Nepal’s evolving business landscape presents various corporate dimensions tailored to accommodate diverse business needs, investment scales, and operational objectives.
Understanding the distinct types of companies available under Nepali Law is essential for entrepreneurs, investors, and business professionals planning to establish operations in the country.
Companies Act 2063, Section 2(a), also has a provision relating to the term ‘company’ as a company incorporated under this Act. This article guide examines each company type in detail, exploring its features, legal frameworks, advantages, limitations and suitability for different business ventures.
The main legislation governing companies in Nepal is the Companies Act 2063, which repealed the previous Companies Act 1997.
This legislation provides the foundational legal framework for company formation, operation, management and dissolution.
The Act underwent several amendments to modernise company law and align it with best international practices.
The Office of the Company Registrar (OCR), operating under the Ministry of Industry, Commerce, and Supplies, serves as the principal regulatory authority responsible for company registration, maintaining company records, and enforcement.
The OCR has introduced the Company and Management Information System (CAMIS), an online platform that has significantly streamlined registration and compliance processes.
Types of Companies in Nepal
In the Companies Act 2063, Section 2 clearly defines the types of companies in clauses (b) to (h). According to the mentioned Section, here are several kinds of companies in Nepal:
- Private Company
- Public Company
- Holding Company
- Subsidiary Company
- Foreign Company
- Listed Company
- Company Not Distributing Profits
Here is the detailed information on these companies, which are famous in Nepal and in practice.
Private Company
Under the Companies Act 2063, a private company is a business entity owned by private individuals. Unlike public companies, private companies cannot offer shares to the general public or list on a stock exchange.
They are usually established to achieve specific objectives outlined in their founding documents.
Key Features of a Private Company
- Limited Liability – Owners of a private company are not personally liable for the company’s debts or obligations. The company is recognised as a separate legal entity, with its own rights and responsibilities.
- Restricted Number of Shareholders – A private company can have no more than 101 shareholders. Additionally, the board of directors must consist of 3 to 11 members, as stipulated in the Companies Act.
- No Public Trading – Shares of a private company cannot be traded on a stock exchange, ensuring ownership remains private.
- Converting to Public Company – A private company can be converted into a public company if the shareholders approve it through a special resolution in a general meeting. Moreover, if public companies hold more than 25% of a company’s shares, it is automatically treated as a public company under Nepali Law.
Registration Process for a Private Company in Nepal
Registering a private company in Nepal is done through the Company Office Registration (OCR) portal and involves the following steps:
- Step 1 – Create an OCR Account
- Step 2 – Submit Application
- Step 3 – Upload Required Documents
- Step 4 – Pay Registration Fees
- Step 5 – Official Review and Approval
Public Company
In accordance with the Companies Act 2063, a public company is a business that raises funds from the general public through shares, bonds, or debentures. Public companies are listed and traded on the stock exchange, and the minimum paid-up capital requirement for such companies is NPR 1 Crore.
Key Features of a Public Company
- Freely transferable Shares – Shares of a public company can be freely bought and sold once offered to the public. The company can also raise additional funds through the issuance of bonds, debentures, or further shares.
- Listed on the Stock Exchange – For shares to be traded publicly, the company must be listed on the National Stock Exchange, with authorisation from the Securities Board of Nepal (SEBON).
- Convertible to Private Company – A public company can convert back to a private company if:
- The number of shareholders falls below 7.
- The number of shareholders falls below 7.
- Unlimited Shareholders – There is no limit on the number of shareholders in a public company.
Registration Process for a Public Company
For the registration of a public company, you can refer to the previous article on company registration.
Most public companies in Nepal are converted from existing private companies. The general process for converting a public company to a private company includes:
- Step 1 – Submit Application to OCR
- Step 2 – Review of Criteria
- Step 3 – Issuance of Certification of Company Conversion
Company Not-Distributing Profits
A Not-for-Profit Company is a business entity established to operate for social, educational, or public welfare purposes, rather than generating personal gain or profits for its owners or shareholders. These companies focus on benefiting society, communities, or specific professions.
Objectives of these companies are mentioned here:
- Promote the development and growth of a profession.
- Protect the collective rights and interests of individuals in a specific profession or occupation.
- Achieve scientific, academic, social, benevolent, or public welfare goals without distributing dividends to shareholders.
Registration Process of Non-Distributing Profits Companies
- Step 1: Reservation of Company Name – Reserve a unique company name through the OCR portal to ensure it is not already in use.
- Step 2: Submission of Relevant Documents – Submit necessary documents, including Memorandum and Articles of Association, promoter information, and objectives of the company.
- Step 3: Issuance of Company Registration Certificate – After verification, the OCR issues the Certificate of Incorporation, officially registering the company.
- Step 4: Registration of PAN Number at IRO – Register the company with the Inland Revenue Office (IRO) to obtain a Permanent Account Number (PAN) for tax purposes.
- Step 5: Registration at Ward Office – Complete local registration with the Ward Office to comply with municipal regulations.
- Step 6: Registration at Social Welfare Council (for Foreign Grants) – If the company plans to receive foreign grants or donations, it must register with the Social Welfare Council.
Additional Companies Mentioned in the Companies Act 2063
Government Company
A Government Company operates like a regular company but is distinguished by its ownership by the government.
In Nepal, government companies are typically semi-governmental entities that are not fully owned by the government but may have some degree of public trading.
These companies operate as independent corporate entities while serving the public interest.
Foreign Company
The Foreign Investment and Technology Transfer Act (FITTA) of Nepal play a critical role in the incorporation process for foreign companies.
It requires foreign investors to meet a minimum investment threshold of NPR 20 million and obtain approval from the Department of Industry or the Investment Board Nepal before company registration.
FITTA also outlines which sectors are open or restricted to foreign investment, sets guidelines for technology transfer, and ensures that foreign companies can repatriate profits back to their home countries.
The process adds extra time, typically 3-6 weeks, to the company setup process, so foreign investors must be prepared for additional documentation and compliance steps. Understanding FITTA and collaborating with local experts are crucial for navigating regulations smoothly.
Holding Company
A Holding Company is a company that holds ownership or control over another company, known as a subsidiary company.
This control can be exercised through direct ownership of shares or by appointing directors to the Board of Directors.
Holding companies typically own a controlling stake in subsidiary companies, making them the dominant entity.
Subsidiary Company
A Holding Company controls a Subsidiary Company. The Holding Company can control the subsidiary either by owning a majority of shares or by having significant influence over the subsidiary’s management decisions.
Subsidiary companies are legally distinct from their parent companies but are governed by them.
Difference Between Public Company and Private Company
Here is the key difference between public companies and private companies:
| Feature | Public Company | Private Company |
|---|---|---|
| Ownership | Owned by public shareholders, who can buy and sell shares on the stock exchange. | Owned by private individuals or entities; shares are not publicly traded. |
| Shareholders | An unlimited number of shareholders. | Limited to a maximum of 101 shareholders. |
| Capital Raising | Can raise capital by offering shares to the public through stock exchanges, bonds, or debentures. | It cannot raise capital from the public; instead, it relies on private investment. |
| Stock Exchange Listing | Listed and publicly traded on a stock exchange (e.g., Nepal Stock Exchange). | Not listed on any stock exchange; shares cannot be publicly traded. |
| Regulation | Regulated by stock market authorities (e.g., SEBON in Nepal). | Governed by the Companies Act but with fewer regulatory requirements than public companies. |
| Minimum Capital Requirement | Minimum capital requirement is NPR 1 Crore. | No set minimum capital requirement for private companies, but they must meet basic financial criteria. |
| Conversion | Can be converted into a private company in specific circumstances (e.g., fewer shareholders, failure to maintain capital). | It can be converted into a public company with a special resolution of the shareholders. |
Conclusion
Nepal’s Companies Act 2063 defines various types of companies, including private, public, not-for-profit, and holding/subsidiary companies, each with distinct legal requirements and advantages.
The Office of the Company Registrar (OCR) and the CAMIS platform streamline the registration process, making it easier to establish a business in Nepal.
Understanding these types helps entrepreneurs and investors select the most suitable structure for their goals. The legal framework provides clear guidelines for company formation, offering flexibility for both local and foreign businesses to succeed in Nepal.
Frequently Asked Questions (FAQs)
Q. What are the different types of Companies in Nepal?
A. Types include Private, Public, Holding, Subsidiary, Foreign, and Not-for-Profit companies.
Q. How is a private company different from a public company in Nepal?
A. Private companies cannot raise capital publicly, while public companies can issue shares and are listed on the stock exchange.
Q. What is the minimum capital required for a public company in Nepal?
A. A public company must have a minimum capital of NPR 1 Crore.
Q. What is the role of the OCR?
A. The OCR oversees company registration, record maintenance, and compliance enforcement.
Q. Can foreign companies operate in Nepal?
A. Yes, foreign companies can set up branches or subsidiaries in Nepal, following local laws.
