Registration of Non-Profit Distributing Company in Nepal: Complete Legal Guide

Introduction to Non-Profit Distributing Companies

Companies Act 2006 introduced the non-profit distributing companies for the first time. Section 2(h) of the Act defines “company not distributing profits” as a 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 at least 5 members for incorporating non-profit distributing companies.

Provisions under Chapter 19

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 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.

Government Fees

The prescribed government fees for the registration of non-profit distributing companies is Rs. 15,000/-.

Special Provisions

• No requirement of share capital in the company; however, the company may take membership fees and receive any donation or gift for the accomplishment of its objectives.
• No member shall be liable for the debts and liabilities of the 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.
• The company shall not distribute dividends, bonuses, or any other amount from the profits earned to its members or employees. The profit earned by the company shall only be used to increase the capital of the 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, considering its capital situation and profits. Provided that the administrative expenses shall not exceed 25% of the total expenses.
• In the case of liquidation of the company, any surplus assets may be transferred to another similar objective non-profit distributing company or devolve on the Government of Nepal.
• If there is a violation of any of these provisions, the OCR may cancel the registration of such a 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 a company, specifying the period for completion of such liquidation proceedings.

Difference Between NGOs and Non-Profit Distributing Companies

Disclaimer:

This information is provided for educational purposes only and should not be construed as legal advice. FinLex Associates retains exclusive rights to the content.