Chapter 2 Incorporation of Company

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Incorporation of Company: (1) Any person desirous of undertaking any enterprise with profit motive may, either singly or jointly with others, incorporate a company for the attainment of one or more objectives set forth in the memorandum of association.
(2) There shall be a minimum of seven promoters for the incorporation of a public company. Provided, however, that seven promoters shall not be required for the incorporation of another public company by any public company.
(3) Notwithstanding anything contained elsewhere in this Section, a company not distributing profits may, subject to the provisions contained in Chapter-19, be incorporated for the attainment of one or more objectives.

Application to be made for incorporation of company: (1) Any person desirous of incorporating a company pursuant to Section 3 shall make an application to the Office, in such format and accompanied by such fees as prescribed, and along with the following documents, as well:
(a) The memorandum of association of the proposed company,
(b) The articles of association of the proposed company,
(c) In the case of a public company, a copy of the agreement, if any, entered into between the promoters prior to the incorporation of the company,
(d) In the case of a private company, a copy of the consensus agreement, if any, entered into ,
(e) Where prior approval or license has to be obtained from anybody under the prevailing law prior to the registration of a company carrying on any particular type of business or transaction pursuant to the prevailing law, such approval or license,
(f) Where the promoter is a Nepalese citizen, a certified copy of the citizenship certificate and where a corporate body is a promoter, a certificate of registration of incorporation, decision of the Board of directors, regulating the incorporation of the company and major documents regarding incorporation.
(g) Where the promoter is a foreign person or company or body, permission obtained under the prevailing law to make investment or carry on business or transaction in Nepal,
(h) Where the promoters is a foreign person, a document proving the country of his/her citizenship,
(i) Where the promoter is a foreign company or body, a certified copy of the incorporation of such company or body and major documents relating to such incorporation.
(2) Notwithstanding anything contained in Sub-section(1), if the promoter agrees to accept the articles of association in the format prescribed for the incorporation of a company with a single promoter of single shareholder, it shall not be required to submit the articles of association of the proposed company.

Registration of company: (1) Where an application is made for the incorporation of a company pursuant to Section 4, the Office shall, after making necessary inquiries, register such company within 15 days after the date of making of the application and grant the company registration certificate to the applicant, in the format as prescribed.
(2) After a company has been registered pursuant to Sub-section (1), the company shall be deemed incorporated.
(3) The office shall maintain company register in the format as prescribed, for purpose of Sub-section (1).
(4) After the incorporation of a company under this Section, subject to this Act, the matters contained in the memorandum of association and the articles of association shall be binding on the company and its shareholders as if these where the provisions contained in separate agreements between the company and every shareholder and amongst its shareholders.
(5) Without registering a company under this Act, no person shall use the name company and carry on any kind of transaction by the name of any firm or institution.

Power to refuse to register company: (1) The Office may refuse to register a company in any of the following circumstances:
(a) If the name of the proposed company in identical with the name by which a company in existence has been previously registered or so resembles the name of that company as it might cause misleading,
(b) If the name or objective of the proposed company is contrary to the prevailing law or appears to be improper or undesirable in view of public interest, morality, decency, etiquette etc. or reflects criminal motive ,
(c) If the name of the proposed company is identical with the name of a company of which registration has been cancelled pursuant to this Act or that of a company which has been insolvent under the prevailing law or so resembles such name as it might cause misleading and a period of five years shall not expired after such cancellation of registration or insolvency,
(d) If the requirements for the incorporation of a company under this Act are not fulfilled.
(2) If the office refuses to register company in any of the circumstances as referred to in Sub-section (1) it shall give a notice there of, accompanied by the reasons therefore, to the applicant no later than 15 days after the date of application made for the incorporation of company pursuant to Section 4.
(3) If the office refuses to register any company pursuant to Sub-section (1) or fails to give a notice pursuant to Sub-section (2), a person who is not satisfied may file a complaint in the court within fifteen days.

Company to be a body corporate: (1) Any company incorporated under this Act shall be an autonomous and corporate body with perpetual succession.
(2) Subject to this Act, company like an individual, acquire, hold, sell, dispose of or otherwise deal with, any movable or immovable property.
(3) A company may sue and be also sued by its own name.
(4) A company may, like an individual, enter into a contract and exercise the rights and perform the obligations as referred to in the contract.

Limited liability: The liability of a shareholder of a company incorporated under this Act in respect of its transactions shall be limited on to the maximum value of shares which he has subscribed or undertaken to subscribe.

Number of shareholders: (1) The number of shareholders of a private company shall not exceed fifty.
(2) Subject to the proviso to Sub-section (2) of section 3, the number of shareholders of a public company shall be seven in minimum and a maximum of any number.
(3) Notwithstanding anything contained in Sub-section (1), any employee who has purchased a share of a company under scheme of selling shares to employees or any employee who has already purchased a share under such scheme but is not in service of the company for the time being shall not be counted as a shareholder.

Terms to be abided by company: An company incorporated under this Act shall abide by the following terms, in addition to those set forth in this Art, memorandum of association or articles of association:
(a) The company shall carry on all of its activities and transactions by its name.
(b) A private company shall add the words “private limited’’ to its name as the last words and a public company shall add the word “limited” to its name as the last word. Provided, however, that this provision shall not apply to a company not distributing profit.
(c) A private company shall not sell its shares and debentures publicly.
(d) A private company shall not pledge, or otherwise transfer title to, its securities to any person other than its shareholder without fulfilling the procedures contained in the memorandum of consensus agreement,
(e) A company shall not open a partnership or private firm.
(f) Except as otherwise provided in this Act, a company not distributing profits shall not distribute dividends among its members or pay, directly or indirectly, any amount to a member or his/her close relative.

Paid up capital of public company: (1) The paid up capital of a public company shall be a minimum of ten million rupees, except as otherwise provided in the prevailing law or in a notification by the Government of Nepal in the Nepal Gazette that the paid up capital of any particular company shall be in excess of the said required minimum.
(2) Notwithstanding anything contained in subsection (1), a public company which does not have the paid up capital as mentioned in that Subsection at the time of commencement of this Act shall maintain the capital referred to in Sub-section (1) no later than 22 Ashwin 2065 (8 December 2008).

To be incorporated as public company to carry on some specific transactions: Notwithstanding anything contained elsewhere in this Act, a company carrying on the business of banking, financial transactions, insurance business related transactions, stock exchange business, pension fund or mutual fund or a company carrying on such other business or transactions as may be prescribed shall be incorporated as a public company.

Conversion of private company into public company: (1) In the following circumstances, a private company shall be converted into a public company under this section:
(a) If the general meeting of the private company, by adopting a special resolution, decides to convert that company into a public company, Provided, however, that no private company shall be capable of being converted into a public company unless and until it fulfills the requirements to be fulfilled under this Act for being a public company
(b) If twenty five percent or more of the shares of a private company are subscribed by one or more than one public company, Provided, however, that in computing the percentage as referred to in this Clause, the share passed by any banking or financial company as a trustee shall not be calculated.
(c) If a private company subscribes twenty five percent or more of the shares of a public company.
(2) In the circumstances as refer to in Clause (a) of Sub-section (1), the concerned private company, shall for being converted into a public company, make an application as prescribed, accompanied by a copy of the resolution mentioned in that Clause and by the fees as prescribed , to the office within thirty days after the date of such resolution.
(3) On receipt of an application pursuant to Sub-station (2), the office shall, if the concerned private company has fulfilled the necessary requirements for carrying on transactions as a public company, mention in the company register the contents of conversion of such company into a public company and give a company conversion certificates as prescribed within sixty days.
(4) If any private company has to be converted into a public company owing into the circumstances referred to in Clause (b) or (c) of Sub-section (1), the concerned private company shall make an application, as prescribed, setting out all details, accompanied by the fees as prescribed, to the Office for being converted into a public company within seven days after the date of occurrence of such circumstances.
(5) On receipt of an application pursuant to Sub-section(4), the Office shall, if such company has fulfilled the requirements to be fulfilled by a public company under this Act to carry on transactions, mention in the company register the contents of conversion of company into a public company and give a company conversion certificate as prescribed.
(6) If private company is converted into a public company pursuant to this Section, any subsidiary company of that company, as well, shall, ipso facto be deemed to have been converted into a public company in the same date.
(7) In the event of conversion into a public company pursuant to Subsection (6), it shall be the obligation of the concerned company to make an application, accompanied by the required documents, to the Office to get recorded in the company register the contents of conversion of such subsidiary company into a public company and obtain the certificate.
(8) In the event of conversion of any private company into a public company pursuant to this Section, the provisions applicable to the public company under this Act shall be deemed to be, ipso facto, applicable to that company after the date of such conversion.
(9) In the event of conversion of any private company into a public company pursuant to this Section, all the assets and liabilities of the private company so converted shall devolve on the successor company.

Conversion of public company into a private company: (1) In the following circumstance, a public company shall be converted into a private company under this Section:
(a) If the number of shareholders of the public company becomes less than seven,
(b) If the public company fails to maintain its paid-up capital under Section 11 or the paid-up capital as referred to in section 11 is not maintained because of reduction in capital pursuant to section 57. Provided, however, that this provision shall not apply to the company as referred to in Sub-section (2) of Section 11.
(2) In the event of occurrence of a circumstance as referred to in Subsection (1), the concerned public company shall make necessary amendments to its memorandum of association and articles of association and convert it into a private company within six months.
(3) The concerned public company shall make an application, accompanied by copies of the memorandum of association and articles of association amended pursuant to sub- section (2) and the prescribed fees, to the Office for being converted into a private company, within thirty days after the making of such amendment.
(4) On receipt of an application pursuant to Sub-section(3),the Office shall mention in the company register the contents of conversion of such company into a private company and give a company conversion certificate, as prescribed, within sixty days.
(5) In the event of conversion of any public company into a private company pursuant to Sub-section (4), all the assets and liabilities of the public company to be so converted shall devolve on the successor company.

Service of summons, notice etc: (1) Notwithstanding anything contained in the prevailing law, if any notice, summons, letters rogatory etc. required to be served on a company, director, shareholder, debenture-holder or employee in regard to the transactions of, or any matter related with, the company, is delivered at the registered office of the company or sent by registered post or sent through the tale-fax, email, telex or similar other electronic device installed in such office, such notice, summons or letter oratory shall be deemed to have been duly served. If any notice, summons, letters rogatory etc. cannot be so served, the concerned company, director or employee may be informed thereof by broadcasting or publishing a notice pertaining there to by radio, television or in any newspaper circulating at national level. In such a case, he/she shall be deemed to have been informed thereof.
(2) Notwithstanding anything contained in the prevailing law, if any notice, summons, letter rogatory etc. is required to be served by a company or by any competent authority or court on any director, shareholder, debentureholder or employee or the company in any matter related with his/her duties of office, it may be sent to the telex, email, telefax address, if any, given by such director, shareholder or employee and where such address has not been given, it may be sent by registered post to the address supplied by him/her for correspondences by post and where such summons, notice, letters rogatory etc. is so sent, the same shall be deemed to have been duly served.
(3) Notwithstanding anything contained elsewhere in this Act, in providing a notice or information required to be sent by accompany to its shareholder debenture-holder or director under this Act or receiving any information from them, such notice or information may be sent to an electronic communication address supplied by them, by using electronic communication device as provided in the articles of association of the company or if they so agree. Provided, however, that such notice or information shall be sent by post or through other reliable means to the shareholder, debenture-holder or director who does not consent to the service of such notice or information on him/her by electronic communication device.

Functions and duties of Registrar: (1) It shall be the duty of the Registrar to implement this Act and carry out company administration.
(2) Without prejudice to the generality of Sub-section (1), the Registrar may frame and issue necessary directives for the implementation of this Act and the carrying out of company administration related functions in an effective or systematic manner: and it shall be the duty of each company and officer to abide by such directives.
(3) The directives issued pursuant to Sub-section (2) shall be published in such a manner that such directives are available to the general public.
(4) The Registrar may, as per necessity, delegate any of the powers conferred to him/ her under this Act to any officer employee subordinate to him/her.
(5) Notwithstanding anything contained elsewhere in this Section, nothing in this Section shall be deemed to limit the direction given by any regulatory body to a company under the prevailing law or the authority to be exercised by that body in respect of such company under the prevailing law.

Pre-incorporation contract: (1) A contract made prior to the incorporation of a company shall be a proposed contract only, and such contract shall not be binding on the company.
(2) If, prior to the incorporation of a company, any person carries on any transaction or borrows money on behalf of the company, such person shall be personally liable for any contract related with the transaction so carried on,
subject to Sub-section (3).
(3) If, within the time mentioned in any transactions or within the reasonable time after the incorporation of a company, the company, through its act, action or conduct, accepts any act, action or conduct, accepts any act, action to borrowing done or made prior to the date of authorization to commence its transactions or endorses such act or action, that transaction shall be binding on the company and the other contracting party; and the person carrying out such act to action shall be released from the personal liability to be borne pursuant to Sub-section(2).
(4) Notwithstanding anything contained elsewhere in this Section, the consensus agreement of a private company shall govern any contracts made prior to the incorporation of such company.

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Chapter 2 Incorporation of Company

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