Companies in Nepal: Types, Laws and Process

What are the Types of Companies in Nepal?

The Company Act of 2006 delineates the various classifications of companies that are permitted in Nepal:

1. Private Company
2. Public Company
3. Holding Company
4. Subsidiary Company
5. Foreign Company
6. Listed Company
7. Company Not Distributing Profits

What are the Laws governing Companies in Nepal?

Companies are primarily governed by the Companies Act, 2063 (2006) that has addressed the procedure for the incorporation of a company which requires a memorandum of association. Further, the Act has laid down the differences between private and public company, formation of company, creation of public company and the method of dissolving a company. Insolvency Act, 2063 (2006) has established the procedure for breaking down a company in Nepal.

Private Company

As per the Companies Act 2063, private companies are defined as entities that are under the ownership of private individuals. These companies are not permitted to offer their shares for ownership to the general public or to register on a stock exchange. Whether held singly or jointly, these corporations may be established with the intention of achieving particular goals specified in their respective documents.

Defining Components of a Private Company

Limited Liability

The Individuals with Ownership of a Private Company aren’t liable for the corporate transactions of the Company as the company is considered, by virtue of the Civil Code, as a Legal Person with an independent identity.

Restricted Shareholders

The Shareholders of a Private Company cannot exceed 101. Moreover, the Directors of a Private Company should also be limited from 3 to 11 in accordance with the Companies Act.

No Public Trading

It is imperative that a Private Company cannot be publicly traded in a Stock Exchange.

Convertible to Public Company

If the Private Company through General Meeting adopts a special resolution, then, it can be converted into a Public Company although it must fulfill the requirements laid down by Nepalese Law. Moreover, if more than 25% shares of a company are owned by Public Companies, they shall also be considered Public Companies.

Registration of Private Company

Step 1: Registration of OCR Portal

Step 2: Submission of Application

Step 3: Upload Required Documents to OCR

Step 4: Payment of Fees

Step 5: Official Review and Authentication

Public Company

Public Companies are defined by the Companies Act 2063 as entities raising fund from the General Public through bonds, shares, debentures. These Companies are publicly traded at the Stock Exchange although the minimum capital requirement for such companies is at least NPR 1 Crore.

Defining Components of Public Company

Freely Transferable Shares

The Shares of a Public Company can be freely transferred once handed to the Public through Stock Exchanges. The Company can offer additional shares to the Public or gain capital through bonds, debentures etc.

Listed in Stock Exchange

For the shares of a Public Company to be freely traded, they are required to be listed in National Stock Exchange by the authorization of National Securities Board of the respective country (SEBON).

Convertible to Private Company

A Public Company can be re-converted into a Private Company in the following circumstances:

1. If the Number of Shareholders of the Company becomes less than 7
2. If the Public Company fails to maintain its Paid-Up Capital of NPR 1 Crore.

The Company will be required to conduct such re-conversion within six months of such event along with necessary changes and amendments into their respective documents.

Uncapped Amount of Shareholders

The Number of Shareholders cannot be limited or capped in any form.

Registration of Public Company

Generally, a public company isn’t directed registered but converted from a Private Company to Private Company. The Procedure of Registration of a Public Company are:

Step 1: Submit an Application to OCR

The Relevant Private Company should make an application to the office within 30 days of the date of resolution of the General Meeting which consented to the conversion.

Step 2: Review of Fulfillment of Criteria

The Private Company after submitting an application to OCR sets out all the details with the fees into a Public Company within seven days.

Step 3: Issuance of Certificate of Company Conversion

If the Company is discovered to have fulfilled the criteria for the conversion of a company, they are allocated a certificate of Company Conversion by the Office of Company Registrar.

Company Not-Distributing Profits

A Not-For-Profit Company or Company Not-Distributing Profits are company entities that operate for Social, Educational or other purposes without the objective of attaining personal gain or profits for its owners or shareholders. The Objectives of these companies are:

1. Development and promotion of any profession;
2. Protection of collective rights and interests of the persons engaged in a specific profession or occupation; and
3. For the attainment of any scientific, academic, social, benevolent or public utility or welfare objective on the condition of not distributing dividends.

Registration of Company Not-Distributing Profits

Step 1: Reservation of Company Name

Step 2: Submission of Relevant Documents for the Filing of Company

Step 3: Issuance of Company Registration Certificate

Step 4: Registration of PAN Number at IRO

Step 5: Registration at Ward Office

Step 6: Registration at Social Welfare Council for Foreign Grants

What are the Additional Companies Mentioned in Companies Act 2006?

Government Company

Government Companies are usually publicly traded companies without Majority of Government Ownership in Nepal. These are Semi-Governmental Entities that operate as a Corporate Entity.

Foreign Company

Foreign Companies refer to those companies that have been incorporated outside Nepal.

Holding Company

Holding Companies are referred to those companies that have direct ownership or control through a Board of Directors over another company, named as Subsidiary Company.

Subsidiary Company

Subsidiary Companies are those companies that are directly controlled by a Holding Company referred above.

Conclusion

Companies are are governed primarily by the Companies Act, 2063 (2006) and the Insolvency Act, 2063 (2006). Private companies have limited liability, restricted shareholders, and cannot be publicly traded without special resolution. Public companies have freely transferable shares, must have a minimum capital, and can convert to private companies under certain conditions. Companies not distributing profits operate for specific non-profit purposes.