Unit I: Concept, Definition, Nature and

Scope of Company and Company law

Concept

The word ‘Company’ has no strictly technical

or legal meaning. It may be described to
imply an association of persons for some
common object or objects. The purposes for
which people may associate themselves are
multifarious and include economic as well as
non-economic objectives. But, in common
parlance, the word ‘company’ is normally
reserved for those associated for economic
purposes i.e. to carry on a business for gain.
The word ‘company ‘, in simple terms, may
be described to mean a voluntary associations
of persons who have come together for
carrying on some business and sharing the
profits there from.

The term “company” was adopted into

English from Old French and Middle
English, retaining its fundamental meaning
of a group of people associated for a common
purpose. As commerce and trade developed,
the word “company” became closely
associated with businesses and organizations
that were formed to engage in commercial
activities.
Therefore, a company is a legal entity formed
by a group of individuals or entities to engage
in a business activity. It is a distinct and
separate entity from its owners, which offers
several benefits, including limited liability
and the ability to raise capital from investors.
Companies can be structured in various
forms, such as sole proprietorships,
partnerships, corporations, or limited liability
companies (LLCs), each with its own legal
and tax implications. Companies typically
have a defined management structure, issue
shares or ownership stakes, and operate with
the goal of generating profit or achieving
 specific objectives. They are subject to
regulations and laws in the jurisdictions in
which they operate.

Definition

i. Lord Justice Lindley ― “A company is an

association of many persons who contribute
money or monies worth to a common stock
and employed in some trade or business and
who share the profit and loss arising there
from. The common stock so contributed is
denoted in money and is the capital of the
company. The persons who contribute to it
 or to whom it pertains are members. The
proportion of capital to which each member
is entitled is his share. The shares are
always transferable although the right to
transfer is often more or less restricted.”
ii. Chief Justice Marshall ― “a corporation is
an artificial being, invisible, intangible,
existing only in contemplation of the law.
Being a mere creation of law, it possesses
only the properties which the Charter of its
creation confers upon it, either expressly or
as incidental to its very existence.”
iii. Prof. Haney ― “a company is an artificial
person created by law, having separate
 entity, with a perpetual succession and
common seal.”
iv. British author Nicholas Bourne has quoted
the company as a separate legal entity in
law and having following advantages flow
from it:
(a) Access to limited liability,
(b) Separation of ownership from control,
(c) Perpetual succession,
(d) Transferable shares,
(e) Raising finances,
v. Indian Companies act 2013, Section 2
(20) defined the term “Company means a
company incorporated under this Act or
 any previous company laws” it also
comprises of the following three types of
companies (Section 3 (2) of the Act,
2013):
(a) A company limited by share, or
(b) A company limited by guarantee, or
(c) An unlimited company.

vi. Nepal’s Company Act 2063(2006) sec. 2(a)

defines "Company” means a company
incorporated under this Act.

According to Sec 3(a) of Nepalese company

act 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.

Hence, a company is a legal organization

formed by individuals or shareholders to
conduct business activities. It is a separate
legal entity with its own rights and
responsibilities, distinct from its owners.
Companies can vary in size and structure,
from small businesses to large corporations.
They exist to generate revenue and may
operate in various industries, providing
goods or services. Companies are governed
by laws and regulations that outline their
operations and obligations.

Company law

Company law, also known as corporate

law, is a set of legal rules and regulations that
govern the formation, operation, and
dissolution of companies and corporations.

It encompasses the rights and

responsibilities of shareholders, directors,
and officers, as well as the structure and
management the company. Company law
also addresses issues such as corporate
governance, mergers and acquisitions,
financial reporting, and compliance with
legal requirements. It plays a crucial role in
regulating business entities, ensuring
transparency, and safeguarding the interests
of stakeholders within the corporate sector.

Nature of Company

1. Legal Entity: A company is a

distinct legal entity separate from its
owners. This separation ensures that
the company has its own rights,
obligations, and legal standing.
2. Limited Liability: Shareholders in
a company typically have limited
liability, meaning their personal assets
 are protected from the company’s
debts or legal liabilities. Their liability
is usually limited to their investment
in the company.
3. Perpetual Existence (succession):
Companies have perpetual existence,
meaning they can continue to operate
even if ownership or management
changes. This provides continuity and
stability to the business.
4. Separate property
5. Capacity to sue and to be sued
6. Transferability of Shares
7. Contractual rights
 8. Separate Management
9. Voluntary association for profit
10. Common seal
11. Termination for existence

Nature of Company law

1. Regulation and Compliance:
Company law is a set of rules and
regulations that govern the formation,
operation, and dissolution of
companies. It covers aspects such as
corporate governance, financial
reporting, and compliance with legal
requirements.
2. Shareholder Rights and
Protections: Company law safeguards
the rights of shareholders, ensuring
transparency, the right to vote in
important decisions, and access to
company information. It aims to
protect the interests of shareholders.

3. Promulgated by supreme
Legislative body of Government:
Company law in Nepal has been
promulgated through the Parliament.
 4. Ownership and Governance:
Companies are owned by shareholders
who elect a board of directors to
oversee the company’s operations.
The directors appoint officers to
manage day-to-day activities. In these
activities, it is company law that
regulates everything.

Thus, a company is a separate legal entity,

offering limited liability to its owners
(shareholders), with perpetual existence. It is
governed by company law, which regulates
its formation, operation, and dissolution,
including aspects like corporate governance
and shareholder rights.

Scope of Company and Company law

The Scope of Company refers to the areas

or applicability that it covers in a wider sense.
Some of the areas/scope company covers:

 Production i.e. Samsung, Apple

companies

 Business and trade

 Service Providing

 Employment i.e. Labour act 2074

  Intellectual property

 Environmental issues

 Multinational Companies

Whereas, the scope of company law

(corporate law) encompasses legal rules and
regulations governing the formation,
operation, and dissolution of companies or
corporations. Here are some key aspects
within the scope of company law:

1.Incorporation: Company law covers the

process of creating and registering a
company, including the types of companies
(e.g., LLC, corporation) and the requirements
for their formation.
2. Corporate Governance: It deals with the
structure and functioning of a company’s
management, including the roles and
responsibilities of directors, officers, and
shareholders.

3.Shareholders’ Rights: Company law

defines the rights and obligations of
shareholders, such as voting rights, dividend
entitlements, and access to company
information.

4.Capital and Financing: This area includes

regulations related to the issuance of stocks
and bonds, capital raising, and financial
reporting.
5.Mergers and Acquisitions: Company law
governs the process of mergers, acquisitions,
and takeovers, including antitrust
considerations.

6.Contractual Relationships: It encompasses

the legal framework for contracts, including
agreements between the company and its
employees, suppliers, and customers.

7.Corporate Social Responsibility: Modern

company law often includes provisions
related to a company’s social and
environmental responsibilities.

8.Compliance and Regulatory Requirements:

Companies must adhere to various
regulations, and company law outlines
compliance requirements, reporting
standards, and enforcement mechanisms.

9.Liquidation and Insolvency: The law also

covers the procedures for winding up or
liquidating a company in cases of financial
distress or bankruptcy.

10. Intellectual Property: Intellectual

property rights, such as trademarks and
patents, can be vital for companies, and
company law addresses these issues.

11.International and Comparative Aspects:

Many companies operate internationally, and
company law may address cross-border
issues and harmonization of regulations.

The scope of company and company law

can vary significantly from one jurisdiction
to another, as different countries have their
own legal frameworks and regulations. It’s
important for businesses and individuals
involved in corporate matters to be well-
versed in the specific laws and regulations
applicable to their region.