This is the third part of a multi-part series documenting all the relevant points of The Company Act of Nepal 2063. Find the previous part here.

All monetary funds injected for the operation and reserve of the company are defined as capital. The capital is collected and distributed as per the provisions made in the AOA and MOA of every organisation, as per section 30 of the Act. The provision and the Act have defined different rights, share distribution methods, and valuation report requirements according to the nature of the company. The operator may operate these provisions and Act defined rights according to the decisions made by their Board of Directors.

The sections and subsections illustrated by the directives of the Company Act that provide insights into the capital structure and its distribution are stated below.

29. Shares With Different Rights

(1) The company may issue shares of different classes having different rights only by making provisions in the Articles of Association (AOA) and Memorandum of Articles (MOA). For the purpose of section 30 of the Act, shares issued with different rights in the following matters may be considered as shares with different rights:

a. The right to receive dividends from the company's profits, a certain percentage of the face value of the shares, or dividends based on the company's profits. It is a matter of the order of preference to receive dividends in shares as well, whether there should be such order of precedence even among ordinary shareholders etc.

b. The right to vote in a general meeting of shareholders is a matter of whether or not they have the right to vote.

c. The reimbursement of the amount due to the company after deducting the amount of liability.

d. Whether or not to exercise the right to vote while appointing the moderator and if to exercise the right to vote, how many shares and how many votes will be obtained.

(2) After establishing the company, the company that wants to issue different class shares with different rights should amend its Articles of Association and Memorandum of Articles accordingly. Shares should not be issued with different rights without making provisions in its Articles of Association and Memorandum of Articles.

30. General Meeting of Special Class Shareholders

(1) In case of any changes in the rights of the shareholders of such class in issuing shares with different rights, only a general meeting of the shareholders of the concerned class should be called.

(2) The provisions of the Act applicable to the procedure to be followed in convening the general meeting of the company in relation to giving notice of the general meeting to be convened pursuant to subsection (1), the place of general meeting, the quorum of shareholders, etc., shall apply.

31. Share Distributed for Service Contract

(1) A company may provide shares of the company to the person providing the service as a reward for the services rendered by the person after receiving the service.

(2) If shares are to be issued as a result of any service, including consulting services, there should be a written agreement in this regard, and the service agreement should clearly state the return of service and the number of shares to be issued accordingly.

(3) The value of the share issued as per the service contract pursuant to subsection (2) shall be clearly stated in the contract pursuant to subsection (2).

31.a. Shares to be Distributed Equally to the Issued Capital  

The details of the shares equal to the issued register of the company should be mentioned in the details of the shares to be submitted as per section 31 of the Act. In such a statement, the percentage of the issued capital that has been paid immediately and the remaining amount to be paid for the shares should also be clearly mentioned.

Section 31.a. was added by the First Amendment.

32. Public Company Must Submit Valuation Report

(1) After the establishment of a public company, if the company has issued shares in such a way that the value of the shares is paid in full or in part other than cash, then the property acquired by the company shall be assessed in accordance with the law.

(2) The valuation report of the property received by the company pursuant to subsection (1) shall be prepared and submitted to the office within one month from the date of issue of shares.

(3) The percentage of share capital to be issued to the public in accordance with the amended rule 7 of the Securities Purchase Rule, 2065, shall be mentioned in the management letter of the company itself.

33. Assets to be Valued

If any company has acquired any property in any way from its founder, operator, office bearer or basic shareholders or their close relatives, the valuation should be done as per the provision made in subsections (3) and (4) of Section 18 of the Act.

34. Prohibition on Sales of Shares or Holding Collateral

(1) Employees who have purchased shares of the company under the scheme of selling shares to employees or employees who have purchased shares under such scheme but are not immediately in the service of the company may sell or pledge shares of their ownership to agents other than the existing shareholders of such company only with the approval of the Board of Directors. Such shares cannot be sold to another person.

(2) Notwithstanding anything contained in subsection (1), a person who wishes to inherit a share, a defunct right holder, or a balance in a subsequent box may acquire the right in the shares owned by such employee and without the full approval of the Board of Directors.

35. Information Regarding the Rights in the Shares

(1) If an organisation has purchased the fully authorised shares of a company, the details of the shareholders or members of the organisation purchasing such shares and the share ownership of each such shareholder in the organisation may be sought within 30 days. It will be the duty of such an organisation to provide all the information.

(2) If a natural person is a shareholder of a company, and if such company seeks information in accordance with subsection (1) of section 47 of the Act, such organisation has an investment in the fully authorised shares registered in its name or if any organisation is a beneficiary in such shares. Such a natural person shall inform the company about the organisation's identity, the nature of the rights and the details of the shareholders or members in such organisation, and the share ownership of each such shareholder in the organisation within the time limit as per subsection (1).

(3) The company shall record the information obtained under subsections (1) and (2) in the share registration book as per subsection (2) of section 47 of the Act and send the relevant information to the office within seven days.

36. The Operator Should Prepare the Strategy

(1) For the purpose of subsection (1) of section 60 of the Act, if any of the following conditions/clauses exist, the operator shall be deemed to have come to know about the losses of the company's own assets;

a. If such a situation has arisen due to the decrease in the company's net assets due to any special event, the operator involved in the day-to-day operations of the company shall be deemed to have been aware of it from the date of such incident.

b. The management of the company has prepared a report regarding the loss of the company's own assets and requested to convene a meeting of the chairman of the Board of Directors. Provided that if the chairman of the Board of Directors is involved in the company's day-to-day operations, it shall be deemed to have come to his notice that the assets of the company have decreased during the period mentioned in clause (a).

c. If the report of the management is also sent along with the notice of convening the meeting of the Board of Directors, each board member shall be deemed to have received the information from the date of receipt of such notice.

d. If the report prepared by the management is not included in the notice of convening the meeting of the Board of Directors, the directors shall be deemed to have received such information from the day of the meeting of the Board of Directors.

e. If it is seen that the company's own assets have decreased due to any instrument or document (such as vassal), the operator is deemed to have been informed about it from the date of submission of the instrument to the Board of Directors.

(2) Notwithstanding anything written from clause (A) to clause (E) of subsection (1) above, if any other proof or instrument confirms to the operator that the company's own assets have decreased, the transaction shall be deemed to have come to its notice from that date.

(3) For the purpose of subsection (1) of section 60 of the Act, the "Strategy" to be prepared by the operator of a public company whose own assets have been depleted means any financial strategy must be prepared by the operators concerned to implement such strategy. Even the plan made should be recorded.

37. Reasons and Needs to Be Disclosed

A company wishing to purchase its own share should clearly state the reasons and requirements for purchasing its own shares in a proposal submitted to the General Assembly.

38. Evidence that the Value of the Shares Taken by the Founder has Been Paid

(1) For the amount paid for the shares agreed to be taken by the founder of the public company, the office will approve such a company to start a business only after submitting the proof.

(2) For the purpose of presenting evidence pursuant to subsection (1), one of the following evidence shall be submitted.

a. The number of shares agreed to be taken by the founder is a bank or financial proof of this, if deposited in the organisation. Or,

b. A statement certified by at least one operator of the company and a certified auditor in accordance with the prevailing law of the assessed property or service received by the company for the value of the shares.

(3) When a company increases its paid-up capital and submits details as per section 31 of the Companies Act for the record of shares, it must be certified by the auditor who has obtained the audit report or certificate of payment of share capital as per law.

39. Private Company Does Not Need Permission to Start Business

(1) A private company does not need to get approval from the office to start a business. The private company will be able to start its business as soon as it receives the certificates of registration.

(2) Notwithstanding anything contained in subsection (1), a private company may start its business only after obtaining the approval of any concerned regulatory body in accordance with the prevailing law to conduct a particular business.

(3) The shareholders of a private company shall submit the proof of payment to the office in accordance with Article 38 of the amount agreed upon to be taken.

40. Provision Relating to the Dividend of Preferential Shares

(1) Subject to the provision made in the Articles of Association and Memorandum of Article of the company in any fiscal year, dividends may be distributed in the preferred shares from the amount of such net profit only if the company has earned profit. However, no amount can be paid or distributed to the preferred shareholders by dividend or any other transaction in the financial year in which the company has not been able to earn profit.

(2) If the company has issued cumulative preference shares that add dividends every year, the provisions of subsection (1) shall also apply to such shares. The company will have to pay in previous years only from the net profit in the financial year in which it has earned profit.