Registration of Company in Nepal : Complete Guide

The registration of company in Nepal is governed by the Companies Act 2063 (2006) (Act) and Company Directives, 2072 (2015). The Office of Company Registrar (OCR) governs the company registration in Nepal. This article covers the procedures of company registration in Nepal.

Types of Companies

Act has categoried mainly three types of company:

1. Private Company
2. Public Company
3. Non-Profit Distributing Company

Besides these three major categorization of company by the Act, there are other classifications as well.

Other Classifications

• Listed Company
• Unlisted Company
• Government Company
• Foreign Company
• Holding Company
• Subsidiary Company
• Joint Venture Company

1. Private Company

Private company are those company which are incorporated and runned by either individual or other private entity. As per the act, the total number of shareholders of private company shall not exceed 101. So, the private company can be incorporated with 1-101 members. There is no limitation on the minimum paid off capital for the private company as per the Act. However, the Indian Practice as mentioned under the Indian Companies Act had provision under Section 2(68) that the minimum paid off capital for private company shall be one lakh rupee which is removed from the amendment in 2015.

Incorporation of Private Company in Nepal

For the incorporation of private company in Nepal, a name shall be reserved first by submitting an application in the online domain of OCR. After the apporval of the name, these forllowing documents shall be prepared and submitted physically to the office of the company registrar:

• Application for incorporation
• 2 copies of Memorandum of Association
• 2 copies of Article of Association; however if the promoter agrees to accept the AoA in the format prescribed for the incorporation of a company with a single shareholder, no AoA required
• If the prior approval or license has to be obtained from any office under the prevailing law, then such approval or license
• If the promoter is a Nepalese citizen, notarized copy of the citizenship certificate and where another company is a promoter, a certificate of registration of incorporation and decision of the Board of directors
• The prescribed fees to be paid for the incorporation of private company shall be paid along with these application.

The fees for the incorporation of company is mentioned in the Nepal Gazette dated Jestha 14, 2064. However, as per the notice in the Nepal Gazette dated Ashoj 8, 2080 the application fees for incorporation of any company in Nepal is exempted fully for the fiscal year 2080/81.

2. Public Company

Public company are those company which can generate the capital by selling its shares and debentures publically to the general public by means of publishing the prospectus. Public company can be incorporated by atleast seven members (promoters). However, in the cases of incorporation of public company by another public company, the need of seven promoters are not mandatory. The public company must have paid off capital of at least NPR 1 crore (NPR 10 Million).

The major difference between private company and public company is that public company can sell its shares and debentures to the general public by issuing the prospectus. However, the private company does not have the right to sell shares or debentures publically.

The public company which are listed in the stock exchange after successful issue of the Initial Public Offering (IPO) are considered as listed companies. Section 12 of the Act has provision that certain business must be registered as only public company. A company carrying on the business of banking, financial transactions, insurance business related transactions, stock exchange business, pension fund or mutual fund, telecommunication company having paid up capital of NPR 5 crore (5 million NPR) or a company carrying on such other business or transactions as may be prescribed shall be  incorporated as a public company.

Incorporation of Public Company in Nepal

After the approaval of the name, the following documents shall be submitted for the incorporation of the public company to the office of the company registrar:

• Application for incorporation
• 2 copies of Memorandum of Association
• 2 copies of Article of Association
• If the prior approval or license has to be obtained from any office under the prevailing law, then such approval or license
• If the promoter is a Nepalese citizen, notarized copy of the citizenship certificate and where another company is a promoter, a certificate of registration of incorporation and decision of the Board of directors

The minimum paid off capital for public company is NPR 1 crore.

The amount of fees to be paid for the incorporation of public company in Nepal shall be as prescribed in the Nepal Gazette dated Jestha 14, 2064. However, as per the notice in the Nepal Gazette dated Ashoj 8, 2080 the application fees for incorporation of any company in Nepal is exempted fully for the fiscal year 2080/81.

3. Non-Profit Distributing Company

Companies Act 2006 introduced the non-profit distributing companies for the first time. Section 2(h) of the Act defines “company not distributing profits” means company incorporated under Chapter 19 on conditions that it shall not be entitled to distribute or pay to its members any dividends or any other moneys out of the profits earned or savings made for the attainment of any objectives. There must be atleast 5 members for incorporating non-profit distributing companies.

Chapter 19 has special provisions regarding non-profit distributing companies. Any company may be incorporated to develop and promote any profession or occupation or to protect the collective rights and interests of the persons engaged in any specific profession or occupation or to carry on any enterprise for the attainment of any scientific, academic, social, benevolent or public utility or welfare objective on the condition of not distributing dividends.

The number of promoters shall be at least five for the incorporation of such company; and after the incorporation, it may have any number of its members, with a minimum of five members. The membership of a company shall not be transferable in any manner. The membership shall ipso facto be terminated in the event of death, cancellation of registration or dissolution of such member or amalgamation of such member with another body or company.

Section 167 of the Act has special provisions regarding non-profit distributing companies

Special Provisions regarding Non-Profit Distributing companies

• No requirement of share capital in the company, however the company may take membership fees and and receive any donation, gift for the accomplishment of its objectives.
• No member shall be liable for the debts and liabilities of company except where any member has accepted such liability in writing, and limited to the same.
• All the provisions applicable for the listed companies shall also be applicable for such companies except the share capital clause.
• Company shall not distribute dividend, bonus or any other amount from the profits earned by it to its members or employees. The profit earned by the company shall only be used to increase the capital of company or for the attainment of its objectives.
• These companies shall not be merged with profit distributing companies.
• Directors shall be appointed from the members with one member one vote.
• Meeting allowance, salary and facilities can be taken by the officers within the amount specified by the Office by looking at its capital situation and profits. Provided that the administrative expenses shall not exceed 25% of the total expenses.
• In the case of liquidation of company, if there is any surplus assets, it may transferred to another similar objective non-profit distributing company or shall devolve on the Government of Nepal.
• If there is violation of any of these mentioned provisions, OCR may cancel the registration of such company by providing the opportunity to defend.
• While canceling the registration, the Office shall appoint a liquidator and an auditor to complete the liquidation proceedings of such company, specifying the period for completion of such liquidation proceedings.

Difference between Non-Governmental Organizations and Non-Profit Distributing Companies

Incorporation of Company by Foreign Investment

The minimum Foreign Investment in Nepal is of NPR 2 crore (NPR 20 Million) per investor. Foreign investments require prior approval from the Department of Industry or the Investment Board depending upon the amount of the proposed investment.

Investments under NPR 6 Billion (6 Arba) are approved by the Department of Industry, and investments above such amounts are approved by the Investment Board. A Notification to Nepal Rastra Bank is needed prior to bring the investment in Nepal.

The foreign investor shall submit these documents for the incorporation to the office of the company registrar:

• Application for incorporation
• 2 copies of Memorandum of Association
• 2 copies of Article of Association
• If the prior approval or license has to be obtained from any office under the prevailing law, then such approval or license
• Approval to invest in Nepal from the concerned departments
• The document certifying the person as foreigner (Passport/Citizenship)
• If the investor is foreign company, then certificate of incorporation and other necessary documents from the Board of Director.

Conversion of Companies from Private to Public

Initially, when the Act was drafted, it had voluntary as well as mandatory provisions for the conversion of private companies to the public company. However, the mandatory provisions for conversion were removed from the amendment of 2074 BS.

Voluntary Conversion of Private to Public

• The general meeting of the private company, by adopting a special resolution, may decide to convert that company into a public company. Provided, however, that no private company shall be capable of being converted into a public company unless and until it fulfills the requirements to be fulfilled under this Act for being a public company.
• The company shall make an application accompanied by a copy of the resolution along with fees within thirty days after the date of such resolution.
• On receipt of such application, the office shall mention the contents of conversion of such company into a public company and give a conversion certificate as prescribed within sixty days.
• The provisions applicable to the public company shall be ipso facto applicable to the company from the date of conversion.
• All the assets and liabilities of the private company so converted shall devolve on the successor company.

Conversion of Companies from Public to Private

Unlike conversion of private company to public company, public companies can not be converted into private company voluntarily. The Act provides only mandatory grounds for the conversion of public company to private.

In the following circumstance, a public company shall be converted into a private company:

• If the number of shareholders of the public company becomes less than seven
• If the public company fails to maintain its paid-up capital or the paid-up capital is not maintained because of reduction in capital, the public company shall make necessary amendments to its Memorendum and Articles and convert it into a private company within six months.
• The company shall make an application to OCR along with copies of amended Memorendum and Articles and prescribed fees for conversion into private company within 30 days after such amendment.
• The OCR shall mention in the company register the conversion of such company into a private company and give conversion certificate within sixty days.
• All the assets and liabilities of the public company to be so converted shall devolve on the successor company.