Legal Environment

Legal environment refers to all the legal surroundings that affect project activities. It
consists of an array of acts, rules, regulations. It defines what projects can and cannot
do. It is the code of conduct that defines the legal boundaries for business activity. All
these things, when accumulated together form up into something that we know as the
business legal environment.
Nature of legal environment
1.Laws on Production or Sales
The production or sale of certain goods is prohibited, or at least severely restricted in
many countries. This includes selling of dangerous drugs, guns and explosives etc.
2.Consumer Protection
Most countries have laws ensuring customers protection. This includes the act
regulating Description Act, making misleading descriptions of products illegal.
Consumer Credit Act, ensuring consumers are aware of loan durations, interest rates
etc. when taking out a loan, and the Sale of Goods Act, making it illegal to sell faulty
or damaged goods.
3.Employee Protection
Laws to protect employees include laws against unfair discrimination based on race,
color, religion, sex, or age; laws against unfair dismissal and sexual or other
harassment; health and safety laws and laws regulating minimum wages.
4.Tax and Financial Laws
These laws vary between countries, but generally regulate accountancy practices,
interest rates on loans, taxes etc. Businesses are expected to provide sufficient
documentation of income and expenditure.
General law
General law means territorial law of a country. It consists of all persons, things, acts and
events within the territory of a country which are governed by the country. General law
consists of those legal rules of which the court takes judicial notice.
Business Law
Business law is the group of rules that governs the dealings between individuals or
companies involved in commercial matters. Business law encompasses all of the laws
that dictate how to form and run a business. This includes all of the laws that govern
how to start, buy, manage and close or sell any type of business. Business laws
establish the rules that all businesses should follow. Business law includes state and
federal laws, as well as administrative regulations.
Importance of Business law or environment
To define basic setup of a business and formation
To define regulations for business operations.
To protect intellectual property of a business entities.
To protect consumer rights.
To protect employee and employee rights.
To deliver justice and settle business related disputes
Types of Business Law
Contract Law
A contract is any document that creates a sort of legal obligation between the parties
that sign it. Contracts refer to those employee contracts, sale of goods contracts, lease
contracts, etc.
Labour Law
Labour laws also known as employment laws are those that mediate the relationship
between workers, employing entities, trade unions, and the government. It protects
worker rights, prevent discrimination, and promote safe work environments.
Intellectual Property Law
Intellectual Property law deals with laws to protect and enforce rights of the creators and
owners of inventions, writing, music, designs and other works, known as the "intellectual
property." There are several areas of intellectual property including copyright,
trademarks, patents, and trade secrets.
Securities Law
Securities refer to assets like shares in the stock market and other sources of capital
growth and accumulation. Securities law prohibits businesspersons from conducting
fraudulent activities taking place in the securities market. This law penalizes securities
fraud, such as insider trading.
Tax Law
Taxation refers to taxes charged upon companies in the commercial sector. It is the
obligation of all companies to pay their taxes on time, failure to follow through which will
be a violation of corporate tax laws.
Sources of Business Law
1. English Business Law: English Business Law is major source of Nepalese and
Indian Business Law.
2. Custom and Usages: The custom is the habit or conduct of people established by
long usage from time and recognized as a law by the particular locality or society.
3. Statutory or Legislative Acts: The Law made by competent authority or parliament
or legislature of the state is called Statutory Act. Legislative Acts are regarded as one of
the most important sources of Business Law
4. Judicial Decision or Precedent: A precedent refers to the Judicial Decision made
by a court according to the principles of Justice, Equity and good Conscience which
contains in itself a principle.
5. Writings and Opinions of Scholars: Writings and Opinion of Experts or Jurists are
also called Juristic Law because Juristic writings have played important role in the
development of Business Law.
6. Commercial Treaties, Agreements & Conventions: The Treaties, Bilateral and
Multilateral Agreements signed between the countries as well as Conventions of the
Business Communities for the regulation of their business is also regarded one of the
important sources of Modern Business Law.
Contract law is the law that involves agreements between people, businesses, and
groups. It is a promise enforceable by law. When someone does not follow an
agreement, it is called a "breach of contract" and contract laws allow you to take the
problem to court. Contract law attorneys and a judge will discuss the case and
determine a fair solution. Contract law encompasses the origination, enforcement and
ultimate enactment of all legal contracts or agreements.
Importance
Offer, acceptance and consideration are made clear by the contract law.
Enables agreements between two or more individuals to be legally enforceable.
Contract law serve as a record of commitment for both parties.
Prevents Conflicts And Minimizes Risk
Contract law helps to govern if the contract breaks down.

Essential Elements
A contract is formed when there is an offer by one party and an acceptance by the other
party to the contract. Also, courts will enforce the contract if it includes valid
consideration. To establish that a contract is present, and thus, legally enforceable three
elements must be proved:
1. An agreement between the two parties, established by an offer and
subsequent acceptance
2. Both parties must provide consideration
3. Both parties must clearly have intention to create legal relations
Offer
An offer is a promise to enter into a contract on certain terms. It must be specific,
complete, capable of acceptance, and intended to be bound by acceptance.
Acceptance
An offer must be accepted to create a contract. It must be final and qualified with no
variation to the proposed terms. It must be communicated by the accepting party to the
offeror.
Consideration
Consideration essentially means that a person cannot enforce a promise unless he has
given or promised something in return. A contract without consideration will only be
enforceable if made by deed.
Types of contracts on the basis of formation of the contract
Verbal contracts, Written contracts, Express contracts, Implied contracts
Quasi-contracts, E-contracts
Types of contracts on the basis of validity of the contract
Valid contracts, Void contracts, Voidable contracts, Illegal contracts
Types of contracts on the basis of nature of the contracts
Unilateral contracts, Bilateral contracts
An electronic contract is an agreement formulated online. The parties interact with
one another in a digital format, rather than in-person or over the phone. It takes place
through e-commerce, often without the parties meeting each other. It refers to
commercial transactions conducted and concluded electronically. A customer drawing
money from an ATM machine is an example of electronic contract. Another instance of
e-contract is when a person orders some product from an online shopping website.
With each passing year, businesses and enterprises are becoming more technology-
oriented in their processes. They are trying to make all their work procedures digital.
This shift is making communications smoother and faster within an enterprise and with
other associated partners. Similarly, shifting from paper contracts to e-contracts will also
turn out to be beneficial for enterprises.
Importance:
Hassle-free: For drafting a contract using the traditional method, companies hire a
lawyer. After that, they explain their requirements, terms, and conditions and then the
whole contract is created in a written form, which is a process long. However, if the
companies use electronic contracts, all the contracting processes become hassle-free.
The only thing they need to do is choose a template from the multiple templates offered
and fill in the required information, sign and the contract is complete.
Saves Time: The traditional contracting system requires both parties to be physically
present at the time of discussing and signing the agreement. This consumes a lot of
time but if they start using electronic contracts, there will be no requirement of meeting
face-to-face and the contracts can be created and done online. This way enterprises
save a great amount of time.
Saves Expenses: Another important benefit e-contract provides a business is saving
material costs. When using paper-based contracts, you need paper, ink, printer,
electricity, etc. Along with all these material costs, cost of labour is also involved. So,
using digital contracts can save companies all these kinds of expenses.
Ease in Managing Documents: The e-contract makes it easy to manage and store the
documents. Using a filing system for storing and managing multiple agreements makes
searching for a specific document tiring and difficult. But when using e-contracting
services, all legal documents can be stored in one place i.e., cloud which makes storing
and searching easy.
Electronically Sign: One major problem with the traditional contracting system includes
the physical presence of parties at the time of signing. Either the parties need to be
present or the document is shipped from one party to another. But, in e-contract digital
signatures are attached to contracts after completing the authentication process.
A void contract is a contract that isn’t legally enforceable, starting from the time it was
created. In a legal sense, a void contract is treated as if it was never created and
becomes unenforceable in court. Void contracts can occur when one of the involved
parties is incapable of following the implications of the agreement or agreements
entered into by minors or for illegal activities may also be rendered void. While both a
void and voidable contract are null, a void contract cannot be ratified.
Voidable contracts are those contracts that can be made void on the will of one of the
parties. It provides one or both parties the ability to void the contract at any time. A
voidable contract is initially considered legal and enforceable but can be rejected by one
party if the contract is discovered to have defects. If a party with the power to reject the
contract chooses not to reject the contract despite the defect, the contract remains valid
and enforceable.
Discharge of contract means termination of the contractual relationship between the
parties. It is the end of an agreement. A contract is said to be discharged when it
ceases to operate, i.e., when the rights and obligations created by it come to an end. A
contract can be discharged if the parties mutually agree to terminate the contract. Also,
there are different methods through which contracts can be discharged.
What Is a Breach of Contract?
A breach of contract is a violation of any of the agreed-upon terms and conditions of a
binding contract. It is a failure, without legal excuse, to perform any promise that forms
all or part of the contract. The breach could be anything from a late payment to a more
serious violation such as the failure to deliver a promised asset.
Remedies for Breach of Contract
Recession of Contract - When one of the parties to a contract does not fulfil his
obligations, then the other party can cancel the contract and refuse the performance of
his obligations.
Sue for Damages - the party who has suffered, since the other party has broken
promises, can claim compensation for loss or damages caused to them in the normal
course of business.
Sue for Specific Performance - This means the party in breach will actually have to
carry out his duties according to the contract.
Advance payments - If a party in breach has made advanced payments under the
contract his ability to recover that money depends upon whether that payment
constitutes a deposit or a payment of the whole or part of the price in advance.
Penalty
A Sale of Goods Contract is a short-form contract between a buyer and a seller for the
sale and purchase of goods. It is a contract whereby the seller transfers, or agrees to
transfer the ownership of the goods to the buyer for a money consideration, called the
"price". A contract of sale may be absolute or conditional. It may include subject matter
of the sale, the contract period, the delivery details, the purchase price, and the
payment terms. Normally it is meant for simple, straightforward transactions.
Essentials elements of a Contract of Sale
Goods
Price
Two parties
Transfer of ownership
All Essentials of a Valid Contract.
Includes both a ‘sale’ and an agreement to sell.
Conditions
The conditions are the actions or steps that one or both parties will do to fulfill their side
of the contract. The conditions are a requirement based on the contract agreement.
Conditions are certain obligations, terms, and provisions imposed by both parties.
Conditions are indispensable, and they need to be satisfied. There are two types of
conditions present in a typical contract: Expressed Condition and Implied Condition.
Warranty
A warranty is a written guarantee that a seller issues to a buyer regarding particular
claims. The claims are to be factual and valid. An example of a warranty is a seller
committing to replace or repair a product within a specified time if it doesn't meet the
expected performance. This guarantee concerns the fitness, quality, and the
performance of the sold product. A warranty acts as a confirmation that the product will
complete conditions and run as promised during the specified time. It's the seller's
assurance or promise to the customer that the goods are in their best condition. If the
warranty is proven false, and the product fails to perform as described, the seller may
seek remedies as stated in the contract, such as exchanging or returning the item.

Transfer of property is an act by which a living person transfers the property in present
or in future to one or more living persons or to themself. It is transfer of the legal title in
property. The property may be movable or immovable, present or future. Such transfer
can be made orally, unless transfer in writing is required under any law. Any person
competent to contract and entitled to transferable property, or authorized to dispose of
transferable property, is competent to transfer such property. The property can be
transferred wholly or in part. Such transfer can be only to the extent and in manner
allowed and prescribed by law.
Unpaid seller
When the buyer of goods does not pay his dues to the seller, the seller becomes an
unpaid seller. And now the seller has certain rights against the buyer. Such rights
are the seller remedies against the breach of contract by the buyer. Such rights of the
unpaid seller are additional to the rights against the goods he sold.
Rights against buyer
1- Suit for the price
When any goods are passed on to the buyer and the buyer has wrongfully neglected or
refused to pay as per the terms and conditions of the contract, the seller may sue him
because once the property has been passed the buyer is bound to pay the price.
2- Suit for damages
In case there is a wrongful refusal on the part of buyer for acceptance of goods and
payment of money, the seller can sue him for damages of non-acceptance
3- Suit for interest
When there is a specific agreement between buyer and seller with regards to interest on
the price of goods from the date on which payment becomes due, the seller may
recover interest from a buyer. But if there were no such agreement the seller may
charge interest from the day, he notifies the buyer.
4- Repudiation of the contract before the due date
If buyer terminates the contract before the date of delivery the seller can consider the
contract as rescinded and can sue for damages of the breach.
Rights against goods
a- Lien
Lien is a right which seller of goods can exercise when a buyer has not paid the price of
goods, under this right seller can retain the possession of goods as an agent or bailee
for the buyer.
b- Stoppage
When the goods have been transferred to carrier or bailee for the purpose of
transmission to the buyer, who has become insolvent, the seller has the right to stop the
goods in transit in order to protect himself against the loss that may arise due to
insolvency.
c- Resale
Exercising the right of lien or stoppage does not rescind the agreement but reselling of
goods does and without this right, the other two rights of lien and stoppage would not be
of much usage because he can only retain goods under these right till the buyer pays
back the money.

Negotiation Assignment

Transactions under negotiation are governed Transactions under Assignment are governed by Tr
by Negotiable Instrument Acts. property acts.

The negotiation refers to the promissory note,

bill of exchange or cheque transferred to any Assignment is usually done for other types of docum
person.

Consideration is presumed. Consideration must be proved.

No notice of transfer is required to affect the

Notice of transfer must be given to the debtor by the
negotiation.

Negotiation can be made by mere delivery or Assignment is done by writing. Normally a separate
endorsement followed by delivery. executed by the transferor in favor of a transferee.

Negotiable Instrument
A negotiable instrument is a signed document that promises a sum of payment to a
specified person or the assignee at a future date or on-demand. It is a formalized type
of IOU. The payee, who is the person receiving the payment, must be named or
otherwise indicated on the instrument. Negotiable instruments are transferable in
nature, allowing the holder to take the funds as cash or use them in a manner
appropriate for the transaction or according to their preference. Cheque, money orders
Characteristics
Written document: A Negotiable Instrument is a promise or order that must be made in
a formal written document.
Easily Transferable: It is transferable in nature. This means that it allows the
instrument holder to take the funds as cash and use them in any way, which is
considered an appropriate transaction or according to their personal preference.
Right of ownership: The property in a Negotiable Instrument means a complete right
of ownership and not merely a right of possession of the form.
Right to Receive Payment: If the negotiable instrument is not honored on the specified
date and the holder of the instrument doesn’t get the payment then the holder becomes
entitled to take legal action against the payer. This applies even if the instrument was
not initially issued to the holder but instead transferred.
Importance of Negotiable Instrument.
• Negotiable Instrument is easier means of transfer of money.
• It helps to flourish the business sector.
• It creates the right of property.
• It has the easy negotiability and somewhere it provides the security.
• It makes the fast transaction of money.
• It helps to provide the security of money as well as personal security.
Types of Negotiable Instrument
The promissory note is a signed document of written promise to pay a stated sum to a
specified person at a specified date or on-demand. A promissory note typically contains
all the terms pertaining to the indebtedness, such as the principal amount, interest rate,
maturity date, date and place of issuance, and issuer's signature. The debtor is the
maker of the instrument.
The Bill of Exchange contains an order from the creditor to the debtor to pay a certain
person after a certain period. The person who draws it is called a drawer and the person
on whom it is drawn is called drawee or acceptor. The person to whom the amount is
payable is called the payee.
Cheques: A cheque is a document that orders a bank to pay a specific amount of
money from a person's account to the person in whose name the cheque has been
issued. It is the most common negotiable instrument. The person writing the cheque,
known as the drawer, has a transaction banking account where the money is held. The
drawer writes various details including the monetary amount, date, and a payee on the
cheque, and signs it, ordering their bank, known as the drawee, to pay the amount of
money stated to the payee.
Certificate of Deposit (CD): A certificate of deposit (CD) is a product offered by
financial institutions and banks that allows customers to deposit and leave untouched a
certain amount for a fixed period and, in return, benefit from a significantly high interest
rate. Usually, the interest rate increases steadily with the length of the period. The
certificate of deposit is expected to be held until maturity when the principal, along with
the interest, can be withdrawn.
Negotiation refers to the transfer of the negotiable instrument, by a person to another
to make that person the holder of it. Assignment implies the transfer of rights, by a
person to another, for the purpose of receiving the debt payment.
Holder in due course is a person one other than the original recipient who holds a
legally effective negotiable instrument (such as a promissory note) and who has a right
to collect from and no responsibility toward the issuer. A holder in due course acquires
the right to make a claim for the instrument's value against its originator and
intermediate holders.

Dishonour of a negotiable instrument means the loss of honour for the instrument on
the part of the maker, drawee or acceptor, which renders the instrument unsuitable for
the realization of the payment. Dishonour means not honouring the obligation.

Dishonour by Non-Acceptance
Dishonour by non-acceptance is a situation of refusal to accept a negotiable instrument.
Further, we generally observe dishonour by non-acceptance in the case of a bill of
exchange. This is because it is the only kind of negotiable instrument that requires
presentment for acceptance or non-acceptance.

Dishonour by Non-payment
A promissory note, bill of exchange, or cheque is said to be dishonoured by non-
payment when the maker of the note, acceptor of the bill, or drawee of the
cheque commit default in payment upon being duly required to pay the
same. Furthermore, a holder of a promissory note or bill may call it dishonoured if the
maker or the acceptor expressly excuses the presentment of payment when payment
remains overdue.
Discharge of the Instrument: A negotiable instrument is said to be discharged when it
becomes completely useless or it cannot be negotiated further. After discharge of a
negotiable instrument, the rights against all the party comes an end. It is the caused by
the presence of disqualification of an instrument.
The condition of discharged the instruments are as follows:
 By the payment of instrument before the prescribed time.
 When a principal becomes a holder in due course after payment.
 When the holder cancels the instrument with an intention to release the party, the
instrument is discharged.
 When a liable party becomes insolvent, the instrument is discharged.
Modes of Discharge of Liability in Negotiable Instrument
1. By Cancellation
Under this scheme, a holder who cancels acceptors or endorser’s name apparently or
with intention to discharge him from the negotiable instrument, the latter is said to have
discharged.
2. By release
A holder thereof who, by means other than cancellation, discharges maker, acceptor or
endorser, and to all parties deriving title under such holder after notice of such
discharge.
3. By Payment in the Due Course
When the payment on an instrument, at its maturity, is made by the party liable then all
the parties stand discharged from the liability of negotiable instrument.
4. By Allowing Drawee
In this case, if a person holding the negotiable instrument allows the drawee for over 48
hours to consider whether he will accept the same then all the previous who didn’t
consent to the said allowance stand discharged.
5. Material Alteration
In case a material alteration brought in the instrument, all the parties who do not
consent to the said alternation stand discharged from the liability.
6. Notice of Dishonor
In case the holder of negotiable instrument fails to issue notice of dishonor to all the
previous parties, they stand discharged.

Arbitration: It is the formal process of having an outside person, chosen by

both sides to a disagreement, or to end the disagreement. In this process an
independent person makes an official decision that ends a legal disagreement without
the need for it to be solved in court. Arbitration is often used for the resolution
of commercial disputes, particularly in the context of international commercial
transactions.
A Company is a legal entity formed by a group of individuals to engage in and operate
a business. It is formed by the association and group of people to work together towards
achieving a common objective. It can be a commercial or an industrial enterprise.
Different types of companies are taxed differently; therefore, the taxation of the
company defines its type.
Key Features of a Company
Artificial person
The law treats the company as a legal artificial person because it has its name and
bank accounts. It can also own property under its name, file a lawsuit against other
companies or personals, or be partnered up with other companies. It performs all of the
activities that a person can legally do. Therefore, it acts as an artificial individual.
Separate Legal Entity
When we say legal entity, it means that it’s completely independent of its people who
control its operations. In other words, the company won’t be responsible if its members
don’t pay their debt. The same goes for the company as well; that the members don’t
have to pay for the debt of the company, if it’s unable to pay to its creditors.
Incorporated Association
A company starts its business operations when it is registered by the law and under the
ordinance of the company’s act. The registration process of a company is lengthy; it
should have a memorandum of association, board of directors, share prices and
shareholders, a name, office, phone number, address, and other legal documentation.
Limited Liability
Limited liability means the company's debts are its own and members are protected
from personal liability unless they are negligent or gave personal guarantees. A
company may be limited by shares or by guarantee.
Common Seal
As we know that a company acts as an artificial legal individual, therefore, it has a
stamp or seal with the name and address engraved on it. This stamp would be like the
signature of the company. The stamp and company’s seal are used for the verification
and authorization of various documents.
Perpetual Existence
Perpetual Existence means that the membership of a company may keep changing
from time to time, but that shall not affect its continuity. Unlike proprietorship,
partnership or any other type of business, a company doesn’t depend upon its owners,
board of directors, shareholders, or employees. Many people come and go in the
company, but it stays.

Advantages and Disadvantages of a Company

The benefits of starting a company include income diversification, a strong correlation
between effort and reward, creative freedom, and flexibility. Another advantage of
companies is that they create jobs. If an individual starts a company and it grows, most
often they have to hire employees. This increases the number of jobs available in a
nation, employs people, reduces unemployment, and brings wealth into the economy.
There is often a tremendous amount of personal satisfaction garnered from starting your
own company. This involves following your dreams and passions and leaving a legacy.
The disadvantages of starting a company include increased financial responsibility,
increased legal liability, long hours, health risks due to stress, responsibility for
employees and administrative staff, regulations, and tax issues. There is a tremendous
amount of risk in starting a company, from the time invested and, therefore, opportunity
cost from not working a salaried job, to financial risk. Failure is of course one of the
biggest disadvantages; however, many successful entrepreneurs attest that their first
businesses failed and that the experience was an important learning tool.
Pros of a Company Cons of a Company
Diversification Increased financial risk
Creative Freedom Increased legal liability
Flexibility Long hours
Following your dreams Health risks due to stress
Leaving a legacy Responsibility for employees and
administrative staff
Job creation Tax issues

The incorporation of a company refers to the legal process that is used to form a
corporate entity or a company. An incorporated company is a separate legal entity on its
own, recognized by the law. These corporations can be identified with terms like ‘Inc’ or
‘Limited’ in their names. It becomes a corporate legal entity completely separate from its
owners.
Steps in Incorporation of a Company
1. Ascertaining Availability of Name
2. Preparation of Memorandum of Association and Articles of Association
3. Printing, Signing and Stamping, Vetting of Memorandum and Articles
4. Power of Attorney
5. Other Documents to be Filed with the Registrar of Companies
6. Statutory Declaration in e-Form No.1
7. Payment of Registration Fees
8. Certificate of Incorporation

Theories of Corporate Personality

1] Fiction Theory: As per the fiction theory, a corporation exists only as an outcome of
fiction and metaphor. So, the personality that is attached to these corporations is done
purely by legal fiction. The legal person is created only in the eyes of the law for a
specific purpose.
2] Concession Theory: This is similar to the fiction theory. However, it states that the
legal entity has been given a corporate personality or a legal existence. So as per this
theory, only the State can endow legal personalities, not the law.
3] Realist Theory: As per the realist theory, there is no distinction between a natural
person and an artificial person. So, a corporate entity is as much a person as a natural
person. So, the corporation does not owe its existence to the state or the law. It just
exists in reality. This is not a very practical theory as it does not apply in the real world.
4] Bracket Theory: This is one of the famous and feasible theories of corporate
personality. It states that a corporation is created only by its members and its agents.
So, the people who represent the corporation make up the corporation. The law only
puts a bracket around them for convenience purposes.
A promoter is the one who decides an idea for creating a particular business at a given
place and carries out a range of formalities required for starting a business. By the
process called incorporation, a company comes into existence. A promoter can be an
individual, association, or a firm. After the idea to start a business, detailed
investigations are done by the promoters to find out the weakness and the strength of
the idea and also determines the capital needed to start the business.
FUNCTIONS/Duties/Obligations OF A PROMOTER
The formation of idea and forming the company and explore the possibilities
To decide the name of the company, location, amount and form of share capital
To arrange for the registration of company and certificate of incorporation.
To conduct the negotiation for the purchase of business.
To make preliminary contracts with vendors, underwriters, etc.
Rights OF A PROMOTER
1. Right of indemnity: Where more than one person act as the promoters of the
company, one promoter can claim against another promoter for the compensation and
damages paid by him. Promoters are severally and jointly liable for any untrue
statement given in the prospectus and for the secret profits.
2. Right to receive the legitimate preliminary expenses: A promoter is entitled to
receive the legitimate preliminary expenses which he has incurred in the process of
formation of the company such as cost of advertisement, fee and surveyors. The right to
receive the preliminary expenses is not a contractual right and depends on company.
3. Right to receive the remuneration:
A promoter has no right against the company for his remuneration unless there is a
contract to that effect. In some cases, articles of the company provide for the directors
paying a specified amount to promoters for their services but this does not give the
promoters any contractual right to sue the company.
Shareholder
A shareholder, also referred to as a stockholder, is a person, company, or institution
that owns at least one share of a company's stock, known as equity. Shareholders
typically receive declared dividends if the company does well and succeeds.
Conversely, when a company loses money, the share price invariably drops, which can
cause shareholders to lose money or suffer declines in their portfolios.
A board of directors is the governing body of a company, elected by shareholders in
the case of public companies to set strategy and oversee management and represent
the interests of the shareholders. The board typically meets at regular intervals. Every
public company must have a board of directors.
In general, the board makes decisions on behalf of the company and its shareholders.
Issues that fall under a board's purview include the hiring and firing of senior executives
and their compensation, dividends, major investments, and mergers and acquisitions.
The corporate officer is an individual who is responsible for a business's day-to-day
operations. Most corporation members are in at least one of three categories:
shareholders, directors, and officers. The shareholders invest in the business in the
hopes of a financial return on this investment, and the directors oversee the
corporation's affairs and strive to protect shareholder interests. In a corporation, the
corporate officers are chosen by the board of directors to do the day-to-day running of
the company. The exact number and roles of the corporate officers vary based on state
law and the company’s articles of incorporation.
Winding up of a company is defined as a process by which the life of a company is
brought to an end and its property administered for the benefit of its members and
creditors. Winding up is the process of liquidating a company. While winding up, a
company ceases to do business as usual. Its sole purpose is to sell off stock, pay off
creditors, and distribute any remaining assets to partners or shareholders. An
Administrator, called a liquidator is appointed and he takes control of the company,
collects its assets, pays its debts and finally distributes any surplus among the members
in accordance with their rights.”
Liquidation
Liquidation in finance and economics is the process of bringing a business to an end
and distributing its assets to claimants. It is an event that usually occurs when a
company is insolvent, meaning it cannot pay its obligations when they are due. As
company operations end, the remaining assets are used to pay creditors and
shareholders, based on the priority of their claims. General partners are subject to
liquidation. The term liquidation may also be used to refer to the selling of poor-
performing goods at a price lower than the cost to the business, or at a price lower than
the business desires.

Functions, Duties and Powers of Liquidator:

Duties
To publish a notice in a national level Nepali and English daily newspaper for
information of shareholders and other concerned persons of the company.
To provide required information with an authenticated copy of the order of mandatory
liquidation to the Office of the Company Registrar.
To provide the information including the cause of liquidation at the principal place of
company at each of its offices,
To broadcast the notice through a national level television and radio for four weeks
To perform such other functions as specified by the reporting company.
Powers
To take custody of the office, books and accounts, records and assets of the company.
To carry out most essential regular functions of operation and management.
To appoint employees to render assistance in its functions,
To make the necessary expenses for operation, management and liquidation
To exercise all the powers to be exercised by the shareholders, Board of Directors.
To carry out inquiry into the business and financial status of the company.

Corporate governance is the system by which companies are directed and controlled.
It identifies who has power and accountability, and who makes decisions. Boards of
directors are responsible for the governance of their companies. The shareholders’ role
in governance is to appoint the directors and the auditors. The purpose of corporate
governance is to facilitate effective management that can deliver the long-term success
of the company.
Elements of Corporate Governance
Governance Documentation: It is imperative that governance documentation is
accurate and kept up to date. These documents establish the rules by which the
business is governed, set out the rights and obligations of the shareholders, and provide
evidence for stakeholders of the governance procedures in place.
Organization Structure: A solid structure and organization within the company is
essential to achieve implementing and dispersing corporate governance objectives.
Companies will need to be able to monitor all of their dealings, interactions etc.
Direction: Providing overall direction for the business, its leaders and employees is a
major part of corporate governance. Making Strategic decisions and discussing current
and future concerns of the company are tactics of this element.
Effective board reporting: Boards perform best when they receive good quality reports
that contain sufficient information for them to make well-informed decisions and to
develop business strategies for short and long-term growth and overall sustainability of
the organization.
Director training and board evaluations: Directors need to ensure they keep up to
date with regulations and legislation, which can prove challenging. Additionally,
increased responsibility and expanding regulatory demands means higher expectations
for board performance. Effective Risk Management
The Corporate Governance/OECD Principles
Ensuring the basis of an effective corporate governance framework
The rights of shareholders and key ownership functions
The equitable treatment of shareholders.
The role of stakeholders in corporate governance
Disclosure and transparency
The responsibilities of the board
Corporate governance theories
Agency Theory
Agency theory defines the relationship between the principals (such as shareholders of
company) and agents (such as directors of company). According to this theory, the
principals of the company hire the agents to perform work. The principals delegate the
work of running the business to the directors or managers, who are agents of
shareholders. The shareholders expect the agents to act and make decisions in the
best interest of principal.
Stewardship Theory
The steward theory states that a steward protects and maximises shareholders wealth
through firm Performance. Stewards are company executives and managers working for
the shareholders, protects and make profits for the shareholders. The stewards are
satisfied and motivated when organizational success is attained. Their objective is to
create and maintain a successful organisation so that shareholders can flourish.
Stakeholder theory
Stakeholder theory states that a company owes a responsibility to a wider group of
stakeholders rather than just shareholders. It states that managers in organizations
have to serve suppliers, employees and business partners. The theory focuses on
managerial decision making and interests of all stakeholders.
Resource Dependency Theory
The Resource Dependency Theory focuses on the role of board directors in providing
access to resources needed by the firm. It states that directors play an important role in
providing or securing essential resources to an organization through their linkages to
the external environment. The provision of resources enhances organizational
functioning, firm’s performance and its survival. The directors bring resources to the
firm, such as information, skills, access to suppliers, buyers etc.
Transaction Cost Theory
Transaction cost theory states that a company has number of contracts within the
company itself or with market through which it creates value for the company. There is
cost associated with each contract with external party; such cost is called transaction
cost. If transaction cost of using the market is higher, the company would undertake that
transaction itself.
Political Theory
Political theory brings the approach of developing voting support from shareholders,
rather by purchasing voting power. It highlights the allocation of corporate power, profits
and privileges are determined via the governments’ favor
Corporate social responsibility is a type of business self-regulation with the aim of
social accountability and making a positive impact on society. It also refers to the
practices and policies undertaken by corporations intended to have a positive influence
on the world. By practicing corporate social responsibility, companies can be conscious
of the impact they are having on all aspects of society. To engage in CSR means that,
in the ordinary course of business, a company is operating in ways that enhance society
and the environment instead of contributing negatively to them.
1. Environmental responsibility
Environmental responsibility initiatives aim to reduce pollution and greenhouse gas
emissions and the sustainable use of natural resources.
2. Human rights responsibility
Human rights responsibility initiatives involve providing fair labor practices (e.g., equal
pay for equal work) and fair-trade practices, and disavowing child labor.
3. Philanthropic responsibility
Philanthropic responsibility can include things such as funding educational programs,
supporting health initiatives, donating to causes, and supporting community
beautification projects.
4. Economic responsibility
Economic responsibility initiatives involve improving the firm’s business operation while
participating in sustainable practices – for example, using a new manufacturing process
to minimize wastage.

Corporate criminal liability can be defined as a crime which has been committed by
individual or association for pursuing a common purpose or make business gain. It is
the conduct of a corporation or of its employees acting on behalf of the corporation,
which is prescribed and punished by law. Under certain circumstances, a corporation
can be held criminally liable for the illegal acts of its directors, employees or other
individuals acting on its behalf.
Insider trading refers to the practice of purchasing or selling a public company's stock
by someone who has non-public, material information about that stock for any reason.
Insider trading is illegal when the material information is still non-public. Insider trading
can be either illegal or legal depending on when the insider makes the trade. An
example of an insider may be a corporate executive or someone in government who
has access to an economic report before it is publicly released.
Money laundering is the process of concealing the origin of money, often obtained
from illegal activities such as drug trafficking, corruption, gambling etc. by converting it
into a legitimate source. It is usually a key operation of organized crime. Money
laundering often involves financial institutions to make the money look as if it came from
a legal source. Instead of depositing a large sum of money all at once at a bank, a
money launderer will deposit small sums over time to avoid drawing attention. Money
earned illegally may be taken to a country where money laundering laws aren’t as
strictly enforced, but this often requires smuggling cash across national borders.
Corporate Cyber Crime Definition: It is focused specifically on large companies and
trying to gain access to their systems for a variety of reasons. Some of those reasons
include attempting to gain access to proprietary data like formulas for products, whether
it be a new medication or simply how they make Coca-Cola, trying to access business
plans and intended corporate strategies, attempting to gain personal information about
employees of the company, or trying to maliciously alter data for one reason or another.
Having access to a corporate database gives a hacker amazing amount of power to do
incredible damage with little more than erasing a file or changing a few numbers.
Labour laws are those that mediate the relationship between workers, employing
entities, trade unions and the government. The Labour law acts as a tool to promote
worker empowerment as well as worker protection. It regulates individual and collective
employment relations. Labour law aims to correct the imbalance of power between the
worker and the employer; to prevent the employer from dismissing the worker without
good cause. Labour law also regulates the labour market.
Labour welfare relates to taking care of the well-being of workers by employers, trade
unions, governmental and non-governmental institutions and agencies. Welfare
includes anything that is done for the comfort and improvement of employees and is
provided over and above the wages. Welfare helps in keeping the morale and
motivation of the employees high so as to retain the employees for longer duration.
Collective bargaining is the official process by which trade unions negotiate with
employers, on behalf of their members. Collective bargaining is a key means through
which employers and their organizations and trade unions can establish fair wages and
working conditions. It also provides the basis for sound labor relations. Typical issues
on the bargaining agenda include wages, working time, training, occupational health
and safety and equal treatment.
Labour unions or trade unions are organizations formed by workers from related
fields that work for the common interest of its members. They help workers in issues like
fairness of pay, good working environment, hours of work and benefits. They represent
a cluster of workers and provide a link between the management and workers. It acts as
the medium of communication between the workers and management.
Duties and Functions/labour laws
Rendering, administration and governance of resources, programs and policies
Enforcement of the provisions of Labour Acts and Rules through the Labour
Commissioner.
To ensure a steady flow of skilled workers in different trades for the industry,
To raise the quality and quantity of industrial production by systematic training of
workers.
To reduce unemployment among the educated youth by equipping them for suitable
employment and providing career guidance to job seekers through the DECT.
Providing Medical Care Services and Medical Benefits.

A factory inspector is an official employed to ensure that factories operate in

accordance with official regulations. They examine elements of a factory or plant's
operations to ensure safety, quality, and compliance with regulations. Factory
inspectors can be employed by many different organizations, and can have varying
areas of expertise. The main job of any factory inspector is to help improve the safety of
a factory and its products for both workers and consumers. Government is responsible
for the appointment of an inspection staff for the factories.
A labor court is a governmental judiciary body which rules on labor or employment-
related matters and disputes. It is an independent workplace dispute resolution body
providing a comprehensive service for the resolution of disputes concerning industrial
relations and employments rights. The Labour Court is publicly funded and, in general,
provides its services free of charge to the public.
A minor is a person who is still legally a child.
Rules regarding Minor’s contract
1) A contract with a minor is void and, hence, no obligations can ever arise on him/her.
2) The minor party cannot ratify the contract upon attaining majority unless a law
specifically allows this.
3) No court can allow specific performance of a contract with minors because it is void.
4) The Partnership Act also prohibits minors from becoming partners in a firm.
5) Even if a minor forms a contract claiming majority age, legal obligations cannot arise
against him.
6) Parents or guardians of minors can name them in contracts only if it benefits them. But
even in this case, the minor cannot be personally liable.
Liquidation Process
1. A liquidator is appointed.
A liquidator is a specialist accountant who is registered with ASIC. The liquidator must
be independent from the company.
2. The liquidator publishes a notice on the ASIC Published Notices website.
This is a public website, and anyone can search and browse insolvency and company
deregistration notices.
3. Creditors are notified of the liquidation.
A report notifies creditors of the liquidation and advises them of their rights.
4. Creditors’ meeting.
A creditors’ meeting may be held by the liquidator or on the request of creditors. This
meeting can allow the creditors to approve the liquidator's proposed course of action or
decide to appoint a replacement liquidator.
5. The administration of the liquidation begins.
This usually includes: selling or closing the business, identifying and selling the
company's assets, making payments to creditors (dividends).
7. Completion.
ASIC is notified and the company is deregistered.