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Registration of Company Not Distributing Profits in Nepal

Background:

This article provides detail regarding registration process of Company not distributing Profits in Nepal.

 

1. Governing laws for registration of company not distributing profit in Nepal

The Companies Act, 2006 (2063) (“Companies Act”) is the main law governing the company not distributing profit. Person intending to register such company should submit the registration application before Office of Company Registrar(“OCR”).

 

2. Introduction of Company not distributing profit under Companies Act of Nepal

Company Not Distributing Profit

As per the Companies Act, a "company not distributing profits" refers to a company incorporated on the condition that it shall not be entitled to distribute or pay any dividends or other moneys to its members out of the earned profits or savings. Such companies are established with the objective of public welfare rather than a profit motive. They are incorporated with the condition of not distributing profits to their members.

 

Company Not Distributing Profit is incorporated with the following objectives as per the Companies Directives of Nepal:

  • 1. Development and promotion of any profession.
  • 2 .Protection of collective rights and interests of individuals engaged in a specific profession or occupation.
  • 3 .Attainment of scientific, academic, social, benevolent, or public utility/welfare objectives with the condition of not distributing dividends.

 

 

3. Requirement of establishment of company not distributing profit in Nepal

The requisite number of promoters involved in the establishment of such a company must be a minimum of five, with the upper limit being unrestricted.

At least five promoters are needed for the registration of a company not distributing profits. The Companies Act places no restrictions on the maximum number of promoters. Membership remains non-transferable and terminates solely upon occurrences such as death, registration cancellation, dissolution, voluntary resignation, or merger with another company. It is possible for any individual, trustee of a public trust, or corporate entity to establish a Company not distributing profits.

 

 

4. Registration process of company not distributing profit in Nepal

The Steps for the registration of Company not distributing Profits are as follows;

Registration of Profit not distributing company in Nepal

Please Note: The company not distributing profit must enlist before SWC under the circumstance if the company is obtaining funds from foreign countries or entities.

 

 

5. Time period for registration of profit not distributing company:

The registration process generally takes around 10 (ten) to 15 (fifteen) days.

 

6. Government Fees:

The applicable government fee for registration of company not distributing profit is as mentioned:

S.N.ParticularsGovernment Fee
1OCRNPR 15,000
2Business Registration at Ward OfficeNPR 5,000 to 15,000 per year (Approx. USD 38 to 115)
3House Rent Tax10% of house rent amount per month
(Please note house rent rate tax depends on each local level and subject to change every fiscal year. As a matter of practice the local government takes 4 to 6 month advance house rent tax during the business registration)

 

Note: The new budget of fiscal year 2080/81 has provisioned for registration of company with the cost of NPR.100. However, this policy has not be implemented till the date of this article writing (i.e. August 18, 2023).

 

7. Required documents:

Following documents are required for registration

Documents Required for Registration:

  • a. An application for registration;
  • b. Memorandum of Association (“MOA”) and Articles of Association (“AOA”) of proposed company (2 copies of each);
  • c. Citizenship certificate of promoters and witnesses;
  • d. Copy of certificate of registration, MOA, AOA and board resolution of the promoter, if promoter is a company; and
  • e. Power of attorney for the registration.

 

8. Share Capital Requirement:

Incorporating a company not distributing profits doesn't necessitate a mandatory share capital. Nevertheless, the company is allowed to collect membership fees from its members and accept donations or gifts as per legal provisions to fulfill its objectives.

 

9. Number of promoters:

For company registration, a minimum of 5 promoters is required, with the possibility of having an unlimited number of members.

 

10. Member Liabilities:

Member liabilities are limited to the extent specified in written agreements. Members are not held accountable for the company's debts and obligations.

 

11. Tax Exemption:

A Company not distributing profits can receive an income tax exemption for its operational income if it obtains a "tax exempted entity" certificate as per the Income Tax Act 2002 (2058).

 

12. Annual Compliance

A company not distributing profits must adhere to accounting, auditing, and compliance obligations similar to other types of company.

 

13. Similarities and differences between NGO and Company not distributing profit

Both nonprofit organizations, specifically NGOs and Company not distributing profits, have the capacity to be operated by Nepali individuals. Both of these organizational structures are eligible to seek funding, whether from domestic institutions or foreign sources. However, in instances where funding is procured from international sources, it is imperative for both types of organizations to obtain approval from the Social Welfare Council as a mandatory prerequisite.

The differences between NGO and Company not distributing profits on the following sub topic:

SN.Subject MatterNGOCompany not distributing Profits
1Registering EntitiesDistrict Administration Office (DAO)Office of Company Registrar (OCR)
2Governing lawsAssociation Registration Act of 2034Companies Act, 2063
3Minimum board members while registeringAt least 7At least 5
4Differences in compositionWithin the composition of the Executive Committee, a representation of at least 33% comprising individuals of the female gender is a prerequisite.No such requirement. It is upon the discretion of the promoters to make composition of their own choice/need.
5RenewalRenewal must be done annually.Annual compliance should be done before OC

 

Note : The process of registering and renewing an NGO is complex and time-consuming, whereas the procedure for Company not distributing profits is comparatively simpler. Given the available options and taking into account the aspect of flexibility, clients tend to favor the registration of Company not distributing profits.

 

Related Article Link:

Please click the article published at our law firm website, which are related to the above article topic:

Registration Of Non-Profit Institution In Nepal

INGO Registration In Nepal : INGO Law In Nepal

Registration Of NGO (Non-Governmental Organizations) In Nepal

 

Date of Publication:8 August 2023

 

Disclaimer: Bhandari Law and Partners is one of the leading law firm in Nepal  with team of best professional lawyers in Nepal.This article published on website of the law firm is just for information purpose only. It shall not be taken as the legal advice, advertisement, personal communication, solicitation or inducement. Bhandari Law and Partners or any of the team members of the firm shall not be liable for the consequence arising of the information provided. As the factual situation may be different on your case, thereof if you need further legal advice on the subject matter, please Contact Us.

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