This is the first part of a multi-part series documenting all the relevant points of The Company Act of Nepal 2063.

Companies registered in any country have to be directed by a system. The system further guides companies in carrying out work-related activities. The following instructions have been issued by the Registrar of the Office using the powers conferred by section 16 of the Company Act, 2063 to carry out the work related to the implementation and administration of the company systematically.

In the first chapter's preliminary stage, one should have the information on what the act, directives, office, operating expenses, and other definitions define.

1. Company Name and Definitions

  • "Act" means the Companies Act, 2063.
  • "Directory" means Company Directives, 2072.
  • "Office" here means the Office of the Registrar of Companies.
  • "Operating Expenses" means house rent, water, electricity, printing,
    advertising, communication expenses, and Administrative expenses like
    consulting expenses, audit expenses, maintenance and other overhead
  • "Establishment Expenses" means the establishment of a non-profit organisation.
  • "National Level Daily Magazine" used in the Companies Act, 2063 means a daily newspaper published in the Nepali language, which has been categorised as "A" or "A+" in the national level classification made by Nepal Press Council.

Before making a registration, there should be an agreement between shareholders or founders. The agreement should include all the details of on financial aspect, share distribution and organisational structure.  The clause of the sub-section(1) of section(4) of the Act defines the agreement between the founders.  

2. Agreement between the Founders  

(1) For the purpose of clause (c) of sub-section (1) of section 4 of the Act," agreement between the founders" means the agreement between the founders before establishing a public company and the relationship between its founder. This agreement is only applied to the company's founders, not the company.

(2) If there is an agreement between the founders and the application submitted for registration of the company, a certified copy of the agreement shall be submitted.

3. Consensus Agreement

The "Consensus Agreement" clause (d) of sub-section 1 of section 4 of the Act defines an agreement between shareholders of a Private company before and after its establishment. It states that if there has been an agreement between shareholders, it has to be submitted within 15 days from the date of the agreement. Legal documents related to company registration and administration to be submitted to the Office and sales of shares, amendments to the manuscripts and rules, and major documents should be submitted by other than the self-certified stakeholders.

If the legal instruments related to company registration and administration are to be submitted to the office (Management Letter Rules, Consensus Agreement), they should be submitted by the stakeholders themselves besides certifying the major instruments, including amendments in the management letter and regulations.

5. Foreign Founders Must Obtain a License

Any foreign person, company, or organisation may register a company in Nepal as its founder. However, Such a foreign founder should have obtained permission from the concerned body to invest or do business in Nepal as per the prevailing law. Such a license should be submitted to the office and the application for company registration.

6. Only a Natural Person or Organization Can Be the Founder

(1) Only a natural person or organisation can be the founder of the company. Since a partnership or private firm does not have a separate legal entity, the company cannot be established in the name of such a firm and cannot be the founder of any company.

(2) If shares of a company have been issued in the name of an organisation or partnership firm, or private firm registered under the Institution Registration Act, 2034 before the enactment of this directive, any person or organisation eligible to take ownership of such shares a per prevailing law within 1 year of issuance of this directive and name must be transferred in the name of the organisation.

(3) If a cooperative established pursuant to the Cooperative Act, 2048 has invested in shares or debentures of a company or established a company before the commencement of this section of the directive, within 1 year of the commencement of this section, such cooperative shall be eligible under shares of the company must be transferred to the organisation.

(4) If such entity or co-operative or company has co-investment of an entity or co-operative company with a reasonable reason not to transfer or transfer shares or debentures within the period specified in subsections (3) and (4), the office shall apply this section with necessary instructions in the name of the company concerned in 2 years from the date of occurrence and shares or debentures may be given additional time for transfer or transfer without increasing.

(5) No additional shares may be issued in the name of the firm, institution or cooperative after the period specified in subsections (2), (3) and (4) in the name of the non-transferring or transfer of shares or debentures. Also, you will not get any dividend or return for the investment made in such shares or debenture.

Institution registered under the Institution Registration Act, 2034- the words "or" have been removed by the first amendment.

Subsections (4) and (5) have been added by the first amendment.

7. Not Allowed to Be a Founder

If a company wants to become a founder and register in another country, such a founding company will not be allowed to buy shares of the company it wants to establish or remain as a founder in excess of its paid-up capital.

8. Application for Registration of Company

After obtaining approval or license from the concerned body, such approval, consent, or license should be submitted along with the application for company registration.

8. a.  Permission or License to be Submitted

Companies registered in this office will have to obtain permission or license of the concerned body before carrying out business as per their objectives and (if need to renew including a renewed copy) of sub-section(2) of section 51 of the Act and submit it to the concerned office.

Section 8. a. was added in the First Amendment.

9. Format of Authorization

(1) The founders of the company themselves must sign the Application letter, company Memorandum of Articles and the Articles of Association. However, they may authorise the company according to the prevailing law for the work related to the registration, and the application format shall be as per schedule 1. But if a foreign company is a founder, such a company must be submitted to the country's authority where it was founded.

(2) A copy of the citizenship certificate or any other document disclosing the identity of the person acquiring authority pursuant to subsection (1) shall be submitted along with the application for company registration.

10. The Nature of Business can be Disclosed

(1) A company doing business of more than one nature may disclose the nature of the business in the Articles of Association and Memorandum of Articles.

(2) Sub-section (1) of business nature should be disclosed as mentioned below:

  • Productive Business
  • Commercial Business
  • Service-Oriented Business
  • Other Business

10. a. Details of Share Distribution Equal to the Issued Capital Should be Submitted

Among the authorised capital proposed at the time of the company's establishment, the details of share distribution equal to the amount of capital to be issued immediately should also be included.

Section 10. a. was enacted by the First Amendment.

11. Number of Shareholders

(1) The number of private company shareholders should not be more than fifty. However, when counting the number of shareholders, the following shareholders who are entitled to the shares of the company will not be counted:

a. Employee shareholders who purchase shares of the company under the company's plan to sell shares to employees.

b. Employee shareholders who have been discharged from the service of the company by purchasing shares as per clause (a), and

c. Person acquiring the right shares from the shareholders mentioned in clauses (a) and (b), from the shareholders' sharecroppers or subsequent balance sheet.

(2) Pursuant to sub-section (1), the person acquiring the right of the shares of the company shall bear the same liability and rights as other shareholders of the company.

12. The Company Shall Conduct Business in its Own Name

(1) The company shall conduct all its business transactions in the company's name.

(2) The company's full name and the company's registration number should be mentioned in all the documents related to the company's work, including the signboard and letter pad of the company.

(3) If the company mentions the trademark or brand name used in its products or services provided by the company on its signboard and letter pad etc., the company should also submit it.

13. A Private Company May be Transformed Into a Public Company

(1)  A private company may be transferred into a public company by passing a special resolution in the general meeting.

(2) A private company which does not hold a general meeting may be transformed into a public company in accordance with the provisions of rules or consensus of such company, decisions, and actions to be taken by the General Assembly for the purpose of Sub-section (1) will be considered.

(3) To be transformed into a public company pursuant to subsection (1) or (2), the interested company should have fulfilled the following conditions:

a. The paid-up capital should be at least Rs. 10 million.
b. The company's own assets shall not be less than the company's paid-up capital and non-distributable reserve fund.
c. The company should have at least 7 shareholders.

(4) To transform into a public company for the purpose of clause (b) of subsection (1), it must be prepared and certified by the auditor at least six months before the date of application in the office of such a private company.

(5) The auditor certifying the balance as per sub-section (4) shall have declared in writing that the company's net assets shall not be less than the paid-up capital of the company and the amount not to be distributed till the date of preparation of the balance.

(6) All the provisions of the Act applicable to the public company from the date of issuance of the certificate of conversion to a public company by the office shall also apply to the company converted to a public company pursuant to subsection (1) or (2).

(7) A company converted as per sub-section (1) for three months before approval from the office is required to start a business inside.

14. Documents to Be Submitted to the Office for Conversion into a Public Company

According to Section 13, a private company wishing to become a public company must submit the following documents along with the application to be submitted to the office for conversion.

a. A copy of the special resolution passed by the general meeting of a private company to become a public company or a decision made in accordance with the provisions of the rules or consensus of the company.

b. Two copies of the Memorandum of Association and Articles of Association of the proposed amendment.

c. Pursuant to sub-section (4) of Section 13, the company's balance sheet and profit and loss account - one copy.

d. A copy of the written declaration of the audit pursuant to subsection (5) of section 13.

e. A written declaration by the company's directors stating that all the necessary conditions have been complied with to become a public company as per the enactment.

15. Other Conditions for a Private Company to Become a Public Company

(1) If one or more public companies purchase 25% or more of the total paid-up capital of a private company, such a private company will become a public company.

(2) If a private company buys 25% or more of the total paid-up capital of public companies, such a private company shall become a public company.

(3) A public company converted pursuant to sub-section (1) or (2) should take approval from the office to start the transaction.

16. Documents to be Submitted

(1) Pursuant to Section 15, a company converted from a private company to a public company shall submit the following documents along with the application to be submitted to the office for the recording of converted transactions.

a. Proof that one or more public companies have purchased 25% or more shares of such company in the case of a company converted as per sub-section (1) of section 15, or
b. Proof that a company converted into a public company pursuant to subsection (2) of section 15 has purchased 25% or more shares of a public company.

(2) In addition to the documents mentioned in sub-section (1), 2 copies of the amended Memorandum of Articles and the Articles of Association of the company, the decision of the general meeting regarding the conversion into a public company, written declaration of the auditor and the operator and balance sheet and profit and loss account of the company should be submitted.

17. A Shareholder in a Private Company Transformed from a Public Company Number

(1) Even if there are more than fifty shareholders in a company which has been transformed from a public company to a private company without being able to maintain the minimum paid-up capital, that number may be maintained.

(2) Notwithstanding anything written in subsection (1), the number of shareholders shall not be increased beyond the existing number of shareholders in case any public company becomes a private company.

(3) Pursuant to subsection (1), a company transformed into a private company shall not be allowed to issue its shares or debentures in public.

18. Information Must be Transmitted or Published at Least Twice

(1)  The company or its operator, shareholder, debenture holder or employee may be transmitted by broadcasting or publishing on radio, television or national daily newspaper in accordance with the provisions of the Act.

(2) Such notice or information pursuant to subsection (1) shall be published or broadcast at least twice, and it shall be deemed to have reached twice for the purpose of this section.

(3) For the purpose of subsection (1), the countdown from the date of last publication or dissemination of such information shall be reckoned.

Subsection (2) of Section 18 was added to First Amendment.
Part 2 of this series can be found here.