Chapter 5: Law in practice

Chapter 5: Law in practice

a) Business organization 

• Business organization is a company or an entity formed for the purpose of carrying a commercial enterprise. 
• About the business organization, Gillian D. Brown and Sally Rice wrote in 3 aspects:

1. Sole trader 
2. Partnerships
3. Limited companies 

And also claimed that there are many trading vehicles to run the enterprise and business organization.

Some of the existing business organizations are:

• Private limited company
• Public limited company
• Finance company limited
• Banking company limited
• Multinational company and others

Company Act 2006 incorporated two more companies:

1. Social welfare company
2. General (open) commercial company

However, 2 companies are still not incorporated they are:

1. One man public limited
2. Finance private limited

Sole trader (One Man Company)

• Simplest and common form of business structure
• Headed by a single individual
• Ownership and management is vested on same person 
• If an individual want to have a profitable business, he/she has many varieties of enterprises. 
• Among them a sole trader can be as alternative 
• Small enterprises as; software developer independent, a small shop, a beauty salon, a hair dresser 
• Few formalities aside from VAT, or regulation. 

Partnership

• A common form of structure of business is partnership. For e.g. accountants, solicitors, architects 
• In Nepalese context, (1) if partnership is incorporated under partnership Act then, it has unlimited liability and (2) if a partnership is incorporated under companies act, then it has limited liability.  
• In UK; 
  • It needs to have at least 2 members and maximum of twenty
  • All partners are jointly liable
  • Relations between partner is drafted in the partnership agreement 
  • Partnership agreement includes
  • Duration of the partnership
  • Its name and business’
  • How profit, loss to be shared 
  • What rules will apply to capital
  • Ground to expel partner
  • Restriction on partners 

Limited companies

• Limited company tailed as ltd and private limited company is tailed as pvt ltd in context of Nepal.
• In UK limited as ltd and public limited as plc.
• In these regards, Nepalese demarcation is scientific and distinct than that of UK.
• It can have a separate legal entity which can be sued and can sue in its own right.
• The registration number and incorporation number of the incorporated company remains the same for whole life.
• However, the name can be changed

b) Formation of company

Company Act 2006 A.D: 

• Section 3; incorporation of company
• Section 4: application to be made for incorporation
• Section 5: registration of company
• Section 5: subsection 1 within 7 days company to be registered
• Section 6: power to refuse to register company
• Section 7: company to be body corporate 

• Section :9 number of share-holders 

  No. of share-holders of a private company not exceeding 50

  The number of shareholder of a public company; seven in minimum and maximum is unlimited

• Types of company:
  • Private company
  • Public company: a company other than a private company 
  • Holding company: a company having control over subsidiary company
  • Subsidiary company: a company controlled by a holding company
  • Foreign company: a company incorporated outside the country
  • Listed company: company incorporated in the stock exchange 
• Chapter 3, section 18: MOA (Memorandum of association), section 20,  AOA (Articles of Association)

c. Raising share capital by share sale:

• It is known as the idea of increment of finance or money for the company business.
• Share is an interest, right and property of the share member of the company.
• By share sale or debenture sale the limited company can raise the capital in the company.
• Balance sheet of the company show how the company was funded and capitalized or the financial status of the company.
• Share value is how much each share is worth
• If the company can earn the financial benefit then only the dividend can be declared. 
• About raising capital by share sale Gillian D. Brown and Sally Rice wrote in 3 titles:
  • Share capital 
  • Share value
  • Rights attaching to share

Shareholder’s rights

Voting right to all shareholder of the company in annual or special general meeting. 

In Nepal

• Face value of share is Rs. 50 of a public company or shall be equivalent to amount exceeding 50 divisible by 10. 
• Face value of share of Private Company is specified in AOA. Section 27 of Company act 2006.

d) Debt financing; secured lending

• It is known as issuing the debenture or loan to/from the company 
• Secured lending is also known as safe security against the debt to recover the amount.
• Debt financing occurs when a company raises money by selling debt instruments to investors.
• In secured lending the lender has a legal claim against a borrower's assets. 
• For this, Gillian D. Brown and Sally Rice provided 2 aspects:
• The granting security
• The terms of a charge 

e) Company directors and company secretariats 

f) Insolvency and winding up

• Insolvency is not having enough money to pay what you owe.
• In other words, it is bankruptcy
• Winding up is the conclusion of any action. 
• The process of settling accounts and liquidating assets in the anticipation of a partnership or corporation dissolution 
• Regarding insolvency and winding up Gillian D. Brown and Sally Rice wrote in 2 aspects; insolvency and insolvency scenarios.
• Insolvency of the company decreases its assets and cashes from liability and debt then such status of financial condition is called insolvency.
• Solution to insolvency:
  • Renegotiating the debts
  • Discharging the loans

  • Borrowing more debenture

     

g) Alternative dispute resolution 

h) Corporation tax

I) Mergers and acquisition  

further contents, coming soon……