Changes to the Company Act Nepal: What’s New in 2026

Nepal’s Company Act (Nepal’s corporate law) has been overhauled with new amendments aiming to boost investment and ease business. In March 2025, the government ratified the “Act to Amend Some Nepal Acts Relating to Improving Economic and Business Environment and Enhancing Investment 2081 (2025 A.D.)”. This sweeping reform package introduced key changes to the Companies Act, 2063 (2006 A.D.), modernizing how businesses operate. Notably, foreign companies and startups stand to benefit from increased flexibility in share issuance, streamlined regulations, and compliance relief. In this article we break down the 2026 updates to the Company Act Nepal and explain what they mean for global investors and entrepreneurs.

Key Amendments in Nepal’s Company Act 2026

The latest amendments add new provisions to Section 18 of the Companies Act and other sections, enabling more flexible business models. Highlights of the 2026 reforms include:

• Non-Cash Share Issuance: Companies can now issue shares in exchange for non-monetary contributions (e.g. intellectual property, technical know-how, services). These are treated like “sweat equity” and must be backed by an independent valuation and a shareholder resolution.

• Employee Equity Plans: Firms are allowed to offer shares to employees and directors as part of compensation. Formal Employee Share Purchase Plans (ESPPs) can be created under the Act, subject to clear rules on eligibility and lock-up periods.

• Higher Issuance Limits for Startups: The cap on non-cash share issuance is 20% of paid-up capital for regular companies, raised to 40% for certified startups. This lets high-growth enterprises tap intellectual contributions without diluting cash reserves.

• Director Appointment Flexibility: A parent company may now appoint its own executives as directors in a subsidiary (and vice versa). Also, individuals may hold director roles in multiple similar public companies (outside banking/finance), broadening governance options.

• Compliance Relief (Amnesty): Companies lagging on statutory filings get a break – the Registrar offered up to 90% waiver on late-filing fines if documents are submitted by July 16, 2025. This grace period was intended to clear backlogs and encourage compliance.

• Other Modernizations: (2017 reform) Online company registration got a legal basis, cutting approval time to 7 days. (2017) The private company shareholder limit was increased from 50 to 101. (2017) Mandatory conversion between public/private forms was relaxed. These background reforms, along with the 2026 updates, create a friendlier corporate environment for both domestic and foreign businesses.

The table below summarizes how select rules have changed:

Issuance of Non-Cash Shares

A cornerstone of the 2026 updates is Section 18’s expansion to allow sweat equity (non-cash contributions). Previously, companies could only issue shares for property or cash at incorporation. Now, established firms may issue new shares to founders, promoters or other contributors in return for valuable intangibles – for example, a developer’s software IP, a consultant’s technical know-how, or goodwill built up in a business. This change formally recognizes that ideas and services have value. Every such transaction must be backed by an independent valuation (by a certified engineer/accountant) and approved via a special resolution at a general meeting, ensuring transparency.

This modern approach encourages startups and technology firms to collaborate without raising huge cash. For instance, a foreign fintech company could partner with local talent by issuing shares for their proprietary code or market expertise. Overall, businesses gain flexibility in structuring investments and rewards.

Employee Share Plans and Startup Stock

The amendments explicitly authorize share-based compensation. A Nepali company can agree to give employees or directors shares in lieu of cash benefits. Under a new Employee Share Purchase Plan (ESPP), a firm may offer stock to its staff (including those of parent or subsidiary companies) if certain conditions are met. These conditions include:

• Lock-up Period: Shares bought under the plan cannot be transferred until the period specified by the company.

• Eligible Employees: Only individuals employed during the plan’s subscription window may participate.

• Transparency: Directors’ reports must disclose details of all shares issued/purchased under the plan.

Companies must outline the total shares available, pricing, allocation method, and timeline in the plan documents. A special resolution must approve the plan, ensuring shareholders agree to the new share issuance.

Why it matters: These provisions help startups and growing firms attract top talent by offering equity stakes, aligning employees’ interests with company success. Foreign firms establishing a Nepali subsidiary can similarly use stock incentives to reward local managers. Moreover, the higher 40% limit for startups means young companies can leverage significant non-cash contributions (from founders or angel investors) without immediate large capital outlay.

Corporate Governance and Limits

The reforms also fine-tune corporate governance rules:

• Issuance Limits: The new law caps non-cash share issuance at 20% of paid-up capital (40% for startups). This safeguard prevents excessive dilution.

• Conversion and Shareholders: (From 2017 reform) Private companies may now have up to 101 shareholders. The mandatory conversion of private-to-public on certain shareholding thresholds has been removed, offering more flexibility in ownership structures.

• Name and Trademark Protection: (2017) Company names can now be refused if they infringe an existing trademark, preventing brand conflicts.

• Director Requirements: General meeting rules now explicitly require directors to attend or join via video conference. Special meeting timelines (e.g. 30 days to hold an EGM after shareholders’ request) have been formalized.

• Loan Restrictions: Prohibitions on loans to company officers or shareholders have been extended to include officers/shareholders of subsidiaries, reducing insider risk.

These updates, though some stem from earlier amendments, collectively strengthen oversight and clarity in Nepal’s corporate law.

Compliance, Deregistration and Penalties

To encourage companies to clean up compliance issues, regulators offered a one-time amnesty: any firm that filed all pending returns by mid-July 2025 paid only 10% of the usual late fees. After this window, normal fines apply. The law also provides a two-year grace period for dormant or defaulting firms to voluntarily de-register with minimal fees.

Importantly, the 2017 and 2025 amendments continue to digitize processes. Online filing of incorporation documents is now legally recognized, and the Company Registrar must issue registration decisions within 7 days. Local branch offices for company registration may be set up in major cities. Together, these measures make starting or closing a business in Nepal faster and more transparent.

What This Means for Foreign Companies

Foreign businesses looking at Nepal can view these changes as a positive sign. The new rules align Nepal’s corporate framework with global norms, making it easier to invest, partner, and operate cross-border. For example:

• Investment Flexibility: Foreign investors (including non-resident Nepalis) can now more easily inject capital via expertise or technology, not just cash. This is useful in tech, manufacturing or services sectors where intangible assets are key.

• Hiring and Incentives: International firms setting up branches or joint ventures can use Nepali share plans to compensate local staff, boosting talent retention.

• Governance Alignment: Allowing cross-appointments of directors helps multinational groups maintain consistent boards across jurisdictions.

• Easier Compliance: The 90% fine waiver signaled that Nepal will work with businesses to meet rules, not just punish non-compliance. Faster digital registration means less administrative delay for foreign entrants.

• Economic Environment: These corporate law reforms complement other steps (like eased foreign investment rules) to improve the overall business climate.

In sum, the updated Company Act Nepal aims to make the country more attractive to global companies and entrepreneurs. By recognizing contributions beyond cash and streamlining regulations, Nepal is encouraging innovation and FDI under a clearer legal framework.

Conclusion: Nepal’s 2026 corporate law reforms deliver important wins for business. They allow non-cash equity financing, expand startup options, and offer governance flexibility – all while preserving transparency through valuation and shareholder approval. Foreign companies should review these updates carefully to optimize their Nepali operations.

For tailored guidance on how these legal changes affect your planned venture, contact our Nepal corporate law experts today. We can advise on company formation, share issuance, compliance schedules, and any cross-border issues. Let us help you navigate the new Company Act Nepal and leverage its benefits for your business growth.

Frequently Asked Questions

What is the Companies Act Nepal and who must comply?
Nepal’s Companies Act (2063/2006 AD) is the primary corporate law governing company formation, management, and compliance. All businesses incorporated in Nepal – including branches of foreign firms – must follow its provisions. The 2026 amendments affect any company registered in Nepal, whether private or public, regardless of owner nationality.

What are the key changes in Nepal’s Company Act 2026?
The latest amendments allow issuance of shares for non-cash contributions (IP, services, etc.), introduce formal employee share plans, and raise share issuance caps (20% general, 40% for startups). They also permit cross-appointments of directors between related companies and offered a one-time 90% waiver on late-filing penalties. Overall, the law aims to modernize Nepal’s corporate framework.

How do the new rules affect foreign companies in Nepal?
Foreign investors gain more flexibility. They can fund Nepali companies with technical know-how or IP, and reward local managers with equity under the new rules. Cross-border parent-subsidiary structures are easier (directors can serve on multiple boards). Faster online registrations and compliance amnesty also reduce entry barriers for international businesses.

Can Nepali companies issue shares for intangible contributions or services?
Yes. The 2026 amendments explicitly allow a company to issue or sell shares for non-cash consideration such as intellectual property, technical know-how, goodwill or services. These transactions must be based on an independent valuation and approved by a special shareholder resolution, ensuring fair treatment of all stakeholders.

Are there any new compliance reliefs or penalties in the amended law?
The law provided a temporary relief: companies filing all overdue documents by mid-July 2025 paid only 10% of the normal penalty. This 90% fine waiver helped clear backlogs. Going forward, normal deadlines and fines apply. The reforms also mandate faster online filings (7-day decision rule), which simplifies compliance for all companies.