1.1 Corporate concept and financial sources

 

Organization or entity:

• an organization is a group of people to achieve a common objective.
• objective: service or profit

 

Business organization:

• The organization which is established to earn a profit is known as a business organization.
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Proprietorship	·        owned, operated, managed, and controlled by a single person ·        unlimited liability of the owner
Partnership	·        owned by two or more people. ·        divide their profit on the percentage of partnership (50/50 or 60/40 or any) ·        unlimited liability.
Company	·        association of individuals (group of people) to achieve a common objective ·        incorporated under the company act of the concerned country ·        having a capital divided in to share ·        with limited liability.

 

Company:

• according to company act,2063
• company means any company incorporated under this act. (कम्पनी भन्नाले यस ऐन बमोजिम संस्थापित कम्पनी सम्झनु पर्छ ।)
• registered business organization under the company act of concerned country.
• it is a legal person (artificial person)
• capital is collected by issuing shares.
• shareholder - who purchase the share

 

Features / characteristic of company (joint stock company)

• common seal  (own seal)
• legal person
• transferable shares
• limited liability
• perpetual existence (long life)
• managed by board of directors ( separation of ownership from management)
• registered under company act
• right to buy and disposal of assets

 

Types of company:

Member	private, public
Ownership	government, non-government
Domicile	national, multinational, foreign
Control	Holding, Subsidiary

 

 

 

 

Private company

• a company owned by group of people not exceeding 101.
• who doesn't issue share to the general public
• transfer of share is restricted
• according to the 'company act, 2063'
• private company is the company, incorporated under this act as a private company.

 

Features / characteristic of private company:

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Number of shareholder	even 1 to not exceeding 101
Board of director	1 to not exceeding 11
Name	must include 'Pvt. Ltd'
Prospectus	no need to publish prospectus at the time of issue of share
transfer of share	restriction on transfer of share
separate legal entity	separate from its owner
stock exchange	restriction on  issuing share to public, not possible to listed on stock exchange.
certificate of starting operation	not necessary, can start as soon as registration
disclose of financial statement to public	not necessary

 

 

 

Public Company:

•  a company having provision to  issue share to general public.
• share listed on stock-exchange and anyone can buy and sell freely.
• according to company act,2063:
• a public company is a company which is not the private company.
• there must be at least 7 seven persons.
• name must end with 'Ltd' only.

 

 

Feature and characteristic of public company

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Number of shareholder	minimum 1 to unlimited
Board of director	minimum 3 to not exceeding 11
Name	must include 'Ltd'
Prospectus	need to publish prospectus at the time of issue of share
transfer of share	no restriction on transfer of share
separate legal entity	separate from its owner. managed by board of directors
stock exchange	no restriction on  issuing share to public, has to listed on stock exchange.
certificate of starting operation	can starts its operation after the certificate of commencement
disclose of financial documents to public	mandatory

 

 

 

 

Difference between Private and Public Company

• from above characteristic

 

 

 

Documents of company

• a company is governed by MOA & AOA.
• public company should publish prospectus while issuing share.

 

 

MOA [memorandum of association]

• main document containing objectives of company
• constitution of a company
• .defines the relationship between the company and the outsiders.

 

• includes:
• Name
• objective
• activities to achieve objective
• capital structure (authorized, issued, paid-up capital)
• location of office
• liability of members
• signature

 

 

AOA [ article of association]

• defines the relationship between the company and its members.
• guidelines to internal management of the company.

 

• includes:
• rules regarding  meetings : AGM, SGM, BOD, Quorum for a meetings
• provision about directors : number, tenure, authority, responsibility, qualification, remuneration
• voting's rights of members
• provision of dividends and reserve
• provision relating to share: calls on share, forfeiture of share, transfer
• provision regarding company secretory
• provision regarding auditing

 

 

Prospectus

• brief report of the company.
• invitation for the general public to purchase the share of the company
• reflects the position of the company

 

• includes:
• name and main objective of the company
• purpose of issuing shares and debentures
• number of shares/debentures issued and their par value
• name of the promoters
• financial arrangements of the capital
• projected income statement and balance sheet.
• methods of distributing share
• broker
• possible opportunities and threats involved in the business.
• mode of payment, terms and condition on share and debentures.

 

##Promoter: a person who take initiative for the formation of the company

 

 

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Source of financing:

• equity share
• preferance share
• debentures

 

 

 

Share capital:

• amount of capital fund raised by issuing shares.
• total amount of entire share is called share capital.
• the capital of the company is divided into different parts called shares
• the value stated in share certificate is called par or face values

 

 

Types of share capital:

1.    Authorized share capital

• maximum amount of capital that a company may raise.
• also known as registered or nominal capital
• mention in MOA

 

 

2.    Issued  share capital

• a part of authorized capital offered to the public for subscription
• fulfill the  present requirement of capital

 

3.    Subscribed share capital:

• also known as allotted share capital
• equals to or less than issued capital
• number of shares allotted by the company out of the applied shares by public.
• chance of over/under or equal subscription.

 

4.    Called up capital:

• part of  the face value of the share subscribed by shareholders for the payment.
• called for payment
• in lump sum or installment

 

 

5.    Paid up capital:

• amount actually paid up  by the share holders to the company
• equals to called up capital
• if less - calls in arrears
• if more -calls in advance

 

 

###Calls in arrears - have to pay but not paid yet.

 

 

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Share

• one portion of share capital
• one unit of share capital
• according to company act of Nepal:
• share is the divisible units of the total amount of share capital
• the person who invest their money into the organization in the form of share, are the shareholders.

 

Features of Share

• one unit of share capital
• have certain right on its holder
• proof to title
• owner is called shareholder
• have some face value
• specific number

 

Types of share:

1.    Equity share

• also known as ordinary or common share
• (बचेकोमा बराबर भाग लाग्ने)
• real owner of the company, have full voting power
• the share which have no any preferential right to receive the dividend and refund of principle amount.
• Why equity?: equitable rights in every aspects of the company

 

 

2.    Preferance share

• preferance means priority
• the share having the priority to pay dividend as well as refund of capital before equity share
• preferance shareholders don't have voting rights.

 

 

Types of Preferance share:

1.    Cumulative & non cumulative

Cumulative:
- if the dividend of shareholders gets cumulate year to year until it's paid.
- shareholders get dividend for the year, later or soon.

Not-cumulative:
- shareholders get dividend for the year only when company in profit
 

2.    Participating and non participating

Participating:
- having not only in the fixed rate of dividend
- also participate on surplus profit left after payment of equity dividend.

Non-participating:
- non participating only have the right to fixed rate of dividend only.
 

3.    Redeemable and non-redeemable

Redeemable:
- the preferance share which have specified maturity or repayment period
- have to redeem on its maturity.

Non-redeemable:
- having no maturity period.
- redeem only on the liquidation
 

4.    Convertible and non convertible

- convertible to equity share or not

 

 

Difference between equity share and preferance share

 

Basis	Equity Share	Preferance Share
Definition	share having no any preferential rights to the dividend and redemption of principle amount	share having preferential rights to the dividend and redemption of principle amount
Payment of dividend	dividend is paid after preferance share	dividend is paid before equity share
Rate of dividend	decided by board of directors	fixed
Refund	non-refundable	refundable
Voting rights	have rights	don't have rights
Arrears of Dividend	cannot be accumulated	can be accumulated
Liquidation	have rights on final leftover amount	have priority