The Ordinance to Amend Some Nepal Acts Relating to Improving Economic and Business Environment and Investment Promotion 2025 authenticated on Poush 29, 2081 (12 January 2025) has made certain amendments in the Company Act 2006(“Company Act”). The key changes made by the amendment are described below:
- Non- Resident Nepali Citizenship(“NRN Citizenship”) to Open a Company
The Ordinance in Section 4 subsection 2(f) has added a provision requiring a notarized copy of NRN citizenship to be submitted along with the application of company registration. This amendment allows individual, holding NRN Citizenship to apply for company registration in Nepal.
- Provisions of Shares in Memorandum of Association(“MOA”) of the Company
The Ordinance has added Sub Section 3(a) 3(b) 3(c) and 3(c) in Section 18 Subsection 3 of the Company Act. These provisions outline the following
- Even after the establishment of the company shares can be bought, issued and in form other than money to the director or any other person of the company. Forms other than money include intellectual property, value addition, goodwill, know-how sharing, or the transfer of technical knowledge. The valuation of such contributions must be determined by a certified valuation engineer or accountant, with proper disclosure of the reasons for the valuation.
- Transactions involving shares in forms other than money must be approved through an Extraordinary General Meeting (“EGM”). Additionally, shares can be sold at a discount through EGM.
- As per a written agreement between the company and an employee, the company may provide shares in lieu of labor, salary, allowance, or benefits. However the value of such shares must not exceed 20% of the company’s paid-up capital. An exception is made for startups, where this limit is 40% of the paid-up capital.
- Removal of the Requirement for a 3-Year Audit Report to Issue Premium Shares:
Company Act Previously, Section 29(4) of Company Act required companied to submit audit report of past 3 fiscal years applying for the permission in the Office of Company Register (“OCR”) to issue the share in premium price. This provision has been removed through the ordinance.
- Taking Permission to Commence Business in Nepal
According to Section 63 of Company Act, a public Company needs to obtain prior approval before commencing business. However, ordinance has introduced a proviso in this section provision which mentions that a private company converted into public company are exempted from the requirement to acquire such permission.
- Share Allocation and Issuance Plan
The ordinance allows companies to implement a plan of share issuance or allocation for directors or employees of the company, its subsidiary, parent company, or parent company’s subsidiary though EGM. Only eligible directors or employees are allowed to participate in the plan. Directors participating in the plan must be employed by the respective company. Additionally, employees must remain employed during the share purchase period to be eligible for participation. If any shares remain unpurchased during this period, they may be offered to other employees.
The plan must include:
- The number of shares to be issued or allocated for purchase,
- Details of eligible employees,
- The period during which share purchase is open,
- The share purchase price,
- The maximum number of shares each employee can purchase, and
- Any other necessary details.
Shares purchased by employees under this cannot be sold or distributed for a period determined by the company. Private Companies with either 1 crore or more paid up capital or business transaction exceeding 10 crores and Public Companies are required to mention the share bought and sold under this plan in Annual General Meeting.
- Discount on Fines for Late Submission of Details or Documentation:
The ordinance introduces Subsection 7 in Section 81, which provides a 90% discount on fines for the late submission of details, information, or documentation required under the Act. This discount applies to companies that submit any pending details, information, or documentation to the OCR by the end of Ashar 2082 (mid-July 2025).
- Position of Board of Director
Ordinance has replaced the proviso of Section 89(7) with the provision regarding the position of the Board of Directors. It allows a Board of Director of one private company with similar objective to be board of director of another private company. Similarly, Board of Director of parent company can also be Board of Director of subsidiary company or vice versa. For public companies, except for Bank and Financial Institution, a Board of Director of one public company can serve as board of director of another public company with same objective.
- Appointment of Auditors
The ordinance adds in section 113 that for private or unlisted public companies, the board of directors needs to notify OCR when appointing a new auditor. In case of listed public companies, the Board of Director is required to formally request OCR to appoint another auditor.
- Simplified Process for Winding Up a Company
The ordinance introduces provisions for companies seeking winding up under specific conditions at the time of its commencement:
- Companies that have not commenced business,
- Companies that have not conducted an Annual General Meeting (AGM), and
- Companies that have not complied with Section 81.
Such companies may apply for liquidation based on a resolution passed at their general meeting. If the required quorum is not met, the decision of the members present at the meeting will suffice for winding up. While providing the application for winding up, company must conduct annual general meeting and a fine as per Section 81 or 0.5% of paid up capital of the company whichever is lower.
Once the application is submitted, the of the OCR will publish a notice in a daily newspaper, providing 30 days for anyone to present a valid objection to the winding-up process. If no valid claims are raised, or if objections are deemed baseless, then OCR can proceed with the winding-up.
After liquidation, the OCR will notify the directors and publish the information on its official website.
- Regulation of Foreign Company
Ordinance has added provision in section 154(2) mentioning that if a foreign company presents reasonable grounds on the absence of a regulatory law or relevant body to govern s a foreign company, the OCR shall be deemed to be the concerned authority for the purposes of this sub-section.
- Lending, Guarantees and Investment
According to section 176(1) of the Company Act, a company may directly or indirectly lend money to another company, provide a guarantee for a loan, or invest in another company’s securities up to 60% of its paid-up capital and accumulated profits (free reserve), or whichever is higher between 60% of the paid-up capital and 100% of the accumulated profits (free reserve). This Ordinance mentions that these actions must be approved by extraordinary agenda of general meeting of the company.
Disclaimer: This note is not a legal opinion but for general understanding. It is advised to consult a lawyer for legal advice before initiating foreign investment in Nepal. Please note that the copyright for this note vests on Vidhi Legal Concern.
Contributor: Abhiksha Humagain, Vidhi Legal Concern
