LAW5404 Company Law and Governance — Unit 1: Introduction

Unit 1: Introduction

1.1 Genesis of Company and Company Law

The company’s ancestry: the medieval trading forms (the commenda, the guilds), the great chartered companies (the East India companies — monopoly by royal charter), the joint-stock pooling of the 17th–18th centuries, the bubble-and-crash discipline (the South Sea Bubble’s aftermath), and finally the general-incorporation statutes of the 19th century (the UK’s Joint Stock Companies Act 1844 and the Limited Liability Act 1855 — names only): incorporation by registration, not royal favour. The capstone case — Salomon v. Salomon (by name only) — the company is a person separate from its members, and the veil protects the small shareholder as fully as the great. From that spine grew the modern corporation: the economy’s dominant institution, and the law’s most consequential artificial person.

1.2 Historical Development of Company Laws in Nepal

Nepal’s line (the exam ladder): (i) the 1930s’ first company legislation of the Rana era, alongside the first joint-stock ventures — Biratnagar Jute Mill (1936) and Nepal Bank Limited (1994 B.S.) as the pioneers; (ii) the Companies Act 2021 B.S. (1964) — the post-1951 statutory era’s organised company law; (iii) liberalisation’s instruments — the Companies Act 2053 (1997) opening the corporate economy; and (iv) the Companies Act 2063 (2006) — the present law (with its rules): incorporation, governance, shares and debentures, accounts and audit, and the winding-up discipline. Beside it grew the capital-market frame (the Securities Act 2063 and SEBON — the public-issue regulator; cross-reference Securities Law, LAW5409, this semester), the Foreign Investment and Technology Transfer Act 2075 (the foreign company’s gate), and the sector overlays (BAFIA 2073’s governance duties for banks and insurers).

1.3 Meaning and Characteristics of the Company

A company = an artificial person created by law (registration under the Companies Act 2063), with perpetual succession and a common seal (the historical signature — now symbolic), capable of owning property, contracting, suing and being sued in its own name. The characteristics (the exam seven): (1) separate legal personality (Salomon’s gift); (2) limited liability (members’ exposure capped at their share’s unpaid amount, in a company limited by shares); (3) perpetual succession (“members may come and go, but the company goes on forever”); (4) transferable shares (the exit’s design); (5) separate property (the company’s assets are its own — not the members’); (6) artificial person — acts through its organs (general meeting, board, officers); (7) capacity and process — a juridical person with the law’s procedural personality.

1.4 Comparison between the Company and Other Forms of Business

Point	Sole proprietorship	Partnership (Partnership Act 2020)	Company (Companies Act 2063)
Person	The owner is the business	The firm is collective — partners are the business	A separate legal person
Liability	Unlimited	Joint and unlimited (general rule)	Limited (shares’ unpaid value)
Continuity	Ends with the owner	Dissolution-prone (death, insolvency)	Perpetual succession
Ownership transfer	Sale of the business itself	Reconstitution on partner-change	Shares transferable (public companies freely)
Management	The owner	Every partner (agency of all for all)	Separation of ownership and management — board and officers
Capital	The owner’s own	The partners’ pool	The share market’s reach (public issues)
Regulation	Minimal	Registration (light)	Registration + compliance (OCR, SEBON if listed, audits)
The Nepali economy’s faces	the kirana shop	the family trading firm	the bank, the insurer, the listed manufacturer

1.5 Concept of Corporate Personality, Corporate Veil, Limited Liability, and Corporate Citizenship

Corporate personality — the law’s recognition of the incorporated body as a person: the company’s rights and duties are its own. The corporate veil — the personality’s screen between company and members. Lifting/piercing the veil (the exceptions where the law looks behind the screen): fraud or improper conduct (the company as a faade for wrongdoing); the sham or agency cases (the company as the member’s alter ego); revenue and protective statutes’ targeting of the real actors; and the guarantee’s own door — a member who personally guarantees the company’s debt cannot hide behind limited liability: Kamala Amatya v. Himalayan Bank (Law of Contract-II, this semester, Unit 1). Limited liability — the investor’s capped risk: the grand risk-encouraging invention, with its costs externalised (creditors’ caution — hence the statutory capital-and-discipline frame). Corporate citizenship — the modern discourse: the company as a citizen-like actor with rights and responsibilities — tax honesty, fair dealing, CSR, environmental care; in Nepal’s frame the “company not distributing profits” (the non-profit company) shows the form’s public-spirited use.
The prescribed cases (personality and liability):

• Sumargi Parajuli vs. Himalaya Spring Water, NKP 2074 B.S., Vol. 5, D.No. 9809, Pages 829 (Legal Personality, Separate Legal Entity, Limited Liability — Separate from its Members) — the personality landmark: shareholders of Himalayan Spring Water (Pvt.) personally agreed to sell their shares and “the industry”; the Supreme Court held that the company and its shareholders are separate legal persons — a shareholders’ personal agreement, without the company’s own authorisation (decision, seal, authorised signatory), cannot bind the company; shares are the holders’ personal property, but the company’s assets are the company’s — a share transfer does not carry the company’s property.
• CIAA vs. Rabindralal Shrestha, NKP 2074 B.S., Vol. 1, D.No. 9752, Pages 162 (Limited Liability) — the corruption prosecution of the Bishal Bazar company’s chairman and shareholder-proprietors before the Special Court; prescribed for limited liability’s criminal face — the veil’s shield is for honest risk-taking, not a licence: where the individuals themselves act, the corporate form does not absorb personal accountability (read the full report at the cited place for the precise holding).
  Corporate criminal liability’s statutory face: the Criminal Code 2074’s general part channels a body corporate’s offence to the person who commits or causes the act — and where that person cannot be identified, to the owner, partner or director — the Code’s own corporate-liability provision. Prescribed with it: Raj Kumar Upreti vs. Raghav Kumar Mishra, NKP 2075 B.S., Vol. 2, D.No. 9954, Pages 305 (Corporate Criminal Liability) and Rishi Prasad Jaisi vs. Dilli Prasad Sapkota, NKP 2078 B.S., Vol. 9, D.No. 10744, Pages 1313 (Corporate Criminal Liability) — recent decisions applying the corporate-liability discipline; cite with the syllabus’s citations, reading the reports for the specific holdings.

1.6 Types of Company

1. Private vs. public (the great divide): the private company — closed membership (the Act’s numerical cap), restricted share transfer, no public invitation; the public company — the minimum-membership floor (seven), the public-invitation power, the fuller compliance regime.
2. Companies limited by shares (the dominant form) vs. by guarantee (the not-for-profit’s form).
3. Government companies (state ownership’s corporate face) and foreign companies (incorporated abroad, operating through branches/liaison — FITTA 2075’s gate).
4. Holding and subsidiary companies (control’s chain); listed and unlisted (NEPSE’s discipline).
5. Profit-distributing vs. “company not distributing profits” — Nepal’s statutory non-profit company.
6. Small vs. large (the Act’s classification driving audit and compliance tiers).

Model Questions

1. Trace the genesis and development of company law with special reference to Nepal. (15)
2. Define a company and explain its characteristics. (10)
3. Compare the company with sole proprietorship and partnership. (10)
4. “The corporate veil protects, but never conceals wrongdoing.” Discuss the lifting of the veil with Nepali case law. (15)
5. Explain corporate criminal liability under the Criminal Code 2074 with the prescribed cases. (10)
6. Short notes: (a) Perpetual succession; (b) Company not distributing profits; (c) Salomon’s rule; (d) Government company. (4×5)

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📚 Get the complete notes: Download the full Company Law and Governance PDF (all units) — Law Info Nepal Original Notes Series.