Before starting any business you need to get registered with prescribed government departments. There are various types of business structures in Nepal. Business structures are selected on the basis of business requirements, turnover, types of business, number of owners, cost, tax compliance, legal compliance's etc.
Out of various business structures formation of company to carry business is the most used one. There are various advantages as well as some disadvantages while incorporating a company. Every person before incorporating a company should know pros and cons of company.
To aware entrepreneurs and businessman we have resolved some of the major questions about companies.
Following are some of the Frequently Asked Questions (FAQs) about Company Law in Nepal:
Q. To start a small business which forms should I adopt?
A.
You can adopt any one option that is; by becoming a sole proprietor, by
forming a single member company, by forming a partnership and you can
also form a private limited company.
Q. Which law is applicable for incorporation of companies?
A. Relevant laws for incorporation of a Company in Nepal is Companies Act, 2063.
Q. How many types of Companies are there?
A. Companies Act, 2063 mentions mainly two types of companies i.e. profit making company which are limited by shares and not for profit making company. Companies which may be registered in the mentioned categories in Nepal.
Some of the categories are single shareholder company, a private limited company with two or more than two shareholders , a public limited company; which may be listed or unlisted and a foreign company.
Q. What is meant by Private Company?
A. According to Companies Act, 2063 private company means a company, which, by its articles, restricts the right to transfer its shares, if any. Limits the number of its members to one hundred one not including persons who are in the employment of the company and prohibits any invitation to the public to subscribe for the shares, if any, or debentures of the company.
A. Following are minimum and maximum number of shareholders/members for forming a company:
- Public company - Minimum 7 and Maximum unlimited shareholders
- Private company - Minimum 1 shareholder and Maximum 101
- Non profit making company - Minimum 5 members and Maximum Unlimited
A. Memorandum of Association primarily specifies the framework of company’s objectives and capital boundaries. It is the constitution of a company, and is its main document. A company cannot incorporate without a memorandum of association. It provides information about a company, its financial structure, and its functions. Memorandum of Association governs a company’s business operations by highlighting clauses of what a company can do and what it cannot. It includes Name clause, Registered Office Clause, Object Clause, Liabilities Clause, Capital Clause and Subscription Clause.
Q. What is Articles of Association?
A. Articles of Association highlight internal regulations for the management of the company. It states the roles and functions of the company’s management. Articles of Association govern company management’s operations they transcribes rules for conducting its daily business in accordance with applicable laws e.g. transfer and transmission of shares, mode of alteration in capital, holding of meetings, voting, powers and duties of directors and chief executive, distribution of dividends, capitalization of profits and reserves, preparation of accounts, winding up, etc.
Q. What does Limited Liability mean?
A.
Limited liability means, that if a company is put into liquidation, the
people who own the company will only be required to pay what they have
already paid or agreed to pay towards settling its debts. Limited
liability gives the owners of the company protection if the company
fails. Liability of directors/members is limited to the extent of shares
held by them in the company.
Q .Can Memorandum of Association and Articles of Association be altered after incorporation?
A. Yes, a company can alter its memorandum of association and articles of association anytime after passing of a special resolution by the shareholders in general meeting.
Q. Can I convert my sole proprietor business into a company?
A. Yes, sole proprietor business can be converted into single shareholder company or a private limited company with 2 or more than two shareholders.
A. Yes, foreigner can be a shareholder/director of a Nepalese Company after compliance with the Foreign Investment and Technology Transfer Act.
Q. How does a director resign from a Private Limited Company?
A. A director can resign anytime subject to the clearance of any liability against him.
Q. What is the minimum paid-up capital of a Private and Public Limited Company?
A. The minimum paid up capital at the time of incorporation of a private limited company has to be NPR 1,00,000 and a public limited company is NPR 1,00,00,000. There is no upper limit on having the paid up capital. Capital can be increased any time.
Q. What is the difference between authorized capital and paid up capital?
A. The authorized capital is the upper limit up to which the company is competent to issue shares. Paid up and subscribe capital means the capital actually issued in favor of the directors/shareholders within the limits of authorized capital.
Q. In future I am thinking to increase paid-up capital of my company is it possible?
A Yes, you can increase but subject to the compliance of the requirement of the Companies Act, 2063.
Q. What are the requirements for a foreign company opening a branch in Nepal?
A. Foreign company can establish a principal place of business in Nepal after complying with the legal requirements laid down under section 154 to 158 of the Companies Act, 2063.
A. Yes, a company name can be changed any time after the incorporation, by passing a special resolution by the members and certificate of change of name is issued by the Office of Company Registrar.
Q. I do not live in Nepal. Can I still set up a new company?
A. Yes, you can set up a company. Residential status of the shareholder is not relevant while incorporating a company. However, country of citizenship plays role while incorporating a company. Both, Nepalese and Foreign citizen can incorporate a company in Nepal.
Q. Can I choose any name I want for my new company?
A. You can choose any name but subject to the approval of the Office of Company Registrar.
Q. What are non-profit companies?
A. Non-profit companies are generally formed with the objective of promoting art, science, social services, etc. and the members are prohibited from receiving any dividend. Such companies are exempted from the requirements of using the word “limited” at the end of the name.
Q. Are there any restrictions on foreigners who wish to do business in Nepal?
A. There is no restriction on foreigners to do business in Nepal. They can carry on business by following the provision as mentioned in Foreign Investment and Technology Transfer Act.
Q. Do foreigners need a Nepalese national to form a company?
A. Foreigner can form a company with 100% equity subject to the approval of Department of Industry. Except in some sectors such as telecom, insurance, banks etc. where some shares needs to be reserved for Nepalese citizen or company, 100% ownership is allowed in a company in Nepal.
Q. Does a company needs separate Permanent Account Number (PAN)?
A. Yes, every company is assigned a permanent account number without it a company cannot file its return. Documents which company requires for permanent account number are photocopies of national identity card of all the directors or passport (in case of foreigner), incorporation certificate, memorandum of association, articles of association, passport size photo of any director, BOD minute for affixing photo in PAN, letter of office of company register of PAN allottment and application for permanent account number by chairman/CEO of the company.
Q. What are taxation rates for companies in the Nepal?
A. The income tax payable by the companies in Nepal in general is 25% of the net profit of the company. However, various concessions are available to companies/industry on the basis of contribution to national economy.
A. Yes anyone can be a company director provided he holds Citizenship Card and he or she is not debarred from any competent court of law to become a director.
Q. What if I no longer need my company in Nepal?A. If you decide that you do not need a company that you have set up, you should consider putting it into voluntary liquidation if the company is solvent and is in a position to pay its liabilities.
Q. What are modes of Winding up a Company in Nepal?
A. According to Companies Act, 2063 modes of winding up of a company are by the Court, voluntary winding up or winding up subject to the supervision of Court and creditors winding-up.
Q. What is meant by Registered Office?
A. Registered office is the official address of your company where the correspondence can be exchanged between the company and office of company registrar or concerned person.
A. Yes, a private company may convert its status into public limited company by altering its Articles of Association. Before conversion the private limited company should have at least 7 shareholders and capital of at least 1 crore.
A. Yes, a private company can be converted into a single shareholder company by passing a special resolution for change of its status and make necessary alteration in its articles of association and obtain approval of the office of company registrar.
Q. Can Single Member Company be converted into Private Limited Company?
A. Yes, single member company can be converted into private limited company by altering it memorandum and articles accordingly.
Q. Can minor be a director in Private or Public Limited Company?
A. No, minor cannot become a director in private or public limited company.
A. According to Companies Act, 2063, Special Resolution means a resolution which has been passed by not less than three-fourths of such members entitled to vote as are present in person or by proxy at a general meeting.
Q. Can a body corporate be appointed as a director of a company?
A. No. A body corporate, association or firm cannot be appointed as a director of a company, and only an individual can be appointed as a director of a company as nominee.
Q. What happens if accounts and annual returns of a company not filed in time?A. Failure to deliver documents on time is an offence under the Companies Act, 2063. On this failure, directors are individually and severally liable to pay fine and could be prosecuted.
Q. Can shareholders in a Private Limited Company removes a director?
A. Yes, shares holders can remove a director by passing a resolution in a general meeting.
Q. Are shares in a company are transferable?
A. Shares in a company are freely transferable, subject to certain conditions, such that no shareholder is permanently or necessarily wedded to a company. When a member transfers his shares to another person, the transferee steps into the shoes of the transferor and acquires all the rights of the transferor in respect of those shares.
Disclaimer: The information available above is not intended to be comprehensive, and many details which may be relevant to particular circumstances have been omitted. Accordingly, it should not be regarded as being complete source of company law information, and web users are advised to seek independent professional advice before acting on anything contained herein. FIRDIEYE blog will not take any kind of responsibility for the consequences of errors or omissions.
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