqualified under law

to make contract to be Promoter
General Provision: Not eligible to be a Promoter of any co.
Exception:
 Can be a promoter by Operation of law [i.e Death of father (a Promoter), then
minor son can become a Promoter instead of his father]
 Sale, Purchase, Transfer of shares + contract: To be done by Guardians of such
minor or disqualified person

Q.N. Who are disqualified to be a promoter of the company under companies act, 2063. A, a minor who wants to
purchase the share of XYZ company, advice the minor under companies act, 2963.
Section 67: General Meeting
Types of meeting:
 Annual General Meeting (Sec.76)
 Extra-Ordinary General Meeting (Sec 82) Giving notice about place, date
In case of Public Co: and agenda of meeting to every
 For AGM: At least 21 days prior notice SH at the address supplied by
that SH to the co.
 For EGM: At least 15 days prior notice
 For both: Publish 2 times in National Daily Newspaper.
For Adjourned GM: At least 7 days advance notice in National Daily Newspaper, no need to
send individually

Point to be considered:
1. No decision shall be taken in GM for which no notice has been provided in advance
Exception:
 If agreed by 67% holding SH/SH’s or his/her proxy, who are entitled to vote. (see
along section 77 i.e 5%)
 If the matter was already notified for being transacted in any GM which has
been adjourned
2. Place to Hold GM:
I) In case of Public Co:

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 Companies Act, 2063

 District where RO of the co. lies, OR

 Adjoining district of district where RO lies, as is convenient to most of the SH’s

II) In case of Private Co:

 As specified in AOA: Within or outside the country
3. Discuss the matter as was provided in agenda at first
4. Original meeting and Adjourned meeting shall have the same powers
5. In case of corporate body being Sh of a co., any person appointed by such body shall be
entitled to attend and vote at GM on behalf of such body.
6. The proceeding at any GM shall not be void or invalid merely for the reason:
 Of accidental omission to give notice to any SH,
 Non-receipt of notice by any SH, sent at the address, which he/she has provided
to the co.
7. In case of private co., matters to be discussed in GM shall be specified in AOA.

Q.N. Daunne Resort Ltd is a public Ltd company having its registered office at Nawalparasi District. Some of the
directors of the company desire to hold its general meeting at Butwal, Rupandehi but some other directors desire
to hold its general meeting at Kathmandu. Suggest the company where should be the place of meeting as per
Companies Act, 2063.

Section 68: Directors required to Present

Mandatory: Every Directors, to be present in GM.
Exception: If not possible to be present due to circumstances beyond control, attend GM
through video conference (Online) or any other media.

Q.N. Mr. Madan, a director of Manakamana Limited unable to attend the 7th AGM of the company and in his
place appoints Mr. Lila Raj, proxy to attend the AGM in the capacity of the director. Is the appointment of proxy
valid? Explain with reference to the Companies Act,2063.

Section 69: Legality of Meeting

Requirement for legality of meeting:
 Notice u/s 67
 Quorum u/s 73

Section 70: Cases where attendance or voting in GM is Restricted

 No person shall be entitled to attend and vote in any GM;
On any discussion to be held in respect of any terms and condition entered into
between co. and himself.

 No director or his/her partner or his/her proxy shall be entitled to attend and vote
in any discussion to be held in any GM;
In respect of the responsibility for any act done or omitted to be done or done
wrongfully in any act in which his interest or concern is involved.

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 Companies Act, 2063

 In case of Shares; if anyone has not paid the the call amount shall not be entitled
to attend and vote in GM.

 In case where any SH of co. appoints the directors of same co. as a proxy, such
director acting as a proxy shall not be entitled to attend and vote in GM in a
matter relating to the interest of such director.

 In case where any SH has taken loan by pledging his/her shares in any BFI and
such BFI has demanded the co. not to give him/her the right to attend and vote
in GM until and unless he/she repays the loan, till such period the concerned SH
shall not be entitled to attend and vote in GM.

Q.N. Mr. Adhikari is one of the shareholders in a company. He borrowed certain sum of loan fro a bank against
the pledge or security of the shares held by him. He failed to repay the loan and the bank instituted legal action
against him. It is claimed that since he is defaulter in repaying the loan he must be prevented from exercising
voting right in respect of shares in the annual general meeting for a period until he repays the loan. What is your
opinion?

Section 71: Right to Vote in General Meeting

 The SH whose name is registered in register maintain by the co. pursuant to sec
46, shall be entitled to attend and vote in GM at the rate of 1 vote for 1 unit of
share.
1 Person ≠ 1 Vote
1 Unit of Share = 1 Vote

 Any SH may appoint another person as his/her proxy to attend and vote in GM on
behalf of himself/herself.
 Proxy shall be appointed in writing + affixed by sign of such appointing SH.

 In case of Joint Shareholders, who shall be entitled to attend and vote in GM?
I) The person appointed by them on mutual consent
II) If not, then the SH whose name appears at first in SH register.

Q.N. Mr. Shyam Saran wishes to appoint his wife (not a shareholder) as his proxy to attend in AGM of Nepal dot
com ltd. He fills the company’s proxy form and hands it over his wife who goes to attend the AGM carrying the
proxy instrument with her but is denied entry. Is the company justified in denying the proxy?

Section 72: Provision on voting in election of Directors

No. of Vote = No. of Share Unit * No. of Vacant Post of Director

 Eg. A SH holds: 10 unit of shares

Post Vacant: 5
No of Vote: 10*5 = 50 Vote
 SH may cast:
I) All vote to 1 director, OR

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 Companies Act, 2063

II) As he/she deems suitable voting one or more directors.

 In case where corporate body is a SH:

I) Either, Corporate body can appoint director directly on the basis of share
holding
II) Or, Vote in appointing director
III) Or, Can file candidancy to the vacant post, to the extent of share holding
NOTE: Shall not be entitled to perform all act at as mentioned above at one time !

Q.N.

Section 73: Quorum

In case of Private co: As specified in AOA
In case of Public co:
 Original GM: Min. 3 SH’s representing > 50% of total no of alloted shares.
 Adjourned GM: Min. 3 SH’s representing > 25% of total no of alloted shares.
Exception: Presence of Min. 3 SH’s shall not be mandatory, in case of;
 Co. fully or partly owned by GON
 Development Board
 Public co. incorporated by another public co.
 AGM held by court (i.e. presence of any no of member shall form quorum)

Q.N. Discuss about the provision of Quorum of the Companies Act, 2063.

Section 74: Discussion and Decisions

 Chairperson of BOD shall chair in the GM
 In absence of Chairperson, any one from amongst BOD with mutual consent.
 Decision in GM: By majority
 In case of tie: Casting Vote by Person Chairing in GM i.e. Chairperson
 In case of SR: If SHs representing 75% shares out of SHs present in meeting vote
in favor of resolution.

Section 75: Minutes to be kept

Step 1: Content:
 Manner in which notice of the meeting was issued
 No. of shareholders present,
 No. of directors present in the general meeting through video conference or other
similar technology,
 % of representation of total shares,
 Result of voting.
Step 2: Sign in minute by:
 Chairperson of meeting + Co. Secretary
 If No, Co. Secretary, Chairperson+ SH Representative
Step 3: After Signature:
 Minutes shall be sent to SHs within 30 days of holding of GM.

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 Companies Act, 2063

Exception: If any co. publishes it in a national daily newspaper, then need not required to
send to every SHs.
 Minutes shall be kept at registered office of co.
 If any SH wishes to inspect such minutes during office hours, the co. sec. or such
other employee as designated by the company shall allow such inspection.
 If any SH wishes to get its copy, the co. shall provide it by collecting such fees as
specified by its AOA.

Section 76: Annual General Meeting

In case of Public Co:
 First AGM: Within 1 year of obtaining BCC u/s 63
 Subsequent AGM: Within 6 months of expiry of FY
 If not called: Within next 3 months of expiry of 6 months, OCR may
give direction to call AGM
 If not called: Within the period specified by OCR, any SH may make
petition to court stating the matters, then the court may:
I) Either, Held AGM
II) Or, Issue any appropriate order
 Quorum in case of AGM held by court: Any no of Present SH (Attendees at GM)
 Section 76 shall be applicable to all private co. having mentioned in AOA to
conduct AGM.
Exception: As per sec. 145, in case of private co., if in consensus agreement, there
mentioned not to hold AGM, then not required to hold so.

Q.N. EFG Ltd. was incorporated on 01.04.2078 and obtained the certificate of commencement of business on
15.07.2078. No General Meeting of the company has been held till 30.04.2080. Discuss the provisions of the
Companies Act, 2063 regarding the time limit for holding the first annual general meeting of the Company. Is
there any remedy for shareholders to call annual general meeting of the company.

Section 77: Matters to be presented and decided in AGM

Step 1: Directors shall present at AGM of public co:
 Audited financial statements,
 Auditor’s report and
 Director’s report / Board’s report
Step 2: SH/SH’s representing min. 5% of total no. of votes may by submitting an application
to the directors prior the issue of a notice under Sec. 67(2):
 Cause any matter to be presented at AGM for discussion and decision.

Step 3: At least 21 days prior to holding AGM, every public co. shall make arrangement so
that SHs can inspect and obtain copies of annual fin. stat, directors’ report and auditors’
report and publish a notice in a national daily newspapers for inform. thereof.

Step 4: Information can be disseminated (sent) through electronic media.

Step 5: If any shareholder makes a request for a copy of matters as mentioned in Step 2, co.
shall provide a copy of such reports to such SH.
Step 6: Decision to be made at AGM :

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 Companies Act, 2063

 Distribution of dividends,
 Appointment of directors and their Remuneration,
 Appointment of auditor and his/her Remuneration

Exception: The Rate of dividends, fixed at AGM shall not exceed the Rate fixed by BOD
Rate fixed by BOD: 25%
I) Rate fixed by AGM: 20% Valid
II) Rate fixed by AGM: 30% Invalid

NOTE: BOD only proposed the dividend, whereas it got approved only at AGM.
For Cash Dividend: Pass OR
For Bonus Dividend: Pass SR

Q.N. Can Annual General Meeting pass higher rate of dividend as proposed by the board of directors?

Section 78: Report to be Submitted to OCR

Every public company shall prepare report pursuant to Sec. 78
Approve by its BOD & Certify by its Auditor
 At least 21 days before AGM
 Submit to OCR
NOTE: Refer sec. 51 for detail understanding, both provision are almost similar !!

Q.N. Mr. Lal, a newly appointed Company Secretary of Buddha Steel Ltd, has heard that Company should submit
Annual Return under Section 78 of Companies Act, 2063, but does not know when it should be submitted and
what matters it should contain. As you are corporate consultant, he approaches you. Advise Mr. Lal regarding the
provisions of submission of Annual Return under Section 78 of Companies Act, 2063.

Section 79: Preparation of Documents for AGM

Step 1: At least 21 days before AGM, every public co. shall prepare:
 Annual financial statements,
 Directors report,
 Auditor’s report to be discussed in the meeting,
 Report prepared under Section 78 and
 Resolutions to be presented in the meeting.
Step 2: Keep the same at its registered office so that SH’s can inspect them.
Step 3: If any SH makes an application for a copy thereof, provide to him/her.

Section 80: Return of AGM to be forwarded to OCR

Step 1: Submission time limit: Within 30 days of AGM
 Present no of SH’s
 No. of directors present through video conference,
 Annual Financial Statements,
 Board Report
 Auditor’s Report

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 Companies Act, 2063

Decision made in AGM

Step 2: Submission time limit: Within 6 months of expiry of every FY
 Annual Financial Statements
 Auditor’s Report
(NOTE: Step 2 is applicable in case Step 1 can not be held or fulfilled)

Step 3: May be submitted through online media.

Section 81: Fine to be imposed in case failure to submit report

Step 1: Mandatory required to submit report to OCR
Step 2: Failure to submit report as per sec. 51, 78, 80, 120, 131 or 156:

 Fine on the basis of paid up capital & expiry of time.

Paid up After expiry, Within next 3 Within next 6 After 1

capital within 3 months months (i.e. 6 months (i.e 1 year) year
months)
Up to 25 lakhs Rs. 1,000 Rs. 1,500 Rs. 2,500 Rs. 5,000
p.a.
More than 25 Rs. 2,000 Rs. 3,000 Rs. 5,000 Rs. 10,000
lakhs upto 1 p.a.
crore
More than 1 Rs. 5,000 Rs. 7,000 Rs. 10,000 Rs. 20,000
crore p.a.

Step 3: Violation of Other Sections:

 After 1 month of expiry of time limit, Fine: Rs 200 per month but not
exceeding Rs. 1,000 per FY.
(Due date: Ashad end, fine shall be imposed from Bhadra 1st)

Q.N. Hatemalo Company Ltd, a company not distributing profits has not submitted the returns required to be
submitted to Office of the Company Registrar since last 3 years. What fine will be imposed to the company as per
section 81 of Companies Act, 2063?

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 Companies Act, 2063

Section 82: Extra-Ordinary General Meeting

Step 1: The BOD of a co. may convene an EGM if deems necessary.
Step 2: May request the BOD to call an EGM, if it
Auditor seems necessary to call while examining
the books of accounts of the co.

If called: FINE If not:

Shall make an application

OCR and OCR may call the
EGM of the co.

Step 3: SH/SH’s holding:

 At least 10% of share of total PUC, OR
 At least 25% SH’s out of total SHs

Shall make an application The BOD shall have to call

OCR with reason to call an an EGM within 30 days of
EGM request of SHs to OCR.

Step 4: If not called by BOD within 30 days, then SHs shall make a petition to the OCR and
OCR may cause to call such meeting
Step 5: If OCR deems necessary to call an EGM in a view of findings of any inspection or
investigation, it may itself call or cause the BOD to call such meeting.

Q.N. During the course of Audit of Nepal Commercial Bank Limited, auditor of the bank found some
irregularities during the course of audit. He would like the shareholders to know about these irregularities.
Therefore, he wants to have the bank‘s extra ordinary general meeting (EGM) convened and he approaches you
for consultation for convening EGM. Could you explain how the EGM of the bank can be convened pursuant to
the Companies Act, 2063?

Section 83: Special Resolutions to be presented

A= Alteration in MOA/AOA
B= While issuing Bonus Shares
C= Conversion of Company pursuant to sec 13 & 14
D= Disposing off more than 70% Assets of the Company
A= Alter the rights of SH of any particular class
B= Buy back of shares
C= While calling the capital kept in reserve pursuant to sec 53
D= While issuing the shares at discount
A= Alteration in Authorized Share Capital
B= While ratifying the work of officers done beyond his/her power
C= 1 company merging with another company

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 Companies Act, 2063

D= While going on Dissolution

Q. N. Some of the shareholders of Transnational Works Pvt. Ltd. objected the resolution relating to issue bonus
share forwarded by the Board of Directors stating that the resolution should be presented as a special resolution.
Advise the directors on the following issues.
i) What matters should be presented as a special resolution?
ii) Whether the resolution to issue bonus share is special resolution.

Section 84: Provisions on sending abstract of f. st. to SHs

Step 1: Listed company:
 Send abstract to each SH along with AGM Notice or Publish it at national level
newspaper
Step 2: The abstract of f. st shall contain:
 Matter that abstract of annual f. st. is only an abstract of the annual f. st. of the
co. and their director’s report,

 An opinion of the company’s auditor as to whether or not the abstract of annual

f. st. is in consonance with the annual f. st. of the company and the director’s
report and whether or not the abstract is consistent with the format specified
pursuant to this Section,

 Matter as to whether or not the auditor has made any remarks about the annual f.
st. of the company and, if such remarks have been made, full details of such
remarks and such materials as required to understand such remarks,

 In cases where the auditor has mentioned in his/her report anything about the
inadequacy of the accounts and accounting returns or about the company’s
accounts not being verifiable with the records and returns maintained by the
company or about the non-receipt of any such information and explanation as
sought, full details thereof.

Section 85: Registration No. to be mentioned

Company is required to use it’s registration no in every documents to be submitted to OCR.

Section 86: Board of Directors and No of Directors

Step 1: No. of directors in case of:
I) Private co: As per AoA, but maximum 11
II) Public co: Min. 3 to Max. 11.
 At least 1 female director, if 1 female SH being in the company,
 At least 1 independent director, if no of directors is: 3-7
 At least 2 independent Directors, if no of directors is: 8-11
Step 2: Chairperson to be elected among them

Q.N. Shree Bank Ltd has 3020 shareholders of which 10 are female shareholders. Annual General Meeting of

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 Companies Act, 2063

Bank conducted on Chaitra 3, 2079 has elected 6 Directors all male members and Board of Directors has
appointed a male Professional Director. Ms. Sunita Chaudhary a shareholder of the bank claim

that the constitution of Board of directors is not as per the provision of the Company Act 2063

Section 87: Appointment of Directors

General Provisions: Appointed by GM
Exception for appointment:
 By Promoters: Till 1st AGM held
 By BOD: If any post thereon vacant due to any reason
 By Corporate Body: Refer sec 72
I) CB shall also be entitled to appoint an alternate director on behalf of such
representative director appointed pursuant to sec 72, in case such
representative director can not attend and vote in Board’s Meetings due to
any reason

II) In case where the representative director cannot attend and vote in
Board’s Meeting, then he/she shall furnish the info. thereof to his/her
alternate director and the BOD, then such alternate director may attend and
vote on behalf of such CB.

III) The power of alternate director shall automatically dissolved where

his/her representative director are attending and voting in Board’s Meetings.

(NOTE: Here discussed meeting is about Board’s meeting. Do not be confused with GM. Refer
section 68, where every director need to present themselves, not by a means of proxy or
alternate director)

Q.N. How Board of Directors of a company can be appointed based on Companies Act, 2063.

Section 88: Qualification of Shares for Director

No of Share Units:
 As mentioned in AOA,
 If not mentioned in AOA: At least 100 units of shares
Exception: Not required to hold shares by:
 Independent Director
 Director directly appointed by Corporate Body

Q.N. ABC public Company decided to hold election for constituting a new Board of Directors of the company.
The Articles of Association of the company is silent about the number of shares required to be held by a person
for his appointment as director of the company. Mr. Aswin having 90 shares of the company filed his candidacy
for the appointment of director of the company. The election officer refused his application. State the required
numbers of the Directors to constitute Public Company and how far the decision of the election officer is valid.
Write your answer with reference to the Companies Act, 2063.

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 Companies Act, 2063

Section 89: Disqualification to be appointed to or to continue to hold

office of director
1) Any of the following persons shall not be eligible to be appointed to the
office of director:
 In case of public co: Person below 21 years age,
 Unsound mind or Insane Person,
 Insolvent Person and a period of 5 years has not lapsed,
 Convicted for an offense of:
I) Corruption
II) Moral Turpitude,
(In case of Private co., a period of 3 years has not lapsed from the date of sentence)
 Convicted for an offense of:
I) Theft
II) Fraud
III) Forgery
IV) Embezzlement of Misuse of Goods/Funds,
(And a period of 3 years has not lapsed from the date of sentence)
 Having personal interest in any kind of business transaction or contract,
 A person being:
I) Director,
II) Substantial Shareholder,
III) Employee,
IV) Auditor,
V) Adviser of another co. having similar obj. or has personal interest in
such co.,
(Such person of a private company may become a director of another private company
having similar objectives.)
 SH being failed to pay the due amount to the concerned co.,
 Person sentenced to punishment pursuant to:
I) Section 160: a period of 1 year has not lapsed from the date of
sentence.
II) Section 161: a period of 6 months has not lapsed after the date of
sentence,
 If prevailing law prescribes any qualification or disqualification, person not
possessing such qualification or person disqualified by such prevailing law,
 Person being already a director of any co., who has not submitted such returns
and reports as required to be submitted to OCR for continuous 3 FY,
 Person having due amount to pay fine u/s 81(2),
 Person being a director receiving any remuneration or facility other than meeting
allowance from another listed company.

2) Any of the following person shall not be eligible to be appointed as an Independent

Director (ID):
 Person suffers from point no (1),
 Person who is a SH of concerned co.,
 Qualification to be obtained:

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 Companies Act, 2063

I) At least Bachelor Degree on related field and

II) Experience: At least 10 years on related field
 Person who is an:
I) Officer of concerned co.,
II) Auditor of concerned co.,
III) Employee of concerned co.,
IV) A period of 3 years has not lapsed after retirement of above
mentioned person to be appointed as ID in concerned co.,
 Close relative of officer of concerned co.,
 Auditor or his/her partner of concerned co.

3) Removal of Director:
 Person suffers from point no (1) or (2),
 GM passes the resolution to remove him/her from the office of director,
 If resignation tendered and accepted by the BOD,
 Held by court to have done any act involving dishonesty or ulterior motive in the
activities of the co.,
 Held by court to have done any act prohibited by this act from being done OR to
have failed to do any act required to be done under this act,
 Blacklisted by a competent body for his/her default in repaying a loan of any
BFI’s and the period of such black listing has not expired,

4) Co. shall give such person a reasonable opportunity of being heard prior to disqualifying
such person from the his/her post.

Q.N. Mr. Sharma, 20 Years old, has been appointed as a director of XYZ Ltd. by its promoters. Ms. Shanti, a
shareholder, opposed on such appointment. Whether Mr. Sharma’s appointment as a director is legal? What kinds
of mechanisms of appointing a director are there in Companies Act, 2063? Explain.

Section 90: Terms of Directors

1) In case of private co: As mentioned in AOA
2) In case of public co: As mentioned in AOA but not exceeding
4yrs (i.e. Tenure= Max. 4 years)
Exception:
 Director appointed by GON
or Corporate Body: As they Desires (i.e GON, CB)

 Directors appointed by Promoters: Till 1st AGM held

 Directors appointed by BOD Till the tenure of such director who was
due vacant post: appointed at first

NOTE: Re-appointment of every director is possible after his/her retirement (Infinite terms)

Q.N. Articles of Association (AOA) of a public company states that tenure of Board of Directors shall be of five

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 Companies Act, 2063

years. Check the validity of AOA based on Companies Act, 2063.

Section 91: Remuneration, Allowance, Reward etc. of directors

Step 1: Determined by GM:
 Meeting Allowance
 Remuneration
 Daily Allowance
 Travelling Allowance
 Other Facility
Exception: Till the 1st AGM held, BOD shall determine the above mentioned things for:
 Managing Directors, OR
 Other directors who work full time for the co.

Step 2: Reward to full time working director:

 Max. 3% of Net PAT by passing SR at GM,
NOTE: If co. requires to pay additional tax on final assessment, then co. shall recover such
tax from the director/directors receiving such reward as mentioned above in an
proportionate basis, to the extent of their reward !!

Step 4: In case of listed co., if a director retires, the co. shall not make any kind of payment as
compensation for such relief or retirement.

Exception: If GM wish, then co. shall provide compensation for such relief or retirement.

Section 92: Disclosure by directors

Step 1: Directors are required to disclosed following mentioned things to the co. within 15
days of his/her appointment as a director:
I) If had:
 Direct Involvement, OR
 Any kind of personal Interest

(In any kind of sale or purchase or other kind of contract related with transaction of the co.)

Explanation: “Direct Involvement means & includes a situation where the director or his/her
close relative is a promoter of OR holds more than 10% of shares of a co. or private firm or
partnership firm OR a director of a co. involved in such transaction.”

II) Having any kind of interest in the appointment of MD, CS, Officer of the co.,
III) Being a director of another co., (at present)
IV) Has made dealing in the shares or debentures of any co. or of it’s holding co. or of
it’s subsidiary co., matters of such dealing shall be disclosed.
V) Copy of written agreement, if any, concluded between the co. and the director or
his/her close relative

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 Companies Act, 2063

VI) Any kind of Interest with co. Or it’s subsidiary co., setting out the extent or kind
of such interest.

Step 2: Co. shall forward such disclosure made by director to OCR within 7 days of its
receipts.
Step 3: Deemed Disclosure:
 If director gives written info. to the co. that he/she be considered to have his/her
personal interest in transaction with any person, that director shall be deemed to
have disclosed his/her personal interest.

Section 93: Transaction with company in which director is involved

Significant Transactions:
 Means a transaction of sale, purchase,, exchange and contract, the value of
which, at the time of doing transaction,
EXCEEDS:
I) Rs. 100,000 OR 5% of Total Assets of the co., whichever is lower.
II) Also includes a rental transaction amounting to Rs. 1,20,00 or more
annually.
Public Co. shall not perform Significant Transactions (ST) without approval of GM with
it’s:
 Director or his/her close relatives
 Substantial Shareholder
 Any firm, co. or corporate body substantially owned by above two persons
 No subsidiary co., shall perform ST with above mentioned two person of it’s
holding co.
Exception: Can perform with approval of GM and of approval of GM of it’s holding co.

NOTE: Any benefit derived in contrary to this provision or any loss/damage is to be sustained
by any body, then such shall be recovered from such person or co. performing such act in
contrary to this provision.

Exception: Transactions where approval of GM is not required:

 While acquiring property by Holding co. from it’s fully or partly owned
subsidiary co.,
 While acquiring property by 1 subsidiary co. from another subsidiary co. of
same holding co. where both subsidiary co. is shall be wholly owned by holding
co.,
 While doing transaction at the prevailing market price in the ordinary course of
business transaction of the co.

Q.N. Mr. Irfan Khan one of the director of Fun Funny Ltd. has leased his property for a monthly rental of NRs. 1
lakh. The rental agreement was carried in between him and the company by passing board resolution in board
meeting of the company. Some of the shareholders of the company raised question on the validity of the
transaction. As a consultant of fun funny ltd. explain about the validity of the above mentioned transaction

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 Companies Act, 2063

Section 94: Disclosure in Shares by Directors

Step 1: Make disclosure about:
 Details of his/her ownership, OR
 No of shares OR No of debentures.
If acquires any shares or debentures of:
 Holding Company, OR
 Subsidiary Company.
Step 2: Provide written information to company within 15 days of such knowledge.
Step 3: While providing Info., such shall clearly state:
 Number of shares or debentures so acquired, OR
 Amount invested, OR
 Class of such shares or debentures.
Step 4: This provision is also applicable to: Close relative of such director.

Section 95: Powers and Duties of Board of Directors

Step 1: All the act to be performed by the co. shall be formed through BOD .
Step 2: No director shall perform such a work in order to have personal benefit.
Step 3: BOD can delegate it’s power to any director or any employee of the co. in order to
perform the duties of the co.
Step 4: Sign while delegating such power by:
 At least 1 director and
 Company Secretary (CS)
Step 5: No delegation to be made in following cases: (LILCD)
L= To provide Loan,
I= To make Investment,
L= To borrows Loan,
C= To make Calls on shares and
D= To issue Debentures.

Q.N. Mr. A and his friends are directors of the Techno Trade Pvt. Ltd. They arranged a meeting of the Board of
the Directors(BoD). You are invited in this meeting as corporate specialist. They asked about the powers and
duties of BoD as provided in the Companies Act. Explain the powers and duties of a BoD in accordance with the
Companies Act, 2063.

Section 96: Appointment of MD and Management of the Company

1) To appoint MD: Must have been provided in AOA
2) Who appoints MD? By BOD, from among themselves
3) How many MD to be appointed? As per AOA
4) Functions, duties and powers of MD:
 If mentioned in AOA: As per AOA
 If not mentioned in AOA: As prescribed by BOD
5) Agreement to be concluded while appointing MD, stating:
 Terms of appointment, OR
 Remuneration, OR
 Facilities.

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 Companies Act, 2063

6) Provision to be made for SH/SH’s: To inspect such agreement

7) Cost of inspection: Free of cost
8) Tenure of MD: Any, but shall not exceed 4 years

Exception: Not eligible for appointment as MD in one Listed Co:

 A director receiving regular remuneration and facilities from another Listed Co.

Section 97: Meeting of Board of Directors

1) In case of Private Co: As per AOA,
2) In case of Public Co: 6 times a year, interval of two meeting:
Max. 3 months,
3) Mandatory to Present: All director, can not appoint proxy instead
of him/her,
4) Quorum of Board Meeting: At least 51% no of directors out of total no
of directors.
Exception for Quorum:
 Any director restricted from attending BOD’s meeting, shall not be counted for
quorum.
(i.e. In case meeting is to be held for discussing a matter related to any director,
then he/she shall not be. Refer Section 70)
5) If quorum meets: Conduct Board Meeting,

6) If quorum lacks: Conduct another meeting by giving at least

3 days prior notice,

7) If quorum meets in another meeting: Conduct such meeting,

8) If quorum lacks in another meeting: Any no of present director forms quorum,

9) Decision: Majority Prevails,

10) In case of tie: Chairperson may exercise casting vote

(i.e. 1 vote)

11) Minute to be prepared stating: Name of director(s) present in meeting +

opposition made by any director on any
discussion or decision,

12) Minute to be signed by: At least 51% director out of total present
directors,

13) Decision not to be invalid: Merely because of No Sign of Any present

director,

Exception: Not required to conduct physical meeting:

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 Companies Act, 2063

 Every director, if provide consent on any matter stated on minute book, sent to
their address (i.e can be sent through electronic media), then it is not required to
conduct meeting physically on such consented matter.

Q.N. Alpine Apple Limited held meeting of its Board of Director (BoD), having 8 members in the board, on
October 25, 2023. It is fourth meetings with the presence of seven members and signed by five thereof. One of the
directors caste his dissenting opinion in the minute book. Other one has no signature thereon. However, the
question of validity of meeting is raised by the members out of signatory. Justify the validity of the meeting with
reference to the existing provision of the Companies Act, 2063.

Section 98: Notice of Meeting of Board of Directors

1) Who can call the meeting of BOD?
I) If mentioned in AOA, then as per AOA
II) If not mentioned in AOA:
 Company Secretary, OR
 Chairperson of the Board, OR
 Chief Executive Office.
2) If 25% director out of total director make written request to call the meeting of board, the
Chairperson shall call such meeting within 15 days of such request.
 If called: Fine
 If not called: Such requesting director may themselves call BOD meeting.

3) Matters to be discussed in BOD Meeting:

 If mentioned in AOA: As per AOA
 If not mentioned in AOA: Notice of such matter to be discussed shall be sent
to every director on such address as was supplied
by them to the co.

4) Notice can be provided: Through Electronic Means

Section 99: Responsibilities and Duties of Directors

General Provision:
1) Duty to promote success of the co.,
2) Duty to comply with MOA, AOA and Laws,
3) Duty to act within jurisdiction
4) Duty not to derive personal benefits
5) Duty to exercise reasonable care, skill and diligence,
6) Duty to act honestly and in good faith.

Special Provision:
1) Comply with this act, MOA, AOA and consensus agreement, if any,
2) Not to derive any personal benefits,
3) If had derived, co. may recover such amount from such director as “Loan”,
4) Prior to appointment as director, take oath of “Secrecy and Honesty”
5) Act honestly, exercise care, due diligence and reasonable efficiency,

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 Companies Act, 2063

6) If acted in contrary to point no 4, co. may recover any loss/damage caused thereto,

Section 100: Disclosure about Securities

1) In case of listed co., Co. Shall:
 Provide info. promptly to such body, regulating stock exchange, about the
disclosure made by director pursuant to section 94.
2) Such regulating body shall publish such disclosure as it thinks appropriate.

Section 101: Prohibition on loans to Officers or Shareholders

1) Co. shall not provide loan or any kind of financial assistance to it’s:
 Officer, OR
 Substantial SH’s, OR
 Officer or Substantial SH’s of it’s holding or subsidiary co.
2) Co. shall not give any guarantee or provide security in respect of loan borrowed by such:
 Officer, OR
 Substantial SH’s, OR
 Close relative of above persons.
Exception:
 Can be provided to Employee of the co.,
 Can be provided to such above person under guarantee of BFI’s.

Section 102: Prohibition on giving false statements by officers

Officer acting given act knowingly shall be held personally liable for his/her such act:
 Giving false statements in GM about the actual financial situation of the co. in order
to encourage to distribute higher dividend to SH than that can actually be
distributed from profits.

Section 103: Transaction with other Person and Jurisdiction of

Company
Step 1: No transaction done by a co. with another person on matter contained in MOA of
the co., shall be void or invalid:
 On the ground that such transaction is beyond jurisdiction of co.
Step 2: Duty of director and officer:
 To do transaction within the jurisdiction as specified in MOA of the co.
Step 3: Any act or transaction done by a Director beyond authority conferred to him/her may
be ratified by the co. by:
 Adopting SR in GM
Step 4: Shall not be released from liability merely on the ground that his/her act has been
ratified by GM
(i.e. Personally liable to pay to the co., any loss or damage caused by him/her)

Section 104: Company to be Bound

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 Companies Act, 2063

Step 1: Any act done by officer or any other person of the co. shall be binding to such co and
co. is liable for the same.
Step 2: Doctrine of Indoor Management (Refer at the end of this Note-Book)
Step 3: Such officer or person doing such act beyond his/her jurisdiction to be:
Personally liable

Section 105: Restrictions on Authority of Director

Applicable to:
 Public Company,
 Private Company, taking loans from any BFI’s
Restrictions:
I) Disposing off > 70% of undertaking (business) through:
 Selling,
 Donating,
 Gifting,
 Leasing, etc.
Exception:
 Director can disposed off more than 70% of undertaking of a co:
a) Engaged solely on buying or selling such undertaking, OR
b) If SR is passed at GM.

II) Borrowing loans > (PUC + Free Reserves)

Exception:
 Director can borrow loans more than aggregate of PUC + FR if:
a) He/she borrows loans from BFI’s, in a condition:
-To repay such loan within 6 months,
b) SR is passed at GM,
c) Shall not be applicable to such BFI’s or Insurance Business.

III) Making:
 Contribution, OR
 Donation, OR
 Gift, exceeding:
a) Rs. 1,00,000, OR
b) 1% of average profit of last 3 FY
(Whichever is lower)
Exception:
 If made for welfare of it’s employees, OR
 If made for promotion of business, OR
 If SR is passed at GM.

Section 106: Validity of acts already done

 Any act done by such director, whose appointment is not as per this act, then
the act which has already done by such director shall not be invalid.

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 Companies Act, 2063

(i.e. act done by invalidly appointed director does not lead to invalidity, means act shall be valid
and binding to the co.)

Q.N. The Board of Directors of Laligurans Bank passed a resolution to purchase ATM machines from Asus Tech
& Manufacturers Ltd. Accordingly, a deed of contract drafted and duly signed by the directors on behalf of the
bank. Some of the shareholders of the bank questioned the validity of the contract as three out of five directors
were disqualified at the time of agreement. Give your opinion as to the effect of disqualification to the validity of
contract.

Section 107: Register of Director and Company Secretary

1) Every co. shall maintain a separate register of director and of company secretary, if any.
2) Every co. Shall record:
 Name,
 Surname,
 Address,
 Citizenship,
 Profession,
 Occupation, of it’s director or secretary,
 Date of their Appointment,
 Date of removal.
3) If any alteration in above matter: Give notice to OCR within 15 days of such
alteration

Section 108: Accounts of the Company

 Maintain in either Nepali or English language.
 Double entry system in consonance with Accounting Standards
 Not to be kept at anyplace other than its registered office without approval of
OCR
 Directors or other officers responsible to maintain books of A/C and records of
co.

Section 109: Annual Financial Statements and Reports of Board of

Directors
I) Annual Financial Statements:
 Balance sheet,
 Profit and loss account,
 Cash Flow Statements.
Shall be prepared by:
Public CO: At least 30 days prior to holding AGM
Private Co: Within 6 months of expiry of FY

II) Signatory: Chairperson + Min. 1 Director + Approved by BOD

III) Directors’ Report/Board’s Report: To be prepared by:
 Every Public co.

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 Companies Act, 2063

 Every Pvt co. with PUC >= Rs. 1cr OR Annual Transaction >= Rs 1cr
Note:
 Time Period for Preparation of Board’s Report: Same as Point no I)
 Books of accounts to be maintained for: 5 successive years

Matters to be contained in Board’s Reports:

1. Review of the transactions of the previous year,
2. Industrial or professional relations of the company,
3. Major things affecting the transactions,
4. Alterations in the board of directors and the reasons therefore,
5. Amount recommended for payment by way of dividend,
6. Details of total management expenses during the previous financial year,
7. Amount of dividends remaining unclaimed by the shareholders,
8. Amount of remuneration, allowances and faculties paid to the director, managing
director, chief executive and officer,
9. ….….and many more !

Section 110: Company to appoint Auditor

 Every co., required to appoint Auditor to have it’s books of accounts audited.
 Power of auditor to audit the branch, lying inside/outside the country.

Section 111: Appointment of Auditor

 Till 1st AGM held: Appointed by BOD
 Subsequent: Appointed by AGM
 Vacant, if any: Appointed by OCR
NOTE:
 Tenure: Till next AGM
 Shall not perform audit for: More than 3 consecutive terms
Exception:
 Any partner who had ended his/her partnership 3 years ago with such person,
may be entitled for appointment.

Section 112: Disqualification of Auditor

1) None of the following person or such firm or co. on which such person are partner are be
qualified to be appointed as auditor and if was already appointed, then cease to hold such
office:
A) Any of:
 Director, OR
 Advisor with regular remuneration, OR
 Any person involved in the management of the co., OR
 Partner of just above point (i.e. 3rd point) OR
 Employee of such partner, OR
 Close relative of director or partner, OR
 Employee of such close relative.

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 Companies Act, 2063

B) Any of:
 Person who has borrowed loan, OR
 Person being unable to pay any dues, OR
 Close relative of above persons.

C) A person, sentenced for an offence of Audit and a period of 3 years, not yet lapsed.
NOTE: Section 64 of BAFIA contains 5 years !!

D) Insolvent Person
E) Any of:
 Substantial SH, OR
 SH holding 1% or more of PUC, OR
 Close relative of above persons.

F) A person, sentenced for an offence of; ( and a period of 5 years, not yet lapsed)
 Corruption, OR
 Fraud, OR
 Criminal offence involving moral turpitude.

G) A person doing audit for last 3 consecutive years of same concerned co.,
H) A co. or CB with limited liability clause,
I) In case of public co,
 Any person or partner of such person who works for:
a) Governmental body, OR
b) Any body, fully or partly owned by GON
 Or, A person who is working as an employee of such partner,
 Or, A person authorized to sign any documents or reports of the management.

J) Any of following, having interest in any transaction with co:

 Person, OR
 Close relative of such person, OR
 Director, officer or substantial SH of another co.

2) Prior to appointment, auditor shall provide to the co. that he/she is not disqualified.
3) Any auditor on meanwhile if disqualified to hold the office of auditor, shall stop doing
his/her duty and inform. the same to the co.
4) Audit done by disqualified auditor is subject to invalidation.

Section 113: Power of office to appoint Auditor

OCR may appoint auditor, on request of BOD on following condition:
I) AGM of the co. cannot be held for any reason,
II) AGM of the co. fails to appoint auditor,
III) Auditor appointed as per this act, ceases to continue his/her office.
(NOTE: BOD shall have to provide name of 3 competent auditor to OCR for appointment)

Section 114: Accounts and records to be furnished

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 Companies Act, 2063

 Books of accounts to be furnished to auditor on office hours on his/her demand,

 Provide explanation on such matter by concerned director or employee.

Section 115: Functions and duties of Auditor

1) Submit the certified and audited report to the appointing authority,
2) Such report to be prepared as per prevailing law and NSA’s
3) Audit report shall contain the following matters:
 Whether information have been provided to auditor for audit,
 Whether books of accounts have been maintained as to reflect true affairs of co.,
 Whether P/L, B/S, CFS, etc. have been prepared as per prevailing law,
 Whether on the opinion of the auditor, the P/L and B/S truly reflect the financial
situations of the co.,
 Whether any BOD, officer, employee, etc. have been acted in contrary to the law,
 Whether any accounting fraud has been committed in the co.,
 Any suggestions, if any.

Section 116: Audit report to bear Auditor’s Signature

 Audit report shall bear:
I) Sign of Auditor
II) Date of Signature
 In case, firm is appointed for audit, Engagement Partner of such firm shall sign
and date on the audit report

Section 117: Information to be provided

 Co. shall send a copy of report made by auditors to:
I) Shareholders
II) Trade union,if any, only on their request

Section 118: Remuneration of Auditor

 Fixed by Appointing Authority
I) If appointed by Promoters: Fixed by Promoters
II) If appointed by AGM: Fixed by AGM
III) If appointed by OCR: Fixed by OCR
 Remuneration, to be Borne by the co.

Section 119: Provision relating to removal of appointed Auditor

General Provision: Not to be removed till the completion of audit of books of account for
that FY for which he/she has been appointed
Exception: If:
I) Breaches code of conduct,
II) Does any act against the interest of co. or
III) Commits any act contrary to the prevailing law,

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Then shall be removed from office of auditor by:

 Giving prior notice to ICAN
 Approval of Regulatory Body, if any,
 If no regulatory body regulating such co., Approval of OCR.

NOTE: Prior to removal, concerned co. shall provide such auditor a reasonable opportunity
of being heard !!

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Doctrine of Constructive Notice/Turquand’s Rule (In favor of Co.)

 The doctrine presumes that every person has knowledge of the contents of the
Memorandum of Association, Articles of Association and every other document
such as special resolutions as is filed with the Registrar and available for public
view.

 If any person enters into a contract, which is inconsistent with the company’s
Memorandum and Article, he shall not acquire any rights against the company and
shall bear the consequences himself.

 This means that even if a person is not actually aware of a particular fact or
information, they are still deemed to have notice of it and are therefore held
responsible for any consequences that may arise as a result.

 The purpose of the doctrine of constructive notice is to ensure that parties involved
in a transaction are diligent in their research and investigation before making any
decisions. It also serves as a protection for third parties who may have an interest in
a property, such as lien holders or creditors, by ensuring that their rights are not
unfairly compromised by subsequent purchasers who may not have conducted due
diligence.

Doctrine of Indoor Management (In favor of outsider)

 A legal principle that protects third parties who deal with a company or
organization in good faith and without knowledge of any irregularities in its
internal affairs. It is based on the assumption that a third party dealing with a
company has a right to assume that the company's internal affairs have been
properly conducted.

 Under this doctrine, a third party dealing with a company is entitled to assume that
the company's officers have the authority to act on behalf of the company, even if
the officers have exceeded their actual authority or acted in breach of their duties.
The third party is not required to inquire into the internal affairs of the company or
to verify the authority of its officers.

 However, there are limits to the protection provided by the doctrine of indoor
management. It does not apply if the third party has actual knowledge of any
irregularities in the company's internal affairs or if the company's articles of
association or other public documents clearly limit the authority of its officers.

Doctrine of Ultra Vires

 The doctrine of ultra vires refers to the principle that a company can only act within
the scope of its legal powers and authority as set out in its memorandum and articles
of association. Any action taken by the company that is beyond these legal powers
is considered ultra vires, or "beyond the powers."

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 If a company engages in an ultra vires act, it may be held liable for any resulting
losses or damages. In addition, any contracts entered into by the company that are
beyond its legal powers may be considered void and unenforceable.

 The doctrine of ultra vires is important because it helps to ensure that companies
operate within the limits of their legal powers and do not engage in activities that
could harm shareholders or creditors. It also provides a mechanism for shareholders
and other stakeholders to challenge actions taken by the company that are outside of
its legal authority.

Lifting of Corporate Veil

 The concept of lifting the corporate veil refers to a situation where a court
disregards the legal personality of a company and holds its shareholders or directors
personally liable for the company's actions or debts
 The courts may lift the corporate veil in the following circumstances:
I) Fraud,
II) Public Interest
III)
IV)
V) , ….etc.

Difference Between Equity Shares and Preference Shares

S.N. Basis Equity Shares Preference Shares

1. Ownership Equity shares represent ownership in a company. Preference shares represent a hybrid form of
ownership that combines features of both equity and
debt.
2. Returns Equity shareholders receive dividends only after Preference shareholders receive fixed dividends
all other obligations of the company have been before equity shareholders.
met.
3. Risk Equity shareholders bear higher risk as they are Preference shareholders have lower risk as they have
last in line to receive payments in case of priority in receiving their dues.
liquidation.
4. Redemption Equity shares do not have a fixed maturity date Preference shares have a fixed maturity date and can
and cannot be redeemed by the company. be redeemed by the company.
5. Voting Equity shareholders have voting rights in the Preference shareholders may or may not have voting
Rights company. rights depending on the terms of the issue.
6. Conversion Equity shares cannot be converted into Preference shares can be converted into equity
preference shares shares at a later date.

Difference Between Share and Stock

S.N. Share Stock

1. Share is a single unit of the share capital of company Units of shares collectively held in a company are known as
stock
2. Share is the smallest unit in which the capital of a Stock is used to denote the collection of shares
company is divided

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 Companies Act, 2063

3. Share is a specific term Stock is a generic term to denote the shareholding of an

investor
4. Share is a more important term than stock Stock is comparatively less important in terms of its
understanding
5. Shares have nominal value Stock do not have nominal value
6. Shares have equal denominations Stock do no have equal denominations

Difference Between Transmission and Transfer of Shares

S.N. Basis Transmission of Shares Transfer of Shares

1. Meaning Transmission of shares refers to the transfer of Transfer of shares refers to the voluntary transfer of
ownership of shares from a deceased shareholder ownership of shares from one person to another.
to his/her legal heirs or nominees.
2. Legal Transmission of shares is based on the laws of Transfer of shares is based on the provisions of the
Basis succession and inheritance. Companies Act and the AOA of the company
3. Initiation Transmission of shares is initiated by the death of Transfer of shares is initiated by the desire of a
a shareholder. shareholder to sell or transfer his/her shares.
4. Process Transmission of shares involves legal procedures Transfer of shares involves executing a share transfer
such as obtaining a succession certificate. deed and complying with the requirements of the
Companies Act and AOA.
5. Approval Transmission of shares does not require approval Transfer of shares may require approval from the
from the board of directors or shareholders. board or shareholders depending on the provisions of
the AOA.
6. Parties In transmission of shares, the legal heirs or In transfer of shares, the buyer and seller of the
Involved nominees of the deceased shareholder are shares are involved
involved.

Difference Between Share and Debenture

S.N. Basis Shares Debentures

1. Ownership Shares represent ownership in a company. Debentures represent debt owed by a company to
its investors.
2. Returns Shareholders receive dividends and capital Debenture holders receive interest payments.
gains.
3. Risk Shareholders bear the risk of the company's Debenture holders have a lower risk as they are
performance and profitability. creditors of the company
4. Transferability Shares are easily transferable. Debentures may have restrictions on transferability.

5. Redemption Shares do not have a fixed maturity date. Debentures have a fixed maturity date and can be
redeemed by the company.
6. Voting Rights Shareholders have voting rights in the company. Debenture holders do not have any voting rights.

7. Conversion Shares cannot be converted into debentures. Debentures can be converted into shares at a later
date.

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