Understanding Nepal’s Company Act for Company Formation

Foreign investors exploring business opportunities in Nepal often find themselves asking the same question: “What exactly does the Company Act require when forming a company here?”

While most guides focus only on registration steps or costs, very few explain the law that governs the entire process. The Company Act 2006 (2063 B.S.), together with its Rules 2064, is the backbone of Nepal’s corporate legal system. It defines how companies are created, structured, managed, and dissolved — from the Memorandum of Association to annual audits and director responsibilities.

This article will help you understand Nepal’s Company Act for company formation, focusing on key sections foreign founders must know. You’ll learn how the Act interacts with FITTA 2019, NRB Directives, and other compliance laws, plus practical insights for maintaining governance and avoiding penalties.

What the Company Act 2006 Really Does

The Company Act 2006 (often referred to as the “Companies Act 2063”) provides the complete legal framework for forming and running companies in Nepal.

It replaced the earlier 1997 Act to modernize company law, promote transparency, and make business easier to manage under the Office of the Company Registrar (OCR), the main authority for company registration and oversight.

Under Section 3, the Act defines a “company” as an entity formed and registered under this law to undertake lawful business with limited liability.

Key objectives of the Act

• Simplify the process of company formation and management.

• Protect investor and shareholder rights.

• Ensure transparency and accountability through proper accounting and audit.

• Promote good corporate governance and protect creditors.

• Encourage investment by allowing 100% foreign ownership where permitted by FITTA 2019.

Legal Scope and Authority

The Act applies to all companies registered in Nepal, whether locally owned or with foreign participation.

The Office of the Company Registrar (OCR), under the Ministry of Industry, Commerce, and Supplies, is the implementing body responsible for registration, monitoring, and compliance enforcement.

OCR’s functions include:

• Approving company names and registering entities.

• Receiving annual filings and audit reports.

• Maintaining a public register of companies.

• Ensuring companies follow the law, including penalties for non-compliance under Section 135.

For foreign investors, OCR works in coordination with:

• Department of Industry (DOI) or Investment Board Nepal (IBN) for FDI approval.

• Nepal Rastra Bank (NRB) for capital inflow verification.

• Inland Revenue Department (IRD) for PAN and VAT registration.

Forms of Companies under the Act

Under Section 4, the Act recognises several types of companies:

For most foreign investors, a Private Limited Company or a Branch Office is the preferred structure, depending on business scope.

Incorporation Process under the Act (Section 5–9)

A. Name Reservation and Incorporation

Before registration, the proposed name must be approved by OCR. It cannot be identical, misleading, or contrary to national interest.
(Ref: Section 9 – Restriction on company name)

Once approved, the company files:

• Memorandum of Association (MOA) under Section 18

• Articles of Association (AOA) under Section 18(2)

• Application in prescribed form (Rule 4 of Company Rules 2064)

• Proof of office address

• Identification of directors and shareholders

OCR issues a Certificate of Incorporation after verifying the application.

Understanding Key Legal Documents (MOA & AOA)

A. Memorandum of Association (Section 18)

The MOA is the company’s “constitution.” It defines:

• Company name and registered office.

• Objectives (business activities permitted).

• Capital structure (authorised, issued, and paid-up).

• Liability of shareholders (limited or unlimited).

• Names and details of promoters.

Foreign companies must also attach notarised copies of their parent registration certificate and board resolution approving the Nepal investment.

B. Articles of Association (Section 18(2))

The AOA outlines internal management and governance, including:

• Board composition and meetings.

• Share issuance and transfer rules.

• Dividend declaration procedures.

• Voting rights and quorum for general meetings.

• Appointment and removal of directors.

Share Capital and Liability (Section 26–31)

The Act provides that a company’s capital is divided into shares, and shareholders’ liability is limited to their investment amount.

Key provisions:

• Capital increase or reduction requires shareholder approval and OCR notification.

• Public companies must issue shares within the timeframe prescribed by the Act.

• A private company cannot invite the public to subscribe to its shares.

For foreign companies, shareholding ratios must also comply with FITTA 2019 and be approved by the DOI/IBN.

Directors and Management Structure (Chapter 8, Section 73–90)

This is one of the most critical parts for foreign founders.

Composition

• Private companies must have at least one director.

• Public companies require at least three directors, including one independent director.

Duties and responsibilities

Under Section 90, directors must act in good faith and in the best interests of the company. They are personally liable for:

• Fraudulent transactions or misrepresentation.

• Violation of fiduciary duty.

• Non-compliance with audit and filing requirements.

The Act allows the appointment of foreign directors, provided they meet residency and disclosure conditions and obtain work authorization under the Immigration Rules.

Meetings and Governance (Chapter 9)

The Act requires structured decision-making through meetings.

• Board meetings must be held as per the AOA.

• Annual General Meetings (AGM) are compulsory once every financial year (Section 67).

• Companies must keep minutes of all meetings and resolutions.

Public companies have stricter notice and quorum requirements than private companies.

Accounting and Audit Compliance (Section 108–111)

All companies must maintain proper accounting records and prepare annual financial statements according to Nepal Financial Reporting Standards (NFRS).

Audit obligations:

• Every company must appoint a licensed auditor approved by the Institute of Chartered Accountants of Nepal (ICAN).

• Audit reports must be submitted to OCR within 6 months after fiscal year end.

• Section 109 allows OCR to take action if a company fails to submit its audit on time.

For foreign investors, this section is vital because repatriation of dividends under NRB directives requires an audited financial statement.

Compliance and Annual Filings (Section 80–135)

Companies are legally bound to file periodic returns to maintain active status.

Mandatory filings

1. Annual Return (company details, directors, shareholders).

2. Annual Financial Statement (with audit report).

3. Notice of capital change, if applicable.

4. AGM minutes and director reports.

Failure to file these may result in penalties or suspension under Section 135.

Penalty framework (simplified):

Company Dissolution and Winding-Up (Chapter 15)

A company can be dissolved:

• Voluntarily, by shareholder resolution.

• By order of the court (for insolvency or fraud).

• By OCR if inactive for over 3 years without filings.

Before dissolution, the company must:

• Settle all liabilities.

• File final audit report and tax clearance.

• Obtain NRB approval for capital repatriation (for foreign companies).

Digital Filing and Modernization

Recent OCR reforms have introduced digital tools for ease of doing business.

• Online registration portal: Name reservation, incorporation, and document upload.

• Digital signature filing: For directors and authorized persons.

• E-governance integration: Linking OCR, IRD, DOI, and NRB databases for better compliance tracking.

These changes align with Nepal’s Digital Nepal Framework, promoting transparency and reducing physical paperwork for investors.

How the Company Act Interacts with Other Laws

Together, these create Nepal’s corporate regulatory ecosystem, and any company formation process must align with all.

Key Takeaways for Foreign Investors

• The Company Act 2006 governs every company’s lifecycle in Nepal, from registration to dissolution.

• It enforces transparency, governance, and accountability.

• Foreign companies must comply not only with this Act but also with FITTA 2019, NRB, and IRD rules.

• OCR has moved most processes online, making formation faster if done correctly.

• Regular compliance (audit, filings, SSF, tax) ensures smooth operation and profit repatriation.

Frequently Asked Questions

1. What is the primary law governing company formation in Nepal?
The Company Act 2006 (2063 B.S.) governs company formation, structure, and compliance in Nepal.

2. How does the Company Act define a private limited company?
A private company is one with 2–50 shareholders that cannot invite the public to subscribe to shares.

3. Are foreign directors allowed under the Act?
Yes. Foreign directors can be appointed, but they must meet disclosure and authorization requirements under immigration and labour laws.

4. What are the audit requirements under the Company Act?
Every company must appoint a licensed auditor and file audited financial statements annually to the OCR.

5. What happens if a company fails to file annual returns?
It can face fines under Section 135, and OCR may strike it off from the register for prolonged default.

Understanding Nepal’s Company Act is not just a legal necessity, it’s a business advantage.
For foreign founders, every compliance step, from MOA drafting to board governance, is guided by this law.

Digital Consulting Ventures (DCV) helps you translate the Act’s legal requirements into practical action, ensuring full compliance, faster approvals, and zero registration errors.

Our corporate lawyers, chartered accountants, and compliance advisors manage your entire setup, from OCR incorporation and FDI approval to tax registration, labour onboarding, and annual audits.

Book a consultation today to receive a tailored compliance roadmap for your company formation in Nepal, built on the exact requirements of the Company Act 2006 and Nepal’s investment laws.