Essential Documents Required for the Formation of a Company

The formation of a company requires meticulous preparation and submission of essential documents to comply with legal requirements and establish a solid foundation for its operations. These documents, such as the Memorandum of Association (MOA), Articles of Association (AOA), and Prospectus, serve as the backbone of the company's structure, defining its objectives, internal regulations, and public engagement strategies. By adhering to these requirements, companies ensure transparency, build trust, and operate within the framework set by the law.

Incorporating a company not only involves creating a legal entity but also lays the groundwork for governance, accountability, and growth. The MOA outlines the external boundaries of the company’s operations, the AOA governs its internal management, and the Prospectus invites public confidence by detailing the company’s structure and plans. These documents collectively ensure that the company operates ethically, legally, and effectively, creating a foundation for long-term success.

Documents Required For the Formation of a company

1. Memorandum of Association (MOA)

MOA is the first document in which the main objective and external rules and regulations of the company will be stated. It is the constitution of the company. It provides the foundation on which the structure of the company is built which enables the persons who deal with the company to know its permitted range of activities. The company should operate as per the terms and conditions mentioned in the MOA. It would be considered illegal if the company does not operate as per the MOA. In the case of a private limited company, at least, one promoter, and in the case of the public limited company at least seven promoters must sign on the MOA.

The main contents of the MOA are as follows: -

• The name of the company
• The address of the registered office of the company.
• The objectives of the company.
• The liability clause of shareholders.
• The figure of the authorized capital of the company and figure of share capital to be issued by the company for the time being and the figure of undertaken to be paid by the promoter of the company.
• Types of shares of the company, the rights and powers inherent in such shares, the value of each share, and the number of shares of different types.
• Number of shares which the promoters have undertaken to subscribe for the time being.
• Terms of payment of share amount.
• Statements that the liability of shareholders shall be limited.
• Maximum number of shareholders in case of private company.
• Other necessary particulars.

Additional matters to be included while making an MOA according to section 18(2) of the Company Act, 2063 are as follows:-

• If the promoter or any other person is entitled to subscribe shares or acquire title thereto in any manner other than by making payment in cash,
• If the company is to acquire any property in any manner from the promoter or any other person at the time of commencement of its transactions such matter.
• If the company itself is to bear the expenses incurred on its incorporation,
• If the promoter or any other person is entitled to any special privilege or right from the company,

2. Article of Association

AOA is another important document for the establishment of the company. It relates to the internal rules and regulations of the company. It contains rules, regulations, and by-laws for the internal management of the company. Every company has to prepare articles of association along with other documents for incorporation. Matters related to the Article of Association that disagree with the Memorandum of Association shall be invalid to the extent of such conflict. It shows the relation between the company and its members and the relation among the members. According to the Company Act 2063, the Article of Association contains the following: -

• Number of Directors and their terms and conditions.
• The amount of minimum subscription by directors.
• Provisions relating to the minutes of decisions of the general meeting and the board of directors, and duplicate copies and inspection thereof.
• Authority of directors and delegation of authority.
• Different classes of shares and the rights, powers, and restrictions attached to such shares.
• Provisions relating to calls on shares and forfeiture of shares.
• Lien of shares
• Provision relating to transfer of shares.
• Matters of alteration in share capital.
• Matters relating to the procedure of calling the company’s meeting and notice to be given for the meeting.
• Director's remuneration and allowance.
• Rights and duties of the managing directors.
• Appointment of a company secretary.
• Provisions relating to the rules and regulations of internal management.
• Accounts, book of accounts of the company, and audit of the company.
• Amalgamation of company.
• Provisions on power to use loans or debentures.
• Use of company’s seal in its transaction, if it is to be used.

3. Prospectus

A prospectus is another major important document of the company. Simply, the prospectus is the brief of the Company. In other words, Prospectus is an invitation to the general public to participate or purchase company shares. We know that a public limited company will manage the capital from the general public by issuing shares. The prospectus should not be signed by all the directors, but the prospectus which is to be published should be approved by the concerned department of the government of Nepal.

The important content to be included in the prospectus is as follows: -

• Background of the body corporate/ company.
• Description of property of company.
• Future plans and strategy of the company.
• Composition of BOD and its representatives.
• Information on the capital structure.
• Information of the promoters/directors.
• Description of the limitation of liability.
• The qualification of the directors.
• Expected dividend to be declared by the company.
• Details about brokerage, underwriting commission, and preliminary expenses.
• The company's capital structure is divided into authorized, issued, subscribed, and paid-up capital.

The main objectives of the prospectus: -

• Information about the company to the general public.
• Initiation of interest from the public for investment by purchasing shares.
• Creation of confidence in the company to the general public.
• Make the general public aware of the terms and conditions for purchasing shares.

MOA, AOA, and Prospectus are three basic documents required for any company upon incorporation and functionalities. The MOA lays down the external framework, objects, and scope of operation of the company; hence, it defines the legal bounds that guide the external stakeholders. Internal management is controlled through the AOA, which inculcates rules and regulations defining the relationship among members and between the company and its members. It includes issuing a prospectus, an important communication tool to the public on investment invitation into the company with transparency in terms of the company's structure and plans, plus financial details thereof.

Collectively, these documents ensure the enterprise is in operation within legal and ethical limits and with the confidence of both its shareholders and the public at large. This makes for sound governance, concord within the corporation, and an excellent standing in the public all necessary conditions to grow in perpetuity with profitability.