Registration of Non-Profit Distributing Company in Nepal

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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

Non-Governmental Organizations	Non-Profit Distributing Companies
Registered and regulated by Association Registration Act 2034.	Registered and regulated by Companies Act 2063.
Incorporated at District Administration Office.	Incorporated at Office of Company Registrar.
At least 9 members needed for incorporation.	At least 5 members needed for incorporation.
Registration at Social Welfare Council is mandatory.	No compulsion for enlisting in Social Welfare Council unless it is receiving any grant from foreign countries.
Renewal must be done every year at the DAO.	Once incorporated, no renewal is needed; however, audit reports and other annual documents shall be submitted. Failure to do so results in fines.
Audit report shall be submitted to the DAO.	Audit report shall be submitted to the OCR.
AGM shall be done every year as per the constitution of the NGO.	AGM shall be done every year as per the AoA.
Administrative expenses cannot exceed 20% of the total project cost.	Administrative expenses cannot exceed 25% of total expenses. If registered with the Social Welfare Council, the limit is 20% of the total project cost.
Surplus assets are transferred to the Government of Nepal in case of winding up.	Surplus assets may be transferred to another similar company or to the Government of Nepal in case of winding up.

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FAQ

A non-profit distributing company is defined as a company incorporated under Chapter 19 of the Companies Act 2006 that does not distribute profits to its members as dividends or any other payments.
A minimum of five members is required for the incorporation of a non-profit distributing company.
These companies can be formed to promote professions, protect collective rights, or pursue scientific, academic, social, benevolent, or public utility objectives without distributing profits.
Yes, they are governed by specific provisions in Chapter 19 of the Companies Act, including the inability to distribute dividends, no requirement for share capital, and the ability to collect membership fees and donations.
The prescribed government fee for registration is Rs. 15,000.
No, these companies cannot be merged with profit-distributing companies.
Any surplus assets may be transferred to another similar non-profit distributing company or devolved to the Government of Nepal.
Members are not liable for the company’s debts and liabilities unless they have accepted such liability in writing.
Administrative expenses cannot exceed 25% of total expenses. If registered with the social welfare council, it is limited to 20% of total project costs.
NGOs are regulated by the Association Registration Act, while non-profit distributing companies are governed by the Companies Act. NGOs require at least nine members for incorporation and must register with the social welfare council, whereas non-profit companies need only five members and do not have that requirement unless receiving foreign grants.