Unit IV

Agency and Business Organization

 Introduction
Meaning of Contract of Agency
 Contract of agency is a contract, which takes place
between agent and the principal, where agent is to
perform his\her task according to the instruction of the
principal.
 The person who is employed to do an act for another or to
represent another in dealing with third persons is called the
agent.
 The person who employs the agent is called principal and
the contract between such agent and the principal is called
the contract of agency.
 Cont…
Features or Essential of Contract of Agency
Representation: An agent always represents of his\her principal in
dealing with third parties. An agent is responsible to the
principal for his work.
Delegation of Authority: In a contract of agency principal delegate
his\her authority to the agent to do the things on his\her behalf.
In fact, contract of agency starts after principal appoint the agent
along with delegation of authority.
Contractual Capacity: Both principal and agent should be
competent in the eye of law. They are incompetent when
unsound mind, minor or disqualified in the eye of law.
Consideration is not compulsory: In a contract of agency valid
consideration is not compulsory. For example;
 Cont…
wife may take place of agent role of his husband without consideration.
Purpose: An agent may be appointed for any purposes the
principal likes. For example: buying and selling goods, deposit
money in the bank. Dealing with customers etc however to be
valid purpose, it should not be against the prevailing law.
Who is Principal?
The person who employs an agent in dealing with the third
person is called a Principal. Principal must be competent in the
eye of law. He or she must not be minor, criminal and
disqualified in the eye of law. The principal may be business
person, organization or individual.
 Who is Agent?
The person who is employed with some powers to act on behalf of
the principal dealing with the third person is called an agent. Like
a principal, agent also needs to qualify in the eye of law. He\she
must not be a minor, criminal and disqualified in the eye of law.
The agent may be business person, organization or individuals.
Contract of Agency
1. Agency by express agreement
Agency is created by express agreement between principal and
the agent. When the agency is created by express agreement
between the principal and the agent, the rights, duties and
liabilities of both the parties will be mentioned in the contract
itself which are necessary to be followed by the both parties.
 Cont…
2.Agency by implied authority
It refers to the agency created by conduct of the parties or by
relationship between them. Agency can be created by implied
authority with different circumstances which are discussed
below:
a) Agency by holding out:
When a person by his conduct or statement induces others to
believe certain person’s, agent then in such condition an agency
contract is created by implied authority.
b) Agency by Necessity
When a person compelled to act on behalf of another without any
express authority then it is called agency by necessity.
 Cont…
c) Agency by Ratification
Ratification means the subsequent adoption and
acceptance of an act originally done by a person without
instruction or authority of the other. Thus agency by
ratification refers to such an agency where the principal ratifies
the contract made by the agent on his behalf but without his
authority.
Essential of Valid Ratification
The principal must be in existence at the time of contract is
made.
The principal must be competent and must not be disqualified
in the eye of law.
 Cont…
The agent must have given the identification of principal to
the third person.
Only lawful acts can be ratified and illegal acts are not
ratified.
It must be made within a reasonable or fixed time if
mentioned in the contract.
It must not be injures to third person.
It must be of the whole contract.
 Types of Agent
1. General agent
An agent who is appointed to carry on entire transactions
relating to a certain business.
2. Special agent
An agent who is appointed to do some particular act or to
represent his\her principal in some particular transactions
is called special agent.
3. Universal agent
An agent is said to be universal agent who has authority to d all
the acts around the world which the principal lawfully do
and can delegate.
 Cont…
4. Mercantile agent
Any agent who is appointed to sell or to buy the goods or to raise
money by pledging the foods on behalf of his principal is called
mercantile agent.
5. Co agent
A co agent is a person appointed by the agent according to express
or implied authority of the principal to act on behalf of the
principal. Co agent is appointed by the main agent on request of
the principal to do some act on behalf of the principal himself.
6. Non mercantile agent
An agent appointed by a person for doing some non business
 Cont…
transaction is called mercantile agent such as advocate
consultants.
7. Sub agent
The agent who is appointed by the original agent to assist
him\her in dealing with agency business is called sub agent.
8. Substitute agent
A substitute agent is a person who is named by the agent
holding an express or implied authority to name another
person, to act for the principal in the business of the agency.
 Distinction between Sub Agent nd
Substitute Agent
1. Work
In sub agent, he\she works under the control of original agent
where as in substitute agent, he\she works under the control
of principal.
2. Privity
In sub agent, there is no privity f contract between a sub agent
and principal and hence both cannot sue each other except
that in case fraud or willful did wrong committed by a
properly appointed sub agent, the principal can sue sub agent
where as there is a privity of contract between a substituted
agent and principal hence both can sue each other.
 Cont…
3.Original agent’s responsibility
In sub agent, the original agent is responsible for the acts or
negligence of the sub agent where as in substituted agent
the original agent is not responsible for he acts or
negligence of the substituted agent.
Rights and Duties of Agent
 Right to claim reimbursement all expenses made for
business on behalf of principal
 Right to receive remuneration
 Right to indemnification against the consequences of all
lawful acts
 Cont…
 Right to indemnification against the consequences of acts
done in good faith
 Right to indemnification for injuries cause by the principal
neglect
 Right to indemnification if the agent is removed without any
reason
 Right of particular lien
 Right to stoppage of goods in transit
 Duties of an Agent
 To act with skill
 To follow the principal’s instruction
 To render proper accounts
 Not to deal his own account
 To communicate to the principal
 Not to make secret profit
 Duty at principal’s death and insanity
 Not to delegate authority and responsibility without consent
from principal
 Rights of Principal
 Right to bind the agent to follow instructions
 Right to compensation
 Right to revoke the agent’s authority
 Right to receive accounts and cash from the agent
Duties of Principal
 To pay to the agent expenses incurred by him\her
 To pay remuneration of agent
 To indemnify the agent
 Termination of Contract of Agency
1) Termination by Acts of Parties
a) By agreement between principal and agent
A contract of agency may be terminated by a fresh agreement
between principal and the agent along with their mutual
consent. A fresh agency contract replace the original contract
hence the original contract will be terminated.
b) By revocation of agency by the principal
An agency contract terminate when the principal use his\her right
to revoke the agent’s authority to act as agent. As soon as
he\she revokes the agency, it comes to an end and terminate.
But a principal can revoke the agent only before the
performance of the contract.
 Cont…
c)By performance of contract: An agency contract
terminates by performance of work by both the parties
mentioned in the contract.
d) Renunciation by the agent: An agency may also be
terminated by an express renunciation by the agent because a
person cannot be compelled to continue as agent against his
will. But he must give a reasonable notice of renunciation to
the principal otherwise he will be liable to compensate the
principal for any damages resulting thereby.
 Cont…
Termination by Operation of Law
a) By expiry of time: If an agent is appointed to complete the
work within stipulate time and after the expiry of stipulate
time the agency goes terminated by operation of law.
b) By death or insanity of principal or agent
If the principal or his\her agent dies or insane the agency goes
terminated no matter whether the purpose is fulfilled or
not.
c) By destruction of subject matter
If the subject matter destroy, agency contract will be
terminated by operation of law.
 Cont…
d) By dissolution of the company
If the agency contract is associated with company and contract of
agency will be terminated if such company dissolves
authentically.
e) By principal or agent becoming alien enemy
If the principal and agent are the citizens of tw different
countries, the agency will be terminated immediately when one
becomes alien enemy to the other because of outbreak of war.
f) Completion of business of agency
An agency automatically comes to an end when the business of
agency is completed.
 Meaning of Company
 Company is an artificial person that is created, operated and
ended by law. A company is a legal entity made up of an
association of persons, be they natural, legal, or a mixture of
both, for carrying on a commercial or industrial enterprise.
 Company members share a common purpose and unite in order to
focus their various talents and organize their collectively available
skills or resources to achieve specific, declared goals.
 Companies take various forms such as:
Voluntary associations which may include nonprofit organization
Business entities with an aim of gaining a profit 
Financial entities and banks
 
 Incorporation of Company
 Company is an artificial person created by following a legal
procedure. Before a company is formed, a lot of preliminary work is
to be performed. The lengthy process of formation of a company can
be divided into four distinct stages : (I) Promotion; (ii) Incorporation
or Registration; (iii) Capital subscription; and
iii) Commencement of business.
 However, a private company can start business as soon as it obtains
the certificate of incorporation. It needs to go through first two
stages only.
 The reason is that a private company cannot invite public to
subscribe to its share capital. But a public company having a share
capital, has to pass through all the four stages mentioned above
before it can commence business or exercise any borrowing powers.
 Cont…
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.
 Present Company Act 2063 has mentioned the following for the
incorporation of a company in Nepal.
Application to be made for incorporation
 Establishment of the company
Application for the incorporation of company
 
 Cont…
Registration of company
Power to refuse to register the company
Information of refusal to register
1. Application to be made for incorporation of company:
 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) 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,
 Cont…
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.
 Cont…
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. Establishment of the company
Any person desirous of undertaking any enterprises with a motive of
making profit may severally or collectively incorporate a company
for the attainment of one or more objectives set forth in the
 Cont…
memorandum. The number of shareholders required in a
company may differ according to the types of company
incorporated. In the case of public limited company, there shall
be at least 7 promoters.
3. Application for incorporation of company
Any person willing to incorporate a company shall have to make
an application to the office along with necessary fees and format
as may be prescribed and with the following documents.
The memorandum of the proposed company
The articles of the proposed company
A copy of agreement made between the promoters prior to the
incorporation of the company.
 Cont…
A copy of approval or license, if the company needs to receive
prior approval or license from authority to carry on business.
Permission letter and copy of authentic foreign citizenship, if
the promoter of the company is foreign individual.
4. Registration of company
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.
 Cont…
After a company has been registered, the company shall be
deemed incorporated.
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.
 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.
 Cont…
5. Power to refuse to register the company
The Office may refuse to register a company in any of the
following circumstances:
a) 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, mortality, deceny,
etiquette etc or reflects criminal motive
b) 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,
 Cont…
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, the office refuses to register company in any of the
circumstances and give a notice there of, accompanied by the reasons
therefore,
The register may refuse to register the company in any of the
following circumstances:
If the name of the proposed company previously registered and in
existence at present.
 Cont…
If the proposed company seems to be improper from the
viewpoint of public interest
If the objectives of the proposed company is contrary to the
prevailing law
If the requirements for incorporation of the company have not
been fulfilled.
6. Information of refusal to register
In case of refusing to register the proposed company, the registrar
shall give the information thereof along with reason within
15days of an application made. If the registrar office does not
send the notice of refusal in time or person nt getting satisfaction
with the decision of the office may file a complaint to the court.
 Cont…
Terms and condition followed by registered public
limited company. In addition to memorandum of
association the under mentioned terms and condition
must be maintain by registered company:
All public companies must write Limited in their company
name. for example: Sugar Trading Company Limited.
All transaction must be act through company name.
Private company cannot sell their share in open market.
Public company cannot open private company and
partnership.
 Memorandum of Association
The Memorandum of Association of a company shall
state the following matters:
The name of company,
The address of the registered office of the company,
The objectives of the company,
The acts to be carried out to accomplish the objectives of
the company,
The figure of the authorized capital of the company and the
figure of the share capital to be issued by the company for
time being and the figure of undertaken to be paid by the
promoter of the company,
 Cont

The figure of the authorized capital of the company and the figure of
the share capital to be issued by the company for time being and the
figure of undertaken to be paid by the promoter of the company,
 Types of shares of the company, the rights and powers inherent in such
shares, value of each share and number of shares of different types,
 Restrictions, if any, in the purchase or transfer of shares,
 Number of shares which the promoters have undertaken to subscribe
for the time being,
 Terms of payments of share amounts,
 Statements that the liability of shareholders shall be limited,
 The maximum number of shareholders in case of a private company,
 
 Cont…
Other necessary matters
The memorandum of association shall also state such matters:
If the promoter or any other person is entitled to subscribe shares or
acquire title thereto in any manner other than by making payment in
cash, such matter,
If the company is to acquire any property in any manner from the
promoter or any other person at the time of commencement of its
transactions such matter,
If the company itself to bear the expenses incurred on its
incorporation, such matter,
If the promoter or any other person is entitled to any special privilege
or right from the company, such matter.
 
 Articles of association
A company shall frame the articles of association in order to attain the
objectives set forth in its memorandum of association and carry out its
activities in a well–managed manner. The articles of association shall
state the following matters:
Procedures for convening the general meeting of the ,company and
notice to be given for such meeting,
Proceedings of general meeting,
Number of directors, provision of alternate director, if any, and tenure of
directors,
Provisions relating to the minutes of decisions of the general meeting
and the board of directors, and duplicate copies and inspection thereof,
If a person has to subscribe shares to become a director of a company,
minimum number of shares,
 Cont…
If a person has to subscribe shares to become a director of a
company, minimum number of shares,
In the case of a public company, qualifications and number of
independent director,
Where any professional persons, other than shareholders, are to be
appointed as directors, provisions relating to the number, tenure,
qualifications and procedures of appointment of such persons,
Powers and duties of the board of directors and the managing
director,
Authority of directors and delegation of authority,
Quorum for a meeting of the board of directors, notice of meeting
and proceedings of meeting,
Lien on shares,
 Cont…
Different classes of shares and the rights, powers and
restrictions attached to such shares,
Provisions relating to calls on shares and forfeiture of shares,
Provisions relating to the transfer of shares,
Matters on alteration in share capital,
Matters on buying back of shares by the company, if the
company is to buy back its shares,
Appointment of a company secretary,
Provisions relating to remuneration, allowances and facilities
of directors,
 Cont…
Amendment to memorandum of association and articles
of association:
The general meeting of a company may amend the
memorandum of association or articles of association, by
adopting a special resolution to that effect.
The company shall give information of any amendment
made to the memorandum of association or articles of
association to the Office within thirty days; and the Office
shall record the same and give information thereof to the
concerned company, within seven days after the receipt of
such information.
 Cont…
 If any company has to amend its name, it shall adopt a
special resolution to that effect at its general meeting and
make an application, accompanied by the fees as prescribed,
for prior approval of the Office: and if the Office gives
approval to amend the names as per the application so
received, the name of that company shall be amended
 Prospectus
Prospectus to be published:
(1) A public company shall publish its prospectus prior to
issuing its securities publicly.
(2) Prior to the publication of prospectus, the prospectus signed
by all directors of the company has to be submitted, along with
a written application made to the Securities Board for approval,
under the prevailing laws on securities.
(3) Unless and until the Securities Board approves and gives
permission for the public issue and a copy of such prospectus is
registered with the office, no company or no person, on behalf
of such company, shall publish, or cause to be published , the
prospectus of such company. 
 Cont…
(4) If it appears that the prospectus submitted omits any
important matter or contains any unnecessary matter the
Securities Board shall cause such prospectus to be amended
or altered as required and grant approval to publish it in
accordance with law.
 Shares and Debentures

Share: A unit of ownership interest in a corporation or financial

asset. While owning shares in a business does not mean that the
shareholder has direct control over the business's day-to-day
operations, being a shareholder does entitle the possessor to an equal
distribution in any profits, if any are declared in the form of
dividends.
When you buy shares, you become one of the owners of the
company. Your fortunes rise and fall with that of the company. If the
stocks of the company soar in value, your investment pays off high
dividends, but if the shares decrease in value, the investments are
low paying. The higher the risk you take, the higher the rewards
you get.
 
 Cont…
Debentures are more secure than shares, in the sense that
you are guaranteed payments with high interest rates. The
company pays you interest on the money you lend it until the
maturity period, after which, whatever you invested in the
company is paid back to you. The interest is the profit you
make from debentures. While shares are for those who like to
take risks for the sake of high returns, debentures are for
people who want a safe and secure income.
Debenture: A certificate or voucher acknowledging a
debt. An unsecured bond issued by a civil or
governmental corporation or agency and backed only by
the credit standing of the issuer.
 Cont…
 Face value of shares and application:

1) The face value of shares of a private company shall be as

specified in its articles of association.
2) The face value of shares of a public company shall be fifty
rupees per share or shall be equivalent to such amount
exceeding fifty rupees as is divisible by the figure ten as provided
in the memorandum of association and articles of association.
3) 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.
4)  A person who intends to subscribe the shares of a public company
has to make an application in the format as prescribed:
 Cont…
Allotment of shares: (1) Where a public company invites the general
public to apply for the subscription of its shares it shall allot the shares
and give the shareholders a notice in the format as prescribed, within a
maximum period of three months after the date of closure of share
issue.
Power to issue shares at premium: (1) Any company fulfilling the
following conditions may, with the prior approval of the Office, issue
shares at a premium:
a) The company has been making profits and distributing
dividends for three consecutive years,
b) The company’s net worth exceeds its total liabilities,
c)The company’s general meeting has decided to issue shares at a
premium.
 Cont…
Share certificate:
1) A share certificate in the prescribed format shall be issued to every
shareholder in respect of each share subscribed by him/her, within
two months after the allotment of shares; the share certificate shall
bear the signature of any two out of a director or chief executive of
the company or the company secretary, in the case of a public
company, and the signature of the person as mentioned in the
articles of association or consensus agreement, in the case of a
private company, and also bear the seal of the company, if any .
2) While issuing a share certificate in respect of any shares held
jointly by two or more persons, the share certificate may be issued
to any one of them, by mentioning their names in the certificate.
 Cont…
3) If a share certificate is lost or destroyed because of a divine
act or otherwise, the shareholder shall give information
thereof to the registered office the company immediately
when he/she knows that the share certificate has been so lost
or destroyed because of the divine act or otherwise.
4) A certificate issued by a company, signed by its competent
officer and under the seal of the company, if any, to be used
by it, specifying the number of shares or debentures held by
any shareholder or debenture-holder shall be prima facie
evidence of his/her title to such shares or debentures.
 Issuing Debentures

A debenture is an instrument of debt executed by the company

acknowledging its obligation to repay the sum at a specified rate
and also carrying an interest. It is one of the methods of raising
the loan capital of the company. A debenture is thus like a
certificate of loan or a loan bond evidencing the fact that the
company is liable to pay a specified amount with interest and
although the money raised by the debentures becomes a part of
the company's capital structure, it does not become share capital.
 Company debenture is one of the important sources of finance
for large companies, in addition to equity stocks, bank loans and
bonds. Companies need to follow certain procedures to issue
debentures to raise money.
 Cont…
There are several ways of issuing a debenture viz. at a par,
premium or discount and even for consideration other than
cash.
 Raising loans or issuing debentures:
- If a public company deems necessary to raise loans or issue
debentures, it may, specifying the reason therefore, a work plan
to be executed from proceeds and budget necessary for that
propose raise loans or issue debentures with or without
pledging or mortgaging its immovable assets.
- However, that no debentures may be issued unless and until an
approval to commence its business is obtained and its issued
capital is fully paid up.
 Cont…
- Any company may raise additional loans or issue additional
debentures against the security already furnished by that company
with the already furnished by that company with the previous
creditors as a security from such creditors, within the limit of such
security, by clearly indicating the previous creditors as well as
amount of loan (amount) already obtained.
- The matters relating to the terms, repayment period and interest of
a loan borrowed or lent by a company shall be governed by a deed
or contract concluded between the creditor and the borrower.
- If a company is to raise loans or issue debentures the company shall
give its information, along with the reasons for the same, to the
office.
 Cont…
Procedures for Issuing Debentures
1) A public company shall, in issuing debentures pursuant to
this Act, issue debentures after making provision of a
debenture trustee. Such debenture trustee has to be a
debenture trustee licensed by the Securities Board.
2) The matters relating to the creditor and the borrower, in
issuing debentures with a debenture trustee, shall be as
mentioned in an agreement to be concluded between such
trustee and the company.
3) If any debentures are to be converted into shares this matter
has to be clearly mentioned in the prospectus.
 Cont…
3) If the memorandum of association or the articles of
association shall provide that debentures can be converted
into shares or such term has been specified prior to the
issuance of debentures, a debentures may be converted into
shares, subject to the share capital related provisions of this
Act.
4) Notwithstanding anything contained in the prevailing law,
the court may, if it thinks necessary, issue an order of
specific performance to get performed a contract concluded
between a public company and a person in respect of the
subscription of the debentures issued by that company.
 Meeting of the Company

According to Company Act, 2063 the meeting shall be divide

into two categories: 
Annual general meeting, and

Extra-ordinary general meeting.

A public company shall send a notice specifying the place, date
and agenda of meeting to every shareholder at the address
supplied by that shareholder to the company, in advance of at least
twenty one days to hold the annual general meeting, and in
advance of at least fifteen days to hold the extra- ordinary general
meeting. A notice thereof shall also be published at least twice in a
national daily newspaper.
 
 Cont..
However, that while calling any general meeting which has been adjourned, if
such meeting is not transacting any new agenda, a notice of that meeting
published in a national daily newspaper in advance of at least seven days shall
be deemed to have been duly given.
Every director of a company shall be present in the general meeting as far as
possible.
 Annual General Meeting
Every public company shall hold its first annual general meeting within one
year after it is permitted to commence its business, and thereafter it shall hold
the annual general meeting every year within six months after the expiry if its
financial year. This meeting is of shareholder meeting.
 Out of total number of shareholders of the company, 67% of the shareholders
must be present for AGM. In case of non presence, another meeting is called by
giving notice of at least 7 days and 33% of shareholder must be present.
 Cont…
Matters to be discussed in AGM are:
Audit report
Declaration of bonus and dividend, if any
Appointment of directors and their remuneration for coming year
Appointment of Auditor and remuneration
Miscellaneous
Within 30 days after convening AGM, each company should send
to the office to registrar, the details of the number of shareholders
present at the meeting , annual financial statement, reports of
auditor and directors and copy of resolutions adopted in the
general meeting. 
 Cont…
 Extra Ordinary General Meeting
The board of directors, shareholders holding at least ten percent
shares of the paid–up capital of a company or at least twenty
five per cent shareholders of the total number of shareholders
and the Office may call an extra-ordinary general meeting .
Special resolutions shall be presented in the general meeting
of a company for decision on the following matters:
a) Increasing the authorized capital of the company,
b) Decreasing or altering the share capital of the company,
c) Altering the name or main objectives of the company,
d) Amalgamating one company into another company,
 Cont…
e) Issuing bonus share,
f) Buying back of own shares by the company,
g) Selling shares at a discount,
h) Converting a private company into a public company or vice
versa,
i) Such other matter in respect of which the company is
required by this.
 Minutes
Every company must keep minutes containing a fair and correct
summary of all proceeding of general meeting and Board meetings
in books kept for that purpose. All the decisions of the company
must be included in the minutes.
In case of Board meeting, the minutes must also state the names
of the directors present and of those who may have dissented for a
resolution passed at a meeting.
The minutes book must be kept at the registered office of the
company and be open to inspection in the usual manner. The
minutes of GM must have signed by the Chairman of the meeting
or Company Secretary. If the Company has no Company Secretary,
a representative from the majority of shareholders must sign on it.
 Cont…
The minute of a General Meeting must include: How the
notice of the GM was published? How many shareholders
were presented? What percentage shareholders were
presented out of total number? What were the decisions
made? If the poll has been made, what was its result? Such
minutes of the company shall have to either sent to the
shareholders within 30 days or publish in national level
newspaper.
 Resolution

Resolution is the proposal for deciding at the meeting of a

company. There are Ordinary resolution and Special
resolution.
An ordinary resolution is a resolution other than special
resolution. A resolution shall be an ordinary resolution when
the votes in a general meeting cast in its favour are more than
votes against it. In other words, if the resolutions require
only majority vote to pass it is called an ordinary resolution.
The votes may be cast on a show of hands or on a poll in
general meeting of which 21 days notice has been given.
-
 Cont…
 A special resolution is one which is specifically mentioned in the
notice of the general meeting and passed by such a majority that
the number of votes cast in favor of the resolution is three times
the number cast against it either by show of hand or on a poll.
Increment of Authorized capital of the company, Reduce of share
capital or changing it, Change of name and main objectives of
the company, Merger of company in to another company, Issue of
bonus share, Purchase of own share of the company, Sell of share
in discount, Conversion of private company in to public company
and public company into private company, Amendment of the
Articles and Memorandum and Liquidation of company are the
subject matters to be discussed as a special resolution.
 Board of directors

Board of Director: The registration of a company under the Company

Act creates the legal personality, capable of carrying on business and of
acquiring or owning and disposing of property. Such an impersonal
creation of law must act through some human intermediary who, in
practice takes the form of the Company Directors. For the efficient
management of the company it is essential to appoint the persons who
discharge the various managerial and other functions and such persons
should be competent, honest and legally qualified. Due to an artificial
legal person without intelligence and will and having no physical
existence it has to act through the agency of natural person.
The supreme authority in the control of a company and its affairs
resides by delegation in individual known as directors who are
collectively designated the board of directors.
 Cont…
The Chapter 6 of the Nepalese Company Act 2063 has provided
some legal provisions regarding board of directors as follows:
1. Number of directors: [Section 86]
The number of board of directors of a private limited company shall be
as prescribed by the memorandum of the company. The public
limited company shall have minimum 3 and maximum 11 number of
board of director. The board of director formed for a public limited
company shall have an independent director if it has up to 7 number
of board of directors and it shall have two independent director
having knowledge and experience in the concerned business if it has
more than 7 board of directors. The board of directors shall have a
Chairman who is elected among the directors
 Cont…
2. Appointment: [Section 87]
The directors of a company may be appointed in any of the
following ways: By the Company in general meeting or By the
Promoters for the period until the first general meeting held or
By the Board of directors as an additional director or to fill a
casual vacancy or as an alternative director or By a corporate
body, in case of shareholder.
Board Meeting
The meeting of a private company shall be held as prescribed by
the Memorandum of the company. The meeting of a Public
company shall be held at least 6 times in a year. However, the
duration of two meeting must not exceed 3 months. 
 Cont…
The directors of the company must be presented himself at
the meeting. No representative shall be entertains. There
must be 51% directors presented to commence the meeting.
If such quorum has not meet another meeting can be called
by providing 3 days notice. If the prescribed quorum has not
met again the presented directors can reach into a decision.
The decision shall be made on the basis of majority and if the
votes are equal the chairman shall give his decision.
The meeting has to be recorded its decision in a minute
books and 51% directors presented at the meeting must
signed on it. If there are any dissented opinions made by any
directors, such note of dissent must also be recorded.
 Cont…
Auditor
Functions and duties of auditor:
1) The auditor shall, addressing the shareholders or the
appointing authority, submit to the company his/her report,
certifying the balance sheet, profit and loss account and cash
flow statement based on the books of account, records and
accounts audited by him/her.
2) The audit report shall be prepared in accordance with the
prevailing law or in consonance with the audit standards
prescribed by the competent body; and such report shall
state the matters to be set out under this Act, as per necessity.
 Cont…
The audit report shall also indicate the following
matters:
a) information and explanations made for the completion of audit;
b) the books of account as required by this Act have been properly
maintained by the company in a manner to reflect the real affairs
of its business;
c) the balance sheet, profit and loss account and cash flow
statements received have been prepared in compliance with the
accounting standards prescribed under the prevailing law and
whether such statements are in agreement with the books of
account maintained by the company;
 Cont…
d) the opinion of the auditor based on the explanations and
information made available in the course of auditing, the present
balance sheet properly reflects the financial situation of the company,
and the profit and loss account and cash flow statement for the year
ended on the same date properly reflect the profit and loss, cash flow
of the company, respectively;
e) Whether the board of directors or any representative or any
employee has acted contrary to law or misappropriated any
property of the company or caused any loss or damage to the
company or not;
f) Whether any accounting fraud has been committed in the
company
 
 Dissolution\ Liquidation of the Company
Dissolution of a Company
The dissolution of company means the formally stopping the
transaction by ending the legal status and divides the rights
and liability. It is also called winding up or liquidation. So,
the dissolution is the formal end of the legal personality of
the company. After dissolution, the management of the
company will take over by the official receiver who
determines the property, payment of the liabilities is known
as liquidator.
Modes of winding up may be Voluntary winding up, Winding
up by Company Registrar Office and Winding up by Court's
order.
 Cont…
i) Voluntary winding up [Section 126]
 If otherwise provided by the Insolvency Act, the shareholder of the
company by passing the resolution or under the provision of Article,
Memorandum and unanimous agreement can dissolve the company if
following circumstances has been exist.
If the company is able to pay debt or any other liability.
If the company is not on the process of declaration insolvent under the
prevailing laws.
If the Board of directors declares that the company is able to pay all the
liabilities within 1 year and any other ways after necessary examination.
If the GM declared that the company is able to pay all the liabilities
when discussing at the matter of dissolution.
 Cont…
If such decision and declaration has been made it must be submitted
to the CRO within 7 days.
ii) Winding up by Company Registrar's Office: [Section
136]
 It is also called compulsory winding up. The Company Registrar's
Office can dissolve the company in the following circumstances.
In the case of submitting application for dissolution of company by
the promoters stating that the company has not able to start the
transaction.
 If the report has not been submitted to the office regularly for 3
years or the fine imposed by the office has not been paid.
If the Office believes that the company is not in existence any more.
 Servant and Independent Contractor
Servant : Until the early nineteenth century, any employee whose work
duties were subject to an employer’s control was called a servant; we would
not use that term so broadly in modern English. A servant as “an agent
employed by a master to perform service in his affairs whose physical
conduct in the performance of the service is controlled or is subject to the
right to control by the master.”
Independent Contractor : Not every contract for services necessarily
creates a master-servant relationship. There is an important distinction
made between the status of a servant and that of an independent
contractor. An independent contractor is a person who contracts with
another to do something for him but who is not controlled by the other nor
subject to the other’s right to control with respect to his physical conduct in
the performance of the undertaking. As the name implies, the independent
contractor is legally autonomous. A plumber who hires himself
 Cont…
out to repair pipes in people’s homes is an independent
contractor. If you hire a lawyer to settle a dispute, that person
is not your employee or your servant; she is an independent
contractor.
 Meaning of Arbitration
Arbitration is a well-established and widely used means to end
disputes. It is one of several kinds of Alternative Dispute
Resolution, which provide parties to a controversy with a choice
other than litigation. Unlike litigation, arbitration takes place
out of court: the two sides select an impartial third party,
known as an arbitrator; agree in advance to comply with the
arbitrator's award; and then participate in a hearing at which
both sides can present evidence and testimony. The arbitrator's
decision is usually final, and courts rarely reexamine it.
Arbitration is a procedure in which a dispute is submitted,
by agreement of the parties, to one or more arbitrators
who make a binding decision on the dispute.
 Cont…
 In choosing arbitration, the parties opt for a private dispute
resolution procedure instead of going to court. The submission of a
dispute to an unbiased third person designated by the parties to the
controversy, who agree in advance to comply with the award—a
decision to be issued after a hearing at which both parties have an
opportunity to be heard.
M.R. Romily defines: An arbitration is a reference to the decision of
one or more persons, either with or without an umpire, of a
particular matter on differences between parties.
Hulsbury: An arbitration is the reference of a dispute or difference
between not less than two parties for determination, after hearing
both sides in a judicial manner, by a person or persons other than a
court of competent jurisdiction.
 Cont…
Its characteristics:
Its principal characteristics are:
Arbitration is consensual
Arbitration can only take place if both parties have agreed to
it.
The parties choose the arbitrator(s)
Arbitration is neutral
Arbitration is a confidential procedure
 Cont…
Importance of Arbitration

Prompt Settlement: no lengthy process. Arbitration Act, 2055, sec.
24, provides the time of 120 days from the date of reference of dispute
for settlement.

Simple Procedure: Parties can themselves choose procedure but the
court process are fixed by law.

Less Expensive: Parties seeking arbitration shall pay to the arbitrator
the amount fixed by him in consultation with the parties present for
conducting the arbitral proceedings. Both of the parties have say on the
costs which will be involved in the proceedings.

Privacy and Close Hearing: To maintain secrecy of the business and
trade, parties can exclude third person from observing the proceedings.
 Cont…
Expertise Service: In ordinary courts judges are learned person in law,
but they are not expert in every matter. But in arbitration parties can
hire arbitrators who are expert in their fields.
Convenient in International Trade and Business: Nepal has
become a member of WTO. The scope of arbitration has increased
because of this. Nepal has entered into the world of business
environment. Nepalese business persons have to deal with the
international business organizations for business purposes.
More Practical: Convenient place of settlement office, service from
experts on subject matter, private hearing, simple procedure, prompt
settlement and execution of award makes more practical.
Binding force: The settlement made by the arbitration will be the final
award as the verdict of the court of law and has fully binding force. 
 Cont…
Arbitrator: An arbitrator is a person appointed by mutual consent
of the concerning parties to settle a controversial issue between
them. The person is appointed to adjudicate the differences
regarding the agreement between two or more parties. The
arbitrator is a tribunal chosen by the consent of the disputing
parties.

Arbitration Act, 2055, sec. 2(h) defines, The arbitrator is

appointed for the settlement of a dispute and also includes a
panel of arbitrators. Such a person or a group of persons
appointed and tribunal constituted for the settlement of disputes
in a judicial manner. Such person is known as an Arbitrator.
 Cont…
What may be referred to arbitration: According to sec. 3, the
agreement which provides for the settlement of the disputes
connected with or arising out of the agreement shall be
settled through arbitration.
Civil suit of a commercial nature can also settled through
arbitration [sec. 3(2)]
Matters of civil case of commercial nature such as disputes
concerning property, amount payable for breach of contract.
 Disputes relating to personal dignity, reputation and respect.
Time barred debt.
Matters relating to personal rights.
 Cont…
Matters cannot be referred to arbitration
Disputes relating to Matrimonial relations like divorce etc.
Testamentary (Will) matters
Insolvency matters
Guardianship matters
Charity Trust matters
Criminal cases
Powers of Arbitrator: Arbitration Act, 2055 has given some
powers to the arbitrator :
 Power to ask parties for submission of claims, counter-claims,
defenses or responses to counter claims [s.14]
 Cont…
Power to ask parties to appear before him and submit documents
and record their deposition according to need. [s.21(a)]
To record statements of the witness [s.21(b)]
To appoint the expert or to seek his opinion on the dispute
[s.21(c)]
To ask or obtain bank guarantee or appropriate surety if any of
the party is foreigner and he thinks that the award could not be
enforced. [s.21(d)]
To inspect the concerned place, product and structure etc if there
is a request from the party to the dispute. [21(e)]
To exercise specific powers given by the parties to him. [s.21(f)]
 Cont…
To issue preliminary, interim, or interlocutory order in relation to
the dispute [s.21(g)]
To issue certified copies of documents to concerned parties.
[s.21(h)]
To exercise powers conferred by the Arbitration Act. [s.21(i)]
Power to issue notice
Duties of the Arbitrator
To act judicially: work impartially and fairly, examine the
evidence, to proceed cross-examination, to treat the parties,
follow principle of justice.
Not to resort to any misconduct: not to be biased, not to accept
hospitality, not to act against law of natural justice.
 Cont…
To disclose material facts: Before the appointment of arbitrator, he
has to disclose the material facts of his interest.
Not to act as an advocate or an agent:
To discharge all the function personally: cannot delegate his
powers to others.
To use all the reasonable dispatches: An arbitrator has to use all
the necessary documents by examining them, and has to decide
clearly, finally, and to be limited within the jurisdiction.
To be present at every meeting of the arbitrators
To give equal opportunity
To mention the following matters clearly in the award:
Matters regarding the disputes and claims of the parties
 Cont…
To prove the jurisdiction, if any parties raises question at it.
Decided points with the basis and causes
Compensation to be fulfilled in an amount or things
Matters of amounts for compensation and the rate of interest if not
executed
To sign the award and mention its place and date
Not to cross jurisdiction
To decide all the matters referred
To inform the parties of an award and to provide the copies.
Revocation of Arbitrator’s Authority: Under English law,
generally, an arbitrator cannot be revoked by the parties after the
appointment namely at the time of agreement.
 Cont…
However in Nepal, the parties and the court in the following
circumstances may revoke the authority of an arbitrator:
Biasness or Partiality by the Arbitrator: s. 11 (2) (a)
Improper actions or fraud in course of Arbitration: s. 11 (2) (b)
Mistake or Irregularities: s. 11 (2) (c)
Unnecessary delay in Arbitration proceedings: s. 11 (2) (d)
Action against the rule of Natural Justice:
Lack of desired qualification: s. 11 (2) (f )
The Award
Award means decision of the Arbitrators upon dispute between
parties.
 Cont…
The document containing the decision of the arbitrator is
called the award. Award is also a judgment pronounced by an
arbitrator. In case there are three or more than three
arbitrators, the decision of the majority shall be deemed to
be decision of the arbitrator. In case there is different opinion
and the majority could not be ascertained, the opinion of the
presiding (chief) arbitrator shall be deemed to be the
decision of the arbitrator.
Thank you