Class 11 BS Chapter-6

Company Business (Long Definition)

Company business refers to all the activities and operations carried out by a company with the main objective of earning profit. These activities can include producing goods, providing services, buying and selling products, investing in projects, or any other legal commercial operation that helps the company achieve its goals. Every company has a clearly defined business purpose mentioned in its memorandum of association, which guides its daily operations and long-term strategies. Company business is conducted systematically and legally, following rules and regulations, to ensure sustainable growth, customer satisfaction, and profitability.

Example:

• Unilever Nepal produces soaps, shampoos, and detergents to sell in the market and earn profit.

In short: Company business is the organized and legal activities which performs to make profit and achieve its objectives.

Private and Public Company

1. Private Company 

A private company is a business organization owned by a small group of people. Its shares are not offered to the public, and it cannot raise capital from the stock market.

Key Features:

• Ownership: Limited to 2–101 members.
• Share Transfer: Restricted, cannot sell shares to outsiders freely.
• Capital Raising: Cannot issue shares to the public.
• Management: Managed by directors appointed by the owners.
• Legal Status: Separate legal entity, can own property, sue, or be sued.
• Written private Ltd.,Pvt Ltd.or P ( Ltd)after the name of company.

Example: A small family-run business registered as a private company.

2. Public Company (Public Limited Company)

A public company can offer its shares to the general public and can raise large capital from the stock market.

Key Features:

• Ownership: 7 to Unlimited members.
• Share Transfer: Shares are freely transferable.
• Capital Raising: Can issue shares to the public.
• Management: Managed by a board of directors elected by shareholders.
• Legal Status: Separate legal entity, liable for its own debts.
• Written Limited or LTD after the name of the company

Example: Nepal Telecom, Unilever Nepal.

Characteristics of a Company 

1.Separate Legal Entity

A company has its own legal identity, separate from its shareholders. It can own property, enter into contracts, and sue or be sued in its own name.

2.Limited Liability

The liability of shareholders is limited to the amount they have invested in shares. Personal assets of shareholders are protected if the company faces losses.

3.Perpetual Existence

A company continues to exist even if shareholders or directors leave or die. Its existence is not affected by changes in ownership.

4.Transferability of Shares

Shares in a company, especially a public company, can be transferred from one person to another. Private companies may have some restrictions on transfer.

5.Separate Property

The company’s property belongs to the company itself, not its shareholders. Shareholders only have rights over their shares, not the assets of the company.

6.Capacity to Sue and Be Sued

A company can file lawsuits and can also be sued in its own name, which ensures legal protection and accountability.

7.Common Seal

A company often uses a common seal, which serves as its official signature for important documents and agreements.

8.Raising Capital

Companies can raise funds from shareholders or, in the case of public companies, from the public. This allows them to expand and invest in large projects.

9.Separation of Ownership and Management

Shareholders are owners, but directors or professional managers handle the day-to-day management, ensuring efficient operation.

10.Regulation by Law

Companies are governed by the Companies Act and other legal provisions, ensuring transparency, accountability, and protection for shareholders and creditors.

Reasons for Starting Company Business 

1. Limited Liability

In a company, the owners do not have to risk their personal property. If the company has a loss, only the money invested in the company is lost not their house or land. So people feel safe to invest.

2. Adequate Capital

A company can collect a lot of money from many people by selling shares. Even big projects like factories or hydropower can be started because many investors join. So money is not a big problem in a company.

3. Perpetual Existence

A company does not die even if owners die or leave. It continues forever until the law closes it. This makes the company stable and long-lasting.

4. Transferability of Shares

If a person wants to leave the company, they can simply sell their shares. Business continues smoothly no need to close anything. This makes investing easy and flexible.

5. Effective Management

A company is managed by trained and skilled people. Experts handle accounting, marketing, HR, production, etc. So the company runs more smoothly and professionally.

6. Easy to Obtain Loan

Banks trust companies more because companies follow rules, audits, and keep proper records. So companies get loans easily for expansion or new projects.

7. Encouragement for Saving

People invest their extra money in shares and debentures. This helps them save instead of wasting money. So company business encourages saving habits.

8. Public Confidence

Because companies publish reports, follow laws, and remain transparent, people trust them. This trust helps companies grow and attract more investors.

9. Social Value

Companies give jobs, pay taxes, support communities, and help the economy grow. So they are useful for society, not just for profit.

10. Greatest Potentiality

A company has a high chance to grow big. With more money, experts, and long life, it can expand into many branches and become a large industry.

Challenges/disadvantages of Company Business

1. Difficult to Establish :Starting a company is not simple. You need a lot of money, proper documents, and government approval. For example, registering a company in Nepal can take time and effort, which makes it hard for new entrepreneurs.

2. Separation of Ownership and Management: In a company, the owners (shareholders) do not directly manage the business. Professional managers run it, and sometimes they may make decisions that don’t fully match what the owners want.

3. Lack of Prompt Decision :Companies usually take time to make decisions because approvals are needed from the board of directors, committees, or shareholders. This slows down the process compared to smaller businesses.

4. Lack of Secrecy :Companies have to share financial reports, profits, and plans publicly. Competitors can see this information and use it to gain an advantage, which reduces privacy.

5. Difficulty for Management :Managing a company with many employees, departments, or branches is not easy. Managers have to handle different challenges every day, and mistakes can affect the whole organization.

6. Exploitation of General Shareholders: Minority shareholders (small investors) may not get fair treatment. Majority shareholders can make decisions that benefit themselves, ignoring smaller investors.

7. Groupism for Authority: Decisions in companies can sometimes be influenced by groups or cliques rather than what is best for the company. This favoritism can harm efficiency and fairness.

8. Excessive Legal Provision :Companies have to follow many laws and regulations. Complying with all of them is time-consuming, and breaking rules can lead to fines or legal problems.

9. Social Abuse: Some large companies misuse their power, such as exploiting workers, harming the environment, or manipulating markets, which can negatively affect society.

Registration Process of a Company 

Registering a company means making your business official in the eyes of the government. It goes through four basic steps. These steps make sure the company is legal and allowed to start business.

1. Submission of Application

The first step is to submit an application to the Company Registrar.In this application, the owners of the company give all the basic information such as:
- The name they want for the company
- What type of business they want to do
- Address of the company
- Names and details of the shareholders and directors
- MOA and AOA (documents that explain the purpose and rules of the company)
This step is simply about telling the government: “We want to open a company and here are our details.”

2. Submission of Registration Fee

After the application is checked, the promoters must pay the registration fee.
The fee amount depends on how much capital the company has.
When the money is paid, the promoters get a receipt and submit it to the registrar.
This step shows that the company has completed all payment requirements.

3. Registration of Company

Once the registrar gets the application and the fee, the company is officially registered.
This means the company becomes a legal entity.
From this point, the company can:
- Own property in its own name
- Make agreements
- Take loans
- Sue or be sued
The registrar gives the company a registration number, which becomes its official identity.

4. Certificate of Commencement

After registration, the registrar issues a Certificate of Commencement.
This certificate is like a green signal from the government.
It means the company can now:
- Start its business
- Open bank accounts
- Hire staff
- Sell products or services

Conclusion
In simple words, the company registration process has four steps:
Apply → Pay fee → Get registered → Start business.
These steps help the government verify the company and allow it to begin its activities legally.

1. Memorandum of Association (MOA)

The Memorandum of Association is the charter or foundation document of a company.

It defines the identity, purpose, and boundary of the company’s activities.

A company cannot perform any act outside the MOA (Doctrine of Ultra Vires).

Components / Contents of MOA

1. Name Clause – Legal name of the company.

2. Registered Office Clause – Address of the head office.

3. Objectives Clause

Main objectives

Ancillary objectives

Other objectives

4. Capital Clause – Authorized, issued, and paid-up capital

5. Liability Clause – Liability of shareholders (limited by shares/guarantee).

6. Association/Subscription Clause – Details and signatures of promoters and shares they agree to take.

Importance of MOA

Defines the scope of business

Provides the legal identity

Guides government, investors, and stakeholders

Basis for incorporation

2. Articles of Association (AOA)

The Articles of Association is the internal rule book of the company.

It describes how the company will be managed, controlled, and operated.

Contents / Components of AOA

1. Share Capital – Types, issue, variation of rights.

2. Share Transfer & Transmission Rules

3. Meetings – AGM, EGM, Board meetings, voting rules.

4. Directors – Appointment, powers, duties, removal.

5. Dividend Policy

6. Accounts & Audit – Books of accounts, financial statements, auditor appointment.

7. Winding Up Rules – Process of liquidation.

Importance of AOA

Ensures smooth internal management

Reduces conflicts

Provides operational guidelines

Acts as a contract between company and shareholders

3.Prospectus

A prospectus is a public document issued by a public company when it wants to invite the general public to buy shares or debentures.It

Provides full and truthful information about the company and helps investors make informed decisions.

Contents of a Prospectus:

Company name, address, history

Objectives of the company

Capital structure

Financial statements and future projections

Risk factors

Details of directors and management

Number of shares issued, price, and application process

Use of funds raised

Auditor’s verification

4. Certificate of Incorporation

A Certificate of Incorporation is a legal certificate issued by the Office of Company Registrar (OCR) after a company is successfully registered. It confirms the company is legally born.This certificate is required for opening bank accounts, PAN/VAT registration.

Contents of certificate of incorporation

Company name

Registration number

Date of incorporation

Type of company (private/public)

Registered address

Authorized capital

5. Certificate of Commencement

A Certificate of Commencement is required only for public companies after incorporation.It is issued only after the public company meets extra legal requirements.This certificate allows the public company to start business operations officially.

Requirements to Obtain:

Prospectus approved and issued

Minimum subscription collected

Bank confirmation of paid-up capital

Promoters’ statutory declaration

Submission of documents to OCR

Importance:

Ensures company has enough initial capital

Protects investors

Gives legal permission to begin operations

Types of Company Meetings (Simplified)

Company meetings are formal gatherings where important decisions of a company are discussed. These meetings help owners and managers run the company properly and ensure smooth operation. Mainly, there are two types of company meetings: Shareholders’ Meetings and Board of Directors’ Meetings.

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1. Shareholders’ Meetings

These meetings are held for the owners of the company (shareholders).

The First General Meeting is the very first meeting of shareholders, held only once, after the company starts its business.

The Special General Meeting is called when urgent matters arise that cannot wait for the annual meeting, such as approval of major business decisions or changes in company rules.

The Annual General Meeting (AGM) is held every year, where shareholders discuss the company’s progress, approve financial accounts, declare dividends, and appoint auditors.

These meetings allow shareholders to understand how the company is performing and participate in key decisions.

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2. Board of Directors’ Meeting

This meeting is held among the directors who manage the day-to-day activities of the company. It is held more frequently than shareholders’ meetings.

In this meeting, directors discuss:

Plans and policies of the company

Budget and financial matters

Appointment of key executives

Other important business decisions

Decisions made in these meetings guide the company’s overall management and future direction.