Accounting theory of company formation for the board exam.
Define public limited company
A public limited company is a company collects major share capital by offering equity shares to the general public.
Its number of membership is governed by the registered authorized capital.
Minimum shareholders are seven but no limit of maximum.
The shares are transferable to others.
It can sell debentures in markets to raise additional capital as loans.
Nepal Bank Limited, Nepal Credit and Commerce Bank Limited and Nepal Telecom Limited are some of the examples of public companies.
These companies must write ‘Ltd’ word with their name.
Mention any three characteristics of the company
Write any three features of the company
The main characteristics or features of a company are as follows:
An artificial person
Limited company is an artificial person.
It is created by law and having a separate existence of its own.
Like a real person, company can buy or sell its property.
It can sue to other person and company and can be sued by others.
For legal business, company can contract with others.
Separate legal entity
A limited or private limited company is a separate legal entity from its shareholders or owners.
A company cannot be held liable for the actions of its owners and similarly a shareholder cannot be held liable for the acts of the company.
A company is created by law and only law can liquidate (wind up) it.
The death, insolvency, inability or lunacy of members does not affect the life of a company.
The shareholders or members may come and may go, but the company goes on forever.
The liability of every owner or shareholder of a company is limited to the extent of the face value of the shares purchased.
Even if, the assets of the company are not sufficient to pay the claims of the creditors, owners or shareholders are not liable to pay anything more than the face value of the shares held by them.
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Write the meaning of registered company with a suitable example
Every company has its company law.
The companies that are formed and registered under the common company law are called registered companies.
The working of registered companies is governed by the provision of company act.
Himal Cement Company, Bhrikuti Pulp and Paper Mills Ltd, Everest paper Mills and Hetauda Cement Company are some examples of registered companies.
State any two differences between private limited company and public limited company
Number of members
A private company needs at least one member for its formation. The maximum number can be fifty.
A public company needs at least seven members for its formation. The maximum number is not limited.
Invitation for shares
This company cannot invite the public to buy its shares.
This company invites the public to buy its shares and debentures.
It can commence its business immediately after its incorporation.
It can commence its business after obtaining the certificate of the commencement of business.
Write in brief about article of association.
The document, which defines the rights, powers and duties of the managements called the Articles of Association.
This document shows the relation between/among the company and its members.
According to the Company Act, the articles of association contain the following:
Number of directors and their terms and conditions.
The amount of minimum subscription by directors.
It tells the procedure of calling company’s meeting and notice to be given for meeting.
Director’s remuneration and allowance.
Rights and duties of the managing director etc.
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