Incorporating a company is the legal process of forming a new business entity that is recognized as a separate legal entity from its owners. It provides a legal framework for businesses to operate securely, enjoy limited liability, and access financial and investment opportunities. Nepal’s legal framework allows different types of companies to be incorporated based on their ownership structure, purpose, and business scale. The Companies Act, 2006 categorizes companies into various types, each with specific legal requirements and registration processes. The most common companies in Nepal are Private Limited Companies, Public Limited Companies, and Foreign Companies and their registration process.
Private Limited Company (Pvt. Ltd.) in Nepal
A Private Limited Company (Pvt. Ltd.) is the most popular company structure in Nepal, especially favored by small and medium-sized enterprises (SMEs). Private company means a private company incorporated under this Act. (Section 2(b) of the Companies Act 2006; (NCA)). This structure allows businesses to limit the liability of their owners, which means the shareholders’ liability is confined to the extent of their capital investment.
The amount of fees to be paid for the incorporation of private company in Nepal shall be as prescribed in the Nepal Gazette. To establish a Private Limited Company in Nepal, certain legal and procedural requirements must be met. Below are the essential requirements:
- Minimum Number of Shareholders: The Company must have at least one shareholder and can have a maximum of 101 shareholders.
- Directors: A Pvt. Ltd. company must have at least one director, who is responsible for managing the affairs of the company. Directors must be natural persons, not corporate entities.
- Company Name: The company name must be unique and should include the words “Private Limited” or “Pvt. Ltd.” The name must not be the same or closely resemble an existing company.
- Registered Office Address: A Pvt. Ltd. company must establish a registered office address in Nepal. This address will be used for receiving official communications and notices.
- Documents Required: Memorandum of Association (MOA) outlines the company’s purpose, objectives, and capital structure. Articles of Association (AOA outlines the internal governance structure, rules for meetings, and rights and duties of shareholders and directors. A valid photo ID (e.g., passport, citizenship) of the shareholders and directors. Documentation showing the official address of the registered office, such as a utility bill, rental agreement, or property ownership documents.
- Authorized Capital: The Company must declare its authorized capital, which determines the maximum amount of capital the company can raise. The amount of capital impacts the registration fee.
Registration Process for Private Company (Pvt. Ltd.) are:
- The first step is to apply for the reservation of the company name with the Office of the Company Registrar (OCR). The name must be unique and distinguishable from existing companies. (Companies Act, 2063 Section 7)
- The next step involves preparing two important documents: the Memorandum of Association (MOA) and Article of Association (AOA). MOA outlines the company’s objectives, capital structure, and business scope. And, in AOA, there must be the internal governance structure, management of the company, rights, and duties of shareholders and directors are defined here. (Companies Act, 2063 Section 14 (MOA) and Section 15 (AOA))
- Submit the MOA, AOA, and shareholder details along with photo identification proof and address proof of the shareholders and directors. (Companies Act, 2063 Section 5)
- Then, required to pay the prescribed registration fee based on the authorized capital of the company. The fee varies depending on the amount of capital. (Companies Act, 2063 Section 15)
- After reviewing the application and documents, the Office of the Company Registrar (OCR) issues a Certificate of Incorporation, which officially recognizes the company as a separate legal entity. (Companies Act, 2063, Section 9)
- The company must apply for tax registration by obtaining a Permanent Account Number (PAN). If applicable, it must also register for Value Added Tax (VAT) and other taxes. (Income Tax Act, 2002 for PAN and VAT registration). The company must also complete the local ward registration for administrative purposes.
Public Company (Public Ltd.) in Nepal
A Public Limited Company (PLC) is a business structure that allows for larger-scale operations and public investment. Public company means a company other than a private company. (Section 2(c) NCA). Unlike a private limited company, a public limited company can issue shares to the public, and its shares are listed on the stock exchange.
Public companies are generally used by larger organizations that seek to raise capital from the general public by offering shares or bonds. Public company must have paid off capital of at least NPR 1 crore (NPR 10 Million). Public Company can sell its shares and debentures to the general public by issuing the prospectus. To incorporate a Public Company in Nepal, the following requirements must be met:
- Minimum Number of Shareholders: The Company must have at least seven shareholders (Section 3).
- Directors: A Public Limited Company must have at least three directors to manage the company’s affairs. These directors must be natural persons, and a corporate entity cannot act as a director.
- Company Name: The name must include the words “Public Limited” or “Ltd.” and must be distinguishable from existing company names.
- Registered Office Address: The Company must have a registered office address in Nepal, where all official communications will be sent.
- Documents Required: Memorandum of Association (MOA) outlines the objectives and scope of the company, Articles of Association (AOA): Governs the internal structure and rules of the company. Valid photo IDs (e.g., passport, citizenship) of the directors and shareholders. Documentation of the registered office, such as a utility bill, rental agreement, or property ownership documents.
- Authorized Capital: The Company must declare an authorized capital, which impacts the registration fee. Public companies generally have larger capital structures.
Registration Process for Public Company
- Apply for name reservation with the Office of the Company Registrar (OCR). The name must be unique and comply with the naming conventions of a public company. (Companies Act, Section 7)
- Prepare the Memorandum of Association (MOA) and Articles of Association (AOA), which outline the company’s structure and objectives. Companies Act, Section 14 (MOA) and Section 15 (AOA)
- Submit the required documents along with director details, shareholder details, identification proof, and address proof of the directors and shareholders. (Companies Act, Section 5)
- Pay the registration fee, which is determined by the company’s authorized capital. The fee is higher for public companies due to the larger capital requirements. (Companies Act, Section 15)
- Once the documents are verified, the Office of the Company Registrar (OCR) issues a Certificate of Incorporation recognizing the company as a separate legal entity. (Companies Act, Section 9)
- The company must apply for a Permanent Account Number (PAN) from the tax authority and register for Value Added Tax (VAT) if applicable. (Income Tax Act, 2002).
3. Foreign Company Registration in Nepal
Foreign company registration in Nepal refers to the process through which international businesses establish a legal presence within the country. This allows foreign companies to conduct business activities, invest, or operate branches in Nepal, contributing to the country’s economic growth. Foreign companies are governed by specific laws that ensure compliance with the local legal framework, including the Companies Act, 2006, and various regulations related to foreign investment, taxation, and labor laws.
Requirements: The Department of Industry (DOI), Industry and Investment Promotion Board (IIPB), Investment Board of Nepal (IBN), and Nepal Rastra Bank (NRB) are the primary regulatory bodies overseeing foreign investment in Nepal. The minimum Foreign Investment in Nepal is of NPR 2 crore (NPR 20 Million) per investor. 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.
Registration Process for Foreign Companies in Nepal
- Approval from the Department of Industry (DOI) and Nepal Rastra Bank (NRB) takes about 2-3 months. If approval from the Investment Board Nepal (IBN) is necessary, the process may extend to 6 months.
- Submit documents such as the MOA, AOA, and proof of the foreign company’s legal status in the country of origin. (Companies Act, Section 5)
- A certified document that proves the foreign company is legally established in its home country.
- Foreign companies in Nepal must obtain a Permanent Account Number (PAN) for tax registration and, if applicable, register for Value Added Tax (VAT). They also need to register with the local ward office for compliance with administrative regulations.
- After obtaining approval, the foreign company must complete the registration process, including obtaining tax registration and adhering to corporate governance and tax laws in Nepal.
In conclusion, understanding the different types of companies and their incorporation processes in Nepal is essential for anyone looking to start a business. Whether it is a private limited company for small and medium enterprises, a public company for large-scale ventures, or a foreign company seeking to establish a branch in Nepal, each structure has unique requirements and benefits. By following the proper registration procedures and complying with legal regulations, entrepreneurs can successfully navigate the incorporation process, ensuring the smooth operation of their business in Nepal.