A company may be simply understood as an entity established to conduct business. According to Black’s Law Dictionary, it is a corporation or an association of persons, in a considerable number, united by common objectives for some commercial or industrial undertaking or other legitimate business. According to Section 3(1) of the Companies Act, 2063 B.S. (2006 A.D.), any person desire to undertake any enterprise with a profit motive may, either singly or jointly with others, incorporate a company for the accomplishment of one or more objectives outlined in the memorandum of association.
For the registration of a company, there are certain procedures to be fulfilled depending on the nature/category of the company. Those procedures have been discussed below.
In the context of private companies
Within the ambit of Nepalese law, a private company is a company having at most 101 shareholders and prohibited from selling shares publicly, unlike a public company. To register a private company, the following stages must be undergone by the applicant:
This is the first stage wherein an idea of carrying out a business is conceived either by a person or a bunch of persons called promoters. The promoters then explore the possible strengths and weaknesses of the business. When they are satisfied with the idea of proceeding ahead with the registration process, they draft a consensus agreement, which is to be unanimously signed by all promoters. The concept of consensus agreement has been clarified in Section 2(z4) of the Companies Act.
This is the actual formal phase in the course of registration of the company. Any person or entity seeking to get the company registered shall submit an application in the prescribed format to the Company Registrar’s Office along with prescribed fees including the following documents, as stipulated in Section 4(1) of the Companies Act:
The memorandum of association of the proposed company,
The articles of association of the proposed company,
A copy of the consensus agreement, if any, entered into,
Where prior approval or license has to be obtained from anybody under the prevailing law preceding to the registration of a company carrying on any particular type of business or transaction pursuant to the prevailing law, such approval or license,
If the promoter is a Nepalese citizen, a certified copy of the citizenship certificate and if 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
Where the promoter is a foreign person or company or body, permission obtained under the prevailing law to make an investment or carry on business or transaction in Nepal,
If the promoter is a foreign person, a document proving the country of his/her citizenship.
If 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.
In light of Section 5(1) of the aforesaid Act, once an application is made for the incorporation of a company pursuant to Section 4, the Company Registrar’s Office shall, after making necessary inquiries, register such company within 7 days after the date of making of the application and grant the company registration certificate to the applicant. Unlike a public company, a private company can commence its business immediately upon receiving the company registration certificate.
In the context of public companies
According to the Nepalese Companies Act, a public company is a company having a minimum of 7 promoters during incorporation, minimum paid-up capital of ten million rupees, and is allowed to sell and purchase its shares/debentures publicly. To register a public company, following stages must be undergone by the applicant:
The concept of promotion has already been discussed above. Regarding a public company, there must be a minimum of seven promoters to incorporate the company, as enshrined in Section 3(2) of the Companies Act. Before incorporation, pre-incorporation contracts may be drafted among the promoters to acquire some property or right for and on behalf of the company to be formed. This has been elaborated in Section 17 of the Companies Act.
The stage is no different than the one discussed above in the section of Private Companies. Along with the registration application and the documents mentioned above, a copy of the agreement, if any, entered into between the promoters before the incorporation of the company shall also be submitted, under Section 4(1) of the Companies Act. Unlike a private company, only the receipt of the company registration certificate is not sufficient for commencing the business of a public company. There are other subsequent proceedings, too, which are dealt with below.
3. Capital subscription
During this stage, a public company must issue its shares for subscription by promoters firstly and general people secondly. Before issuing its shares, a prospectus must be published by the company according to Section 23(1) of the Companies Act.
4. Business commencement
During this stage, the company obtains approval for business commencement from the Company Registrar’s Office. For this, the company has to make an application together with the evidence showing the full payment of calls on the shares out of the number of shares undertaken to be subscribed by its promoters to the office, as stipulated in Section 63(2) of the Companies Act. Upon receiving the application, the Office shall issue the license of business commencement to the company. After this, the company can function normally.
In the context of foreign companies
According to Section 2(f) of the Companies Act, a foreign company is a company incorporated outside Nepal. According to Section 154 of the Act, for a foreign company to operate its business in Nepal, it must have its branch office or liaison office registered under Company Registrar’s Office.
To register the branch office or liaison office, a foreign company shall make an application to the Registrar’s Office in the prescribed format with prescribed fees. After receiving the application made for the registration of a foreign company, the Office shall make a necessary inquiry, register such company and give the registration certificate, as prescribed, no later than thirty days after the making of the application for carrying on a business or transaction in or establishing a liaison office in Nepal.