Chapter 7

Corporate Finance I
1. Shares
 Share is a unit or portion of capital of company.
 Investments made in any company are divided in numbers of units and each of
such units is called share of a company.
 Section 2(n) of the Companies Act of Nepal has defined the share as the divided
portion of the share capital of company.
 The capital of company is divided into small parts & each part is known as
share.
 Boreland Trustees v. Steel Bros Co. Ltd. 1901 1 ch 297 (Company Law: 12 th edi;
Ashok K Bagrial P207 )‘’A share is the interest of shareholder in the company
measured by a sum of money for the purpose, of liability in the first place, and of
interest in second, but also consisting of series of covenants entered in to by all
shareholders inter se.’’
 An interest measured by sum of money and made of various rights contained in
MoA and AoA.
 Vishwanathan [Link] India Distilleries 1857 -27. (Company Law: 12 th edi; Ashok
K Bagrial P 2o7)-‘’Share is merely a bundle of rights and obligations which are
regulated by the articles.’’

Nature of Shares

 The shares are movable property. Shares can be transferred in the manner provided by the
articles.
 Section 42 of the Companies Act states that ‘’ the shares or debenture of a company may
be sold or pledged like a movable property, subject to this Act as per the provisions of the
Memorandum of Association and articles of association.

TYPES OF SHARE.
 In simple word, share is a part of share capital of company.
 Share is divided portion or part of share capital of company.
 The types or kinds are determined on various bases. So, to say particular type is
not easy. It depends on the basis of determination.
 Company can issue different types of share for its capital formation. As per
section 30 of the Act, the company may, by making provisions to that effect in its
 memorandum of association and articles of association, issue various classes of
shares with different rights attached thereto. Section 18 also.
 So, inherent rights and obligations determine the types of share. The types of
share are based on different types of inherent rights and power of shareholders in
such shares.
 Such inherent rights may be rights to get dividend, right to refund invested
amount in case of liquidation, right to get remaining amount after repayment of
loan and other liabilities.
 Section 30 of the Act gives permission to public company for issuing of shares
with different rights. Types are determined by such different rights.
 Generally, public company issues different types of share offering for
subscription. In case of private company there is no meaning to say the types of
share.
 Mainly there are two types of share in practice, as per Nepalese legal provision.
Which are;
a) Ordinary or equity share.
b.) preference share.

ORDINARY or EQUITY SHARES.

 Equity or ordinary shares are those which actually are not preference shares,
equity or ordinary shares do not enjoy any preferential rights. There is no any
preference on right; by the name & nature this is ordinary type of share.
 The term ‘share’ denotes ordinary share in general conversation. Ordinary share is
not defined in detail in the Companies Act. Section 2 (P) of the Act defines
ordinary share as a share other than a preference share. This classification is made
especially for public company. In case of private company there is no such
various categories of share, only the term share is enough for private company.
 Though, there is no long definition of ordinary or equity share in our company
Act, but it is understood that all shares other than preference shares are ordinary
or equity share.
 The shareholders of ordinary shares are entitled to get dividend from the net
profits of company after the fixed dividend on preference share has been paid –
up.
 So, there is no preference for ordinary share, ordinary means ordinary.
 If there is no profits remain after paying the dividend on preference share,
ordinary shareholders will receive no dividends.
 Therefore, this type of division of ordinary & preference share is based on the
factor of priority of receiving dividend and getting back of capital.
  Similarly, ordinary shareholders will get back their capital only after repaying the
capital of preference shareholders, when company goes for winding –up.
 For the purpose of dividend and repayment of capital, the ordinary shares rank
after the preference shares. Generally, the rate of dividend is not fixed in ordinary
share. In ordinary share dividend may vary from year to year depending upon
profit balance sheet of the company. If huge profit, there is higher dividend, if no
profit, there may be no dividend. The board determines the rate of dividend for
ordinary shareholders on the basis of profit as per defined legal procedures.
 There are so many ways to obtain the ordinary or equity shares. On the basis of
such obtaining ways, ordinary share again can be divided in following types;

I. Promoter Share.

 When the promoters of company do accept to subscribe some quantity of share at

the time of formation or incorporation by mentioning the same in MoA & AoA,
these types of shares are known as promoter shares of company.
 The share of promoters, subscribed at the time of incorporation, is the promoter
share.
 The term promoter is defined in section 2(i) of the companies Act, as per this
definition “promoter means a person who, having consented to the matters
contained in memorandum of association & articles of association to be furnished
in the Office for the incorporation of a company, signs the same in the capacity of
promoter.’’
 The person who promotes the company by taking particular quantity of share is
the promoter and such promoters’ share is promoter share.
 Promoter shares are allotted in the name of promoter and promoters never pay
premium value to subscribe share.
 Promoter shares cannot be sold mortgaged or pledged unless the first general
meeting held and entire call amount on share is fully paid. – sub section 2 of
section 42 of the Act.
II. Primary share.

 After incorporation of a company, public company can invite general public to

join the company as its share member as an invitation to offer for purchasing its
share, such share is allotted or primary share.
 Allotted or primary share is that the company makes selling or distributing
process at first and makes an invitation for subscribing from issued shares.
 Public company have to publish the prospectus to invite public to subscribe its
shares (section 23 (1) ), but a private company cannot invite or call on public to
subscribe its shares. Section 10 (c). Private company mange the allotment
privately as per MoA & AoA or unanimous agreement.
  Public company cannot call for more than 50% amount of face value of share with
application section 27(3). Therefore, we see the primary share of 100 rupees in
practice, but such restriction will not apply for those companies, which are in
operation previously by publishing audited fiscal statement of last 3 years.
( proviso of (section 27 (3))

III. Right Shares.

 No separate definition of right share in Act.

 But legal provision about right shares is mentioned in section 56(5) ,(6), 7, 8 & 9.
 Certain preemptive rights to existing shareholders.
 In case of increase in share capital of company.
 The shares issued with such preemptive right to only the existing shareholders.
 Existing shareholders have 1st right to subscribe.
Existing shareholders are given pre- emption at favorable price as per the numbers
of their shares.

IV. Bonus Share.

 A share, which is issued as an additional share to existing shareholders by capitalizing the
surplus from the profit and reserve fund of company.
 Section 2(q) of Act—‘’bonus share means a share issued as an additional share to
shareholders, by capitalizing the saving earned from the profits or the reserve fund of a
company ,and the term includes the increase of paid –up value of a share by capitalizing
the saving or reserve fund.’’
 Issuing bonus share is the means of capitalizing profit or reserve fund instead of
distributing cash dividend to company’s shareholders.
 It must be issued to the company’s shareholders. Section 179(1) (2).
 It has to increase the paid- up capital of company.
 It has to capitalize the profit or reserve fund & should not be issued from revaluation of
existing other property of company. Section 56 (10).
 Special resolution of G.M. & information to CRO is the most for issuing bonus share.
Section 179 (1) (2) & 83 (e).

V. Debenture Share.
 Debenture is credit obtained by company.
 Sometime, in some situation, company can convert its debenture in to shares. Such shares
are known as debenture shares.
 If there is such provision on MoA & AoA, if there is agreement between debenture
trustee & company, if such matter is published in prospectus, at these situations company
can issue debenture share.
 The terms ‘debenture’ and ‘debenture trustee’ are defined in section 2( s) and 2(t)
respectively.
 Section 34 includes the provisions relating to debenture. Similarly sub section 4 of
section 35 is related with conversion of debenture into debenture share.
VI. Premium Shares.
 Shares having some additional price more than face value of shares.
 Definition is in 2 (z 2) of Act--- value in excess of its face value.
 Legal provision in section 29.

VII. Forfeited Shares

 Sometime there may be a situation where company has to forfeit the shares on the
grounds of nonpayment of installment on time.
 Legal provision- Section 53(3)

PREFERENCE SHARE
 The preference shares are those which have preferential rights than ordinary shares.
 Section 2 (o) of Act defines preference share.
 Types of share should be mentioned in MoA of company. Section 18(f).
 Section 65 states about preference shares of company. Especially section 65 (2)
mentions the grounds of issuing the preference shares, by that preference shares can
be easily understood.
 A preference share must have following preferential rights; a) a preferential right as
to the payment of dividend b) a preferential right as to the repayment of capital.
 Preference may be on; dividend, rate of dividend, repayment of share amount in the
situation of liquidation, having voting right or not, redeemable or non-redeemable
after certain period of time and if redeemable redeemed with premium or not etc.
 Types of preference shares are; 1). Cumulative and non-cumulative 2).Participating
and non- participating 3) Convertible and non- convertible. 4). Redeemable
Preference shares.
 Cumulative preference shares are those which are assured of dividend every year
even if there are no profits in a particular year.
 Non-cumulative preferences are those which are assured of dividend only in the
situation of profit.
  Participating and non- participating preference share; in such shares, shareholders are
entitled to participate to surplus profit or surplus assets. Surplus profit means the
balance of profit which is left after paying the fixed amount of dividend. Surplus
assets means the balance of assets which is left after paying back both the preference
and equity shareholders. Voting right also may be basis of participating or non-
participating. The participating shareholders participate in both surplus profits and
surplus assets. But in non-participating share, shareholders are not entitled to
participate. If Mo A is silent about this, it is presumed that all shares are non-
participating preference share.
 Convertible and non- convertible shares; Convertible preference share can be
converted in to equity shares within a certain period, non- convertible cannot be
converted into equity shares.
 Redeemable preference shares are those the amount of which can be paid back to the
shareholders. The capital raised through issue of redeemable shares can be paid back
to the shareholders by the company to such shareholders. Company can issue such
shares only if it has been authorized by MoA & AoA. Section 65 (5).

ALLOTMENT OF SHARES.

 Section 28 of Nepalese Company Act.

 Allotment is the process of distributing and selling of shares by company
for the persons who are going to be future shareholders of the company.
 Prospectus issued by the company is the invitation to the public to apply for
the shares of the company.
 On the basis of invitation the persons apply to the company for its shares.
 An application for shares is an offer from the applicant to purchase the
shares.
 When such application is accepted and particular quantity of share
distributed to the applicant by company that is called an allotment.
 Allotment is the appropriation of shares to a particular person, out of the
previously inappropriate capital of the company.
 So, allotment is the fresh issue of shares by company.
 It is a binding contract between the company and shareholders.
 The rules of offer and acceptance of contract law are applied in allotment
process.
 The company must make a decision of allotment to go in public. The board
fixes certain reasonable time frame to pay the share amount.
 General rules of allotment; - 1) the allotment must be made by proper
authority e.g. board of directors, or delegated authority.2) the allotment
must be communicated. – to the applicant e.g. postal communication, public
notice. 3) there should be a reasonable time for application.4) the allotment
must be unbiased and absolute.4) There must be clear terms and conditions
in application itself.
 The allotment process must be mentioned in MoA and AoA as per the legal
provisions of the companies Act 2006.
 The allotment is done privately in case of private company, not publicly,
private company cannot make public offer for allotment, if made that is
punishable by section 160(q).

Respective legal provision of allotment is sections 28 of the Companies Act

2006 of Nepal.

SHARE CERTIFICATE

 Share certificate is a document that specifies the shares held by shareholder of

company.
 It is considered as the prima facie of title.
 It is issued by company under its common seal and signature of company’s
authority.
 A valid share certificate must have the common seal and authentic signature
affixed on it.
 Share certificate must specify the number, nominal value and amount paid by the
shareholder.
 Description of the shareholders i.e. name and address, types of share,name of
company and date of issue.
 Section 33 of Nepalese Company Act.

TRANSFER OF SHARE

 The shares of a company are movable property and can be transferred in a manner
prescribed by concerned law and articles of association of company.
 The transferability of shares is one of the significant advantages of company form of
organizations.
 Section 42 of the Companies Act of Nepal specifically declares that the shares or
debentures of a company may be sold or pledged like a movable property subject to this
Act , MoA & AoA.
 So, as a matter of fact, it is right of every shareholder to transfer his/ her share. However
the manner of transfer may be prescribed by MoA, AoA and respective law.
 The MoA & AoA of company can make some preconditions, but cannot absolutely
restrict the right of member to transfer there share.
 In absence of any restrictions, in the AoA , MoA & law the shareholder has an absolute
right to transfer his/ her shares.
 Share is a special type of movable property; it is not like gold, furniture and cash etc.
Therefore, there are some special laws to regulate transfer procedure viz; the Companies
Act 2006, The Securities Act, BAFI Act, NRB Act 2058 B. S. etc.
 Transfer of share will be furnished only by fulfilling the prescribed procedures of such
special laws.
 There are so many ways of transfer of shares from one to another. The share transfer
deed document and will paper are the means of voluntary transfer of shares. Non
voluntary transfer court order i.e. order of distribution in partition case ( ansa mudda)
 As per legal provision of section 42(1) of the Nepalese Companies Act “the shares or
debenture of a company may be sold or pledged like a movable property subject to this
Act, MoA & AoA.
 As per section 42 (2) of this Act the promoter share of a company, other than a private
company which has not borrowed loan from any other company, shall not be entitled to
sell or pledge any share held by him until the 1 st general meeting of company is held and
a call on the share issued in his name is fully paid up.
 Section 43 of the Companies Act states about the procedures of the transmission of shares
or debentures of company. As per this section if any share or debenture is sold, the buyer
thereof shall make an application to registered office of the company with a copy of deed
and share or debenture certificate. In compulsory transmission there will be order of
court. Than the company cross off the name of transferor and enter the name of transferee
shareholder debenture holder in the register within 15 days after making of such
application. But if any prevailing law on securities provides that no deed of transfer is
required for transfer the title, such deed is not required to be produced along with the
application to be so made.
 The grounds to refusal have been mentioned in section 44 of the Companies Act. As per
this legal provision in following circumstances company can refuse to record the
transmission; A) If a call on share has not been paid up. B) If the transmission is contrary
to the articles of association of company and the agreement concluded between the
shareholders. The information regarding transmission will be provided to both transferor
and transferee from the date of application.
 Section 55 of Nepalese Companies Act states about the ownership of share or debenture.
As per this legal provision, if a dispute arises about the ownership of any share or
debenture issued by any company, the person whose name is registered in the share or
debenture register of company shall, unless otherwise proved, be regarded as the owner
of such share or debenture.
 Section 45 of the Companies Act describes the other circumstances where the share or
debenture may be transmitted by operation of law. Circumstances may be the death or
insolvency.
 Process of transfer; a) the shareholders should be registered in the Stock Broker’s Office
at first. b) Joint application with deed of transfer with original share certificate.
 Transfer in case of private company; a) Board decision, b) deed c) application d )
information providing for record to the CRO d) fulfilling the prescribed process of record
by CRO.
 Restriction on transfer ; by making provisions in AoA & consensus agreement in case of
private company section 10 (d) 42(2) section 145(1) (b), if there is no entitlement, as per
legal provision such as section 42(2) of Act.
 The case of Lun Karan Das Chaudhary V. NRB( A collection of some important
precedents of commercial case; part 4 [Link]. 42 p. 290) . The transfer of share should not
be restricted by making some conditions of contract.
 There must be a valid authority or entitlement on share to transfer the share. A person
who has no authority or entitlement, such shareholders cannot make a valid transfer of
shares. Thus transfer of shares by the husband of a lady shareholder without her authority
was held to be void and transferee got no rights by such transferred share.( John Tinson
& Co. v. Surjeet Malhan , AIR 1997 SC 1411).

Buy - Back of shares

 Buy back is the process of purchasing of its own share by company.
 Purpose of purchasing is to reduce a number of shares in market and to increase the value
of shares in market.
 Repurchase of its own shares for reducing the share capital.
 The buyback reduces the number of outstanding shares in market.
 Buy back is restricted or prohibited. Though it is restricted buy back is allowed in some
special conditions prescribed by law. Mainly buy back is permitted on following grounds;
 Why company is willing to buyback, objective must be clear and bona fide.
 If a company is making profit and if there is sufficient free reserve fund in company.
 If a company has an idle cash fund.
 Section 61 of the Companies Act of Nepal has prohibited on purchase by company of its
own share.
 As per section 61(1) of the Companies Act, no companies shall purchase its own
shares(buy back) or lend moneys against its securities of its own shares.
 But section 61(2) has specified some circumstances, where a company may buy back its
shares out of its free reserves available for being distributed as dividend, by giving
information to the office of the company registrar.( Circumstances; clause ‘a’ to ‘g’ of
section 61 (2)) .
 The process and procedures for getting permission to buy back of shares have been
mentioned in section 61(3) clauses ‘a’ to g and subsection ‘4’ to ‘10’ of section 61.

2. Dividend
Dividend means the portion of a profit received by the shareholders from the
company's net profits, which is legally available for distribution among the
members.
Dividend is a return on the share capital subscribed for and paid to its
shareholders by a company.

Section 182 of the companies act 2006,

Dividend cannot be paid out of the assets of the company. It can be declared
only out of the profit available for the purpose,

2 forms of dividend:
a. Dividend
b. Interim dividend

1. Dividend:
 Also known as final dividend if declared at the AGM.
 Once declared becomes the debt against the company.
 Final dividend can be declared only if it is recommended by the board
of directors of the company. section 77(6)
  Section 182(6) states that before paying or declaring a dividend out of
the profits for any fiscal year, a company shall have fully deducted the
reoperation expenses, the amount required to be deducted as per the
accounting standards fixed by the competent authority, any amount
required to be paid or set aside out of profits. However, if the
prevailing law requires to create reserve or consolidated fund of any
amount before distributing such dividend then it needs to be created
first and only company is allowed to distribute dividend.

2. Interim dividend: An interim dividend is a dividend payment made before a

company's annual general meeting and before the release of final financial
statements.
The BOD of any company may in the following circumstance, distribute
interim dividend out of the profits:
a. Where the articles of association contain a provision on the distribution
of interim dividend.
b. Where the financial statement for the financial year out of the profits of
which year interim dividend is to be distributed has already been certified
by the auditor and approved by the bod.

Legal Provisions for dividend: Section 182 ( Dividend distribution)

 Dividend should be provided within 40 days of the decision made
to provide dividend.
 In following circumstances, dividend cannot be provided:
a. If any law prohibits the distribution of dividend.
b. If the right to receive dividend is subject to any dispute.
c. If in a circumstance beyond the control of the company or for
any reason, dividend cannot be distributed within the said time
limit.
 If one fails to pay the dividend within the prescribed time limit then
dividend must be paid with interest. s.108(1)
 The shareholder whose name is maintained in the shareholder register
or his/her heir is entitlted to get dividend.
 The amount which is to be payed as dividend mustn't be used for any
other purpose.

Dividend payable to government owned company: 108(2)

Company fully or partly owned by the GON may distribute dividend
only after obtaining in prior approval of the GON and the government
may give necessary directive on the mater of dividend to be
distributed by such company.

Dividend payable to preference shareholder: They are paid before

the equity shareholder.

Note: Bonus share can be issued from the amount that is to distributed
as dividend by passing special resolution in the general meeting. ( S.
179)

The amount of dividend not received by any shareholder even after

the expiry of a period of 5 years then such amount would be
transferred to Investor Protection Fund. (s.182(9))

Capital
 The term capital cannot be defined in one sentence or one line. The meaning of capital
may vary. It depends on the different situation or context. Generally the meaning of
capital is real value of property. So, capital has different meaning according to context.
 In simple word, the term capital denotes a particular amount of money with which, a
business is started.
 In the case of company, the term share capital refers to amount raised by the issue of
shares.
 Actually, the real value of business is capital.
 L. C. B. Gower ‘’ with the normal business capital is a simple name given to the ‘net
worth of business’, the amount by which the value of assets exceeds the liabilities.
 By this definition only value of assets which exceeds the liabilities is the capital.
 So, what is net worth?
 As per Section (2 z 3) of the Companies Act 2063 of Nepal ‘’ net worth means the assets
of a company remaining after deducting the paid up capital, reserve, fund or free reserve
of whatever designation to which shareholders have right or all other liabilities other than
goodwill, if any, of the company as well as loss provisions, if any, from the total assets of
the company for the time being.
 Capital is highly important to run a company on the basis of limited liability because
creditors always recover their debt from only the capital of company, not by the
shareholders individually or personally.
 So, company laws in every state have prescribed a guideline regarding capital raising or
formation and its maintenance of limited liability of company.
 Mainly, there are three ways to raise capital for company.
 By issuing shares
 By issuing debenture
 By accepting other types of loan
 One of fundamental or basic source of capital in company is Share.

Share Capital

 Share capital is an important source of company to raise a fund or capital.

 By the phrase it is clear that share capital is the capital raised by issuing the share.
 Share+capital=share capital.
 If so, what is share?
Share is certificate representing a unit ownership in a company.
 A share is the interest of shareholder in the company measured by a sum of money, for
the purpose of liability in first place and of interest in second, but also consisting series of
mutual covenants entered in to by all shareholders (Farwell J in Borland’s Trustee v.
Steel Brothers, 1901, 1 Ch 279)

 Section 2 (n) of the Companies Act 2063 BS states that share is divided portion of share
capital of a company.
 Share capital is equity of company. Share capital generally refers the nominal value of all
share issued by company.
 Every company should mention its share capital in its MoA & AoA.
 Share capital refers to the amount of company raised by the issuing of shares.
 Issuing of share is mandatory legal provision as per section 18(1) e, f, g, h, i of the
Companies Act 2006 of Nepal.
 As per these legal provisions;
--The figure of authorized capital of company, the figure of share capital to be issued by
the company and the figure of capital undertaken to be paid by promoters must be
mentioned in memorandum.
--Similarly, types of shares, inherent right in such shares, value and numbers of shares ,
restriction (if any) on purchase of shares, promoters’ shares (undertaken to subscribe for
the time being) & terms of payment of share amount must be mentioned in MoA.
 The CRO will take certain fees on basis such share capital amount as registration fees of
company.
 The person who has ownership in share of company is known as shareholder of company.
 As per section 2(r) of the Companies Act, Shareholder means a person having ownership
in the share of company.
 According to section 2(n) Share means the divided portion of share capital of a company.
 According to Robert R. Pennigton (Pennigton’s Company Law 6 th ed p. 136) –Share
Capital is amount contributed by shareholders to company’s resources.
 The received amount for the price of share is share capital.
 The amount contributed by shareholders is main capital of company. Such share capital is
the real property of company, not a loan, but property.
 Share capital is not refunded until company is liquidated.
 The company is not allowed to distribute dividend from such share capital, can distribute
only from profit.
 There is statutory provision relating to prohibition on purchase by company of its own
share.
 Section 61(1) of the Companies Act , No company shall purchase its own share (buy-
back) or lend money against security of its own share except in particular conditions
prescribed by the company Act.
 Company is not a creditor and debtor of its own.
 So, share capital is fixed capital of company.
 The desired goal or nature of business of company determines the share capital of
company.
 The share capital is depended upon the nature of particular company. For example;
Private company, public company, Banking Company, Insurance company, Company as
school.
 Companies expect profit not sharing company should mention share capital in MoA &
AoA in the form of Authorized Capital \ Issued Capital \ Paid up capital.
 The share capital is divided on different value units or shares.
 So, price value of each share is mentioned in share certificate.

TYPES OF CAPITAL

 There are so many types of share capital in the companies.

 Basically, The Companies Act 2006 (2063 B. S.) of Nepal has determined following
types of share capital.
1) Authorized Share Capital or Nominal Capital.

 Authorized share Capital is sum of money which is mentioned in MoA as the

authorized capital of company.
 It is nominal or registered capital of company.
 It is maximum amount which a company is authorized to raise by issue of shares
and upon which company pays the registration fees of company.
 Either the full amount or part of full amount can be issued whenever needs to rise.
 Total nominal value of shares which is mentioned in memorandum is authorized
capital.
 Practically, the size of authorized capital is decorative significance for private
company.
 Present company Act of Nepal is silent about how much authorized capital should be
mentioned in a company, but it is understood that issued & paid up capital must not
exceed the authorized capital.
 Paid up capital of a public company shall be a minimum of 10 million or one corer
rupees. (Section 11 of Act).
 So, it is clear, there is a pre-condition regarding authorized capital of a public
company that public company shall have a minimum of a 10 million share capital.
 No authorized capital is needed for a profit not sharing company.
 No such demarcation of authorized capital for a private company in Nepal.
 Life & non-life insurance company should maintain their paid up capital 25 corer &
10 corer or 250 million or 100 million respectively. It means the authorized capital of
such insurance company should not be less than that figure of amount. Authorized
capital of banking company is guided by BaFI Act and NRB Act.
 For private company, it depends upon the business volume, nature of business or
transactions e.g. vehicle trading company, vegetable trading company, Hydropower
Company, constructions company , consultancy service provider company etc.
 Authorized capital is maximum limitation of capital of company. So, company cannot
issue share above the authorized capital, if issued it will be null & void.
 As per section 18(1) (e) of the companies Act, the authorized capital of company
must be stated in MoA.
 As per legal provision of section 51 (2 ) (a) of Nepalese company Act every company
shall prepare the inventory regarding authorized capital and shares of the company.
 Section 56 (1 )(a) &( 3) states that the company should give information within 7
days about alteration of authorized capital. If such alteration took place the MoA &
AoA must be amended according to such alteration.
2) Issued Capital.

 Part of authorized capital which is offered for subscription is known as

issued capital of company.

 Issued capital is the portion of company’s authorized capital that can be issued to its
shareholders.
 It is not obligatory for the company to issue the whole of the authorized capital for
subscription.
 In almost situation, company need not necessary all its authorized capital, at that time
company can issue lower share than its authorized capital. It depends upon business
transactions of company.
 The capital that will be collected from issuance of such lower share is actually the
issued capital.
 Public company must have 10 million paid up capital as per section 11 of the
companies Act 2006 of Nepal. So, Issued capital of public company must not be
below the 10 million.
 As per section 18(1) (e) of the companies Act, the issued capital of company must be
stated in MoA.
 As per legal provision of section 51 (2 ) (b) of Nepalese company Act every company
shall prepare the inventory regarding issued capital and shares of the company.
 As per Section 56 (5), if a company is required to increase its issued capital to the
extent of its authorized capital, it may increase by adopting an ordinary resolution at
the general meeting.
 Public company must have 10 million paid up capital as per section 11 of the
companies Act 2006 of Nepal. So, Issued capital of public company must be
maintained as per this legal provision.
 As per special law, some companies such as banking companies & insurance
companies must have the issued capital as stated in special law relating to such
companies e.g. for insurance company and banking companies.
 Private company can determine its issued capital as per the requirements of its
business transactions.

3) Paid - up Capital
 In reality, paid up capital is that type of capital which the company
actually gets from the shareholders.
 By the name, it is understood that paid up capital is the capital which is
paid by the shareholders in company.
 The paid amount by the shareholders for share is paid up capital of
company.
 Paid up capital is the amount that has actually been paid – up by
shareholders.
 The paid – up Capital must be paid by the shareholders, otherwise it is
treated as unpaid amount to the company. Like dues.
 Public company must have 10 million paid up capital as per section 11 of
the Companies Act 2006 of Nepal. So, paid- up capital of public company
must be maintained as per this legal provision. Private companies can
manage its paid up capital as per its necessity, nature & volume of
business transaction.

 As per section 18(1) (e) of the Companies Act, the paid-up capital of company must
be mentioned in MoA. Private company can mention the paid up capital as per their
needs, no any legal instructions for private companies.
 As per legal provision of section 51 (2 ) (c) of Nepalese company Act every company
shall prepare the inventory regarding paid-up capital and shares of the company.
 As per Section 56(1)& (5),every company can make alteration on its share capital by
adopting a special resolution in general meeting. It means the paid up capital of
company may be altered, if altered, the MoA & AoA must be amended as per section
56(2) of the Companies Act.
 Other Types of Capital

A.) Subscribed Capital.

 Subscribed capital is the amount of share capital which the shareholders have
subscribed or agreed to subscribe.
 The subscribed capital should be described in balance sheet of company.
 Sometime the issued shares of a public company may not be sold or subscribed.
The part of issued capital which has been actually taken up or subscribed for
the public is the subscribed capital. Which the shareholders have actually
subscribed or agreed to subscribe. All issued capital may not be subscribed or
agreed to subscribe. So, subscribed capital is the capital which is actually
subscribed or agreed to subscribe.
 The entire issued capital may be agreed to subscribe or subscribed by public in
case of a reputed company because of has lot of good will, but in case of very
unpopular or unsound companies the subscribed capital may be less than issued
capital.
 The subscribed capital is not mentioned in MoA & AoA, it is mentioned only in
balance sheet of company.
 Though there is no clear provision regarding subscribed capital in Nepalese
companies Act, but the concept of subscribed capital is accepted by this Act. That
can be found by reading of respective sections of chapter 4 of the Companies Act
e.g. the provisions relating to alteration & reduction of share capital,
mentioned in section 56 & 57 of the Companies Act.

B) Reserved Capital

 The capital of a company which can be generated by issuing of share in

particular event, if the board feels necessary. The reserved capital is collected
from the remaining part of issued capital which is not called for payment or
subscribed before.
 The reserved capital is the part of issued capital of a company, which the
company has not issued but that is the amount within the issued capital. From
such part of issued capital, if the board feels necessary, the board can collect the
 reserve fund from that part of issued capital only in the event of liquidation or
insolvency of company.
 There will not be provision of reserve capital in all companies. As per the legal
provision of section 53(7) of the Companies Act 2063 “ a company which has
been making profit for a period of 3 consecutive years or more may , by a
special resolution adopted at its general meeting, determine that a call may not be
made in respect of certain portion of its share capital not call in expect in case of
liquidation or insolvency of company.’’ Such uncalled capital is reserve
capital of company.