Accountancy · Chapter 1
Study notes aligned to the official NEB syllabus.
Most large businesses in Nepal, from Nepal Telecom to a private trading firm on New Road, are organised as companies rather than as sole trades or partnerships. A company is an artificial person created by law. It comes into existence through registration under the Companies Act, 2063 (2006) of Nepal, and once registered it has an identity completely separate from the people who own it. This chapter studies what a company is, how it differs from other forms of business, the kinds of company the law allows, and the three key documents that must be prepared before a company can start work.
A company is a voluntary association of persons formed and registered under the Companies Act to carry on a business with a common capital divided into transferable units called shares. The people who contribute the capital are the shareholders, and the persons they elect to run the company are the directors. Because the company is a legal person, it can own property, enter into contracts, sue and be sued, all in its own name.
The features that follow all flow from the single idea that the company is a separate legal person.
Separate legal existence. The company is distinct from its members. The property belongs to the company, not to the shareholders, and the debts of the company are its own.
Limited liability. In a company limited by shares, a shareholder can lose at most the amount unpaid on the shares held. If a shareholder has fully paid for the shares, personal assets are completely safe even if the company fails.
Perpetual succession. Members may die, sell their shares or retire, but the company continues unaffected. Its life is not tied to the life of any owner, which is why a company is said to have continuity of existence.
Common seal and transferability. A company acts through documents signed on its behalf, and the shares of a public company can be freely bought and sold, which gives investors an easy exit.
Artificial person. The company exists only in the eyes of the law. It cannot act on its own and must always work through its Board of Directors and officers.