Before starting any business, entrepreneurs should register their company. They will need a system which is efficient and accessible to all. Entrepreneurs should know their needs and the nature of their business to decide on what type of company to register. In Nepal, there are three popular types of businesses on the basis of ownership viz. Sole Proprietorship, Partnership business and Company- Public company and Private company. The process of registration and required fees are explained in details below:

Sole Proprietorship/ Private Firm

A sole proprietorship is an unincorporated business owned by a single person. Sole proprietorships are easy and inexpensive to create and operate. The company is not even required to file a separate tax return—all profits and losses are reported on the owner’s personal return.

Sole proprietorships also have the following features:

• The owner of the business is responsible for all of the business’s debts. If the business institution cannot pay its suppliers, the owner is personally liable. This is known as unlimited liability.

• The owner of a sole proprietorship has limited options for financing one’s business. Debt is generally the owner’s only source of working capital because the owner has no stock or memberships to sell. If someone else brings in capital and helps with the management of the business, then it is a partnership, not a sole proprietorship. For this reason, sole proprietorships work best for small businesses without large capital needs.

Registration of a Private Firm

A Private Firm has to follow the procedures below to register a business in Nepal.

According to Section 3 of the Private Firm Registration Act, 2014, the sole proprietorship business institution needs to be registered either in Department of Commerce (in case of commerce related firm), Department of Cottage and Rural Industry in the case of cottage and rural industry, and Department of Industry for any other industry.

Any person who intends to register a private firm may submit an application in the prescribed legal format to the relevant Department along with the prescribed official fee. The application should contain the following information:

i. The name of the Private Firm

ii. The address of the Firm

iii. The objectives, functions and the particulars of goods or commodity to be transacted by the private firm.

iv. The name and address of the owner, and the name of his/her father, mother and grandfather, grandmother.

Registration Fee

Based on the capital of the firm, the registration fee needs to be paid which is as follows:

NB: Certified copy of the Citizenship Certificate needs to be presented along with other essential documents for the registration of the private firm.

Renewal of the Firm

A private firm’s duration is three years after which the firm needs to be renewed. The renewal fee is given below:

Partnership Firm

Any business registered in a record of the Government of Nepal by the persons who have agreed to share the profit of the business carried on by them in a single name under an agreement (Kabuliat) made with each other which entitles all partners to take part in all business for each partner or entitles any of them for the same on behalf of all others.

The persons who have entered into the agreement are called partners. The partnership is not a separate legal person but an aggregate of the partners.

Key features of a Partnership Firm

• Use of property of the partnership:

No Partners shall use or cause to use the property of the partnership firm for any other purpose other than the purpose of the partnership business.

• No compulsion for additional capital:

No partner shall be compelled to add more capital than the amount prescribed in the agreement of partnership deed despite the request of other partners.

• No substitution of partners:

No partner shall, without the consent of all other partners, make or keep to any other person as a partner in the firm instead of him/her.

• Every partner may participate in the business:

Except a partner who is prohibited to take part in the management of partnership pursuant to the agreement, every partner shall be entitled to participate in the management of the business of the firm unless other partner opposes it.

Provided that, without the consent of all the partners no act which is not related with the business of a firm shall be performed under the name of partnership.

• Liability of a partner:

Every partner shall be liable jointly or personally with all the other partners for all the acts of the firm done while he/she was a partner.

• Partner may transfer his/her interest

If any partner transfers his/her interest in the firm by a sale, mortgage or by any other method to someone else such person may be entitled to claim the profit or any other amount to be received by the said partner from the business of partnership within that period.

Registration of a Partnership Firm

A firm shall have to be registered in the record of the concerned Department within a period of Six months from the date when the partners enter into the agreement of partnership.

In order to register a firm, an application in the prescribed legal format shall be submitted before the concerned Department, stating the details as follows, along with the official fees and a copy of the agreement concluded between partners, if any,

(a) Full Name of the firm

(b) The Principal place of business of the firm,

(c) The objectives of the firm including the short description of the nature of the goods or services, as the case may be, which the firm intends to run the business,

(d) The full name, surname and permanent address of the partners,

(e) The matter of restriction imposed on the power of a partner, if any,

(f) The types of partnership and the capital subscribed by each partner,

(g) The name of a partner or partners, who represent the firm,

(h) The mode to share the profit and loss between /among partners,

(i) The mode to calculate the profit of a firm.

Registration Fee

Renewal of the Firm

A partnership firm needs to be renewed each year, within a period of thirty five days of the expiry of the fiscal year of the firm. The renewal fee can be seen below:

It is now mandatory to register your business in your respected municipality. In order to register your enterprise you need to provide the following documents:

1. Rental agreement
2. Citizenship certificate
3. Two pp size photo of the business owner

Company

A company is an incorporated business institution that has a legal personality of its own. A company exists independent of its’ shareholders. Consequently, a company is an entity created by law and can only be terminated by the operation of law.

Features of a company:

• Limited Liability:

The biggest advantage of a company, as opposed to an unincorporated firm, is the limited liability of the shareholders. According to Section 8 of the Companies Act, 2063, the liability of a shareholder of a company in respect of its transactions shall be limited only to the maximum value of shares which he/she has subscribed or undertaken to subscribe.

• Transferable shares

A crucial element in the success of the registered company as a form of business association is the idea of the transferable share. Shares in a company are transferable in the manner provided for in the company’s articles.

• Perpetual Succession

A company is able to enjoy a perpetual existence, the death or retirement of the members having no necessary effect on its continued existence, a fact which obviously is not the case with the partnership.

• Separate Legal Personality

As opposed to a private firm, a company has a legal personality of its own. It can exercise its own rights and has to abide by its duty as per the law. A legal suit brought in the name of the company does not hamper the lives of the shareholders.

Public and Private Company

Generally speaking, public companies are ones which can raise money by inviting the public to purchase their shares.

Private companies refer to those companies which cannot borrow money from the public and whose stock is not floated in the market.

Distinction between Public and Private Company

Fees Payable for Company Registration

Certain fees are payable to the Office of the Company Registrar for Company Registration. The fees depended on the amount of “authorized capital”, and are as follows for Private Limited Companies:

Company Not Distributing Profits

Generally speaking, a company that has been established with the intention of not distributing the dividends among its owners is referred to as a company not distributing profits. This does not, in any way, imply that the company cannot make profits for itself. The profit so made has to be utilized for the benefit of the company itself. It cannot be distributed to the owners.

Features of Company Not Distributing Profits

• Objective of such company:

Such companies need to incorporated with an objective 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.

• Number of Members:

In contradiction to the other kinds of companies, these companies do not have shareholders. The persons who initiate the company are called promoters. There needs to be a minimum of five promoters to open such company. After the incorporation, it may have any number of its members, with a minimum of five members.

The membership is not transferable to others.

• Capital:

A specific amount of capital is not necessary to incorporate such companies. The company may, however, receive membership fees from its members and receive any donation, a gift for the fulfilment of its objectives.

• Non-distribution of the Dividend:

The company shall not distribute dividend, bonus or any other amount, from the profits earned by it, to its members or employees; and the profits earned by the company shall be used to increase the capital of the company or for the attainment of its objectives.

• Registration Fee:

The registration fee of such company is Rs. 15,000.

Registration of a Company

In order to register a company, the interested person should make an application to the Company Registrar’s Office in the prescribed legal format, along with the prescribed official fee (depending on the Authorized capital of the company), with the following documents:

i. Memorandum of Association

ii. Article of Association

iii. In case of the public company: copy of the agreement, if any, entered into between the promoters prior to incorporation

iv. In case of a private company: copy of the consensus agreement

v. Approval or license from a competent authority, if required

vi. Where the promoter is a Nepalese citizen: a certified copy of the citizenship certificate

Where the promoter is a body corporate: registration certificate of such body, the decision of the Board of Directors, and major documents relating to the incorporation of such body.

Note: Articles of Association is not required for single shareholder company.

After making necessary inquiries, the Company Registrar’s Office will register such company within 15 days and grant the company registration certificate.

Post Registration Procedure

The company, once registered as a Private Company, has a number of compliance obligations. The are as follows:

• Registered Office Notification: The Registered office of a Nepalese company should be in Nepal under applicable rules under Companies Act. A board outlining the name of the company and the registration number should be displayed clearly where the company is present. The company should provide to the Companies Registrar Office details of the address where the company is established within three months of registration of the company.
• Filing Shareholding Details: Once the share capital has been issued and paid-up to the company by a shareholder, the company should prepare a Shareholders Register and file with the Office of Companies within one month of it being paid-up.
• Directors’ Details: Details of the directors of the company as the prescribed need to be submitted within seven days of the Directors taking office.
• Annual General Meeting: The company should conduct an annual general meeting of shareholders within one year of establishment. This is not required for Private Companies if clearly mentioned in the Articles and Memorandum of Association.
• Accounting Requirements: The company’s accounts need to be kept and should be audited by an auditor every year. Auditor has to be appointed by the shareholders. Appointment of auditor needs to be notified to the Office of Companies Registrar within 15 days of appointment.
• Filing Requirements: Annual audited accounts, auditor’s report, and the report about number of shareholders of the company has to be filed within 6 months of the end of the financial year.

Types of Industries in Nepal

Cottage Industries:

The traditional industries utilizing specific skill or local raw materials and resources, and labour intensive and related with national tradition, art and culture as mentioned below shall be named as cottage industries.

With the exception of cigarette, bidi, cigar, chewing tobacco, khaini industries and industries producing other goods of a similar nature utilizing tobacco as the basic raw material, alcohol and beer producing industries,* Handloom, Pedalloom, Semiautomatic loom, Warping, Dyeing and printing, Tailoring (Other than Readymade Garments), Knitting, Handknitted Woolen Mat and Blanket (Radi, Pakhi), Woolen Carpet, Pashmina, Wollen Garments, Carpentry, Wooden Artistic product, Cane and Bamboo Works, Natural Fiber Products, Hand Made paper and Goods made up thereof, Gold, Philigiree Products including Silver, Brass, Copper Precious and Semi- Precious Stones, Ornaments, Sculptures and Pottery, Honey, chyuri, Cardamom Processing, Clay or Ceramic Pottery, Leather Cutting and Tanning, Rural Tanning and Leather Goods producing Works, Jute, Sabai Grass, Babio, Choya, Cotton Thread Products, Artistic Products made up of Bones and Horns, Stone Carving, Ceramic Fine Arts, Pauwa, Boutique, Incense Stick (Dhup), Dolls and Toys industries and cottage industries with the fixed asset of up to two hundred thousand rupees.*

Small Industries:

Industries with a fixed asset of up to an amount of thirty million rupees are named as small industries.

Medium Industries:

Industries with a fixed asset between thirty million rupees and one hundred million rupees are named as medium industries.

Large Industries:

Industries with a fixed asset of more than one hundred million rupees are named as large industries.

Registration of an Industry

In establishing any industry, an application needs to be made to the concerned Department for its registration setting out the nature, the classification of the industry, the place where the industry is to be situated, the machinery to be employed by the industry, raw materials, auxiliary raw materials, chemicals, packaging goods and the name of the industrialist.

The registration of a Cottage and Small Industry should be made in the Department of Cottage and Small Industries or any district level office under the Department or any office designated by the Department on its behalf and the registration of a medium and Large Industry should be made in the Department of Industries or at such office as may be designated by the Department.

Industries not granted permission for Foreign Investment in Nepal

Any foreigner, who wants to invest in Nepal, has to follow the rules and regulation under the Foreign Investment and Technology Transfer Act and Industrial Enterprises Act. This act is administered and implemented by the Department of Industries (DOI). A foreign investor is allowed to own up to 100% equity shares in all areas except few industries. The list below is referred as a ‘Negative List’ which includes:

1. Cottage industries (except industries using electricity more than 5 kW)
2. Personal service businesses (e.g. hair cutting, beauty salon, tailoring, driving training, etc.)
3. Arms and ammunition industries
4. Gunpowder and explosives
5. Industries related to radioactive materials
6. Real estate business (excluding construction industries)
7. Film industries (national languages and other recognized languages of Nepal)
8. Security printing
9. Banknotes and coins
10. Retail business (excluding international chain retail businesses with business in at least two countries)
11. Tobacco (excluding more than 90% exportable)
12. Internal courier service
13. Atomic energy
14. Poultry
15. Fisheries
16. Beekeeping
17. Consultancy services (e.g. management, accounting, engineering, legal services); (Maximum of 51% FI is allowed)
18. Processing of food grains on rent
19. Local catering Services
20. Rural tourism

If you are interested in learning more on the entry condition and approval process, follow the link below: http://www.investnepal.gov.np/portal/index.php?p1=content&p2=9#.WiT02EqWbI  

Note: If require any assistance regarding business registration or legal advisory, please email us at legal@biruwa.net

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