Foreign investors planning to establish a business presence in Nepal must understand the Company Act 2063 (2006), which is the primary law governing company formation, management, and compliance in Nepal. This Act provides the legal framework for foreign company registration in Nepal and outlines the obligations that overseas businesses need to meet to operate smoothly. In this detailed guide, we break down the Act’s key chapters and sections that impact foreign-owned companies – from initial registration requirements and shareholding rules to directors’ duties, reporting obligations, auditing standards, and penalties for non-compliance. The goal is to present these legal provisions in general, easy-to-understand terms so that international business readers unfamiliar with Nepali law can grasp the practical implications. We also highlight how Digital Consulting Ventures (DCV) supports foreign companies in complying with the Act and successfully registering their businesses in Nepal.
(Note: This guide focuses strictly on Nepal’s Company Act 2063 and its provisions for foreign companies. It does not delve into the Foreign Investment and Technology Transfer Act (FITTA) or other investment laws, to keep the discussion centered on the Company Act.)
Nepal’s Company Act 2063 (passed in 2006 AD) is a comprehensive legislation that governs the incorporation, operation, and administration of companies in Nepal. It modernized Nepal’s corporate legal framework to support a growing business sector. The Act is divided into chapters covering all aspects of company life cycle – from incorporation, capital structure, and corporate governance to accounting, audits, and wind-up procedures. Crucially for foreign investors, the Act applies to all companies registered in Nepal, including those fully or partially owned by foreign nationals or entities. It also contains specific provisions (in Chapter 16) dealing with “foreign companies,” which are companies incorporated abroad that establish a place of business (branch or liaison office) in Nepal.
Key Definitions: Under Section 2 of the Act, a “company” means any company incorporated in Nepal under this Act. A “foreign company” is defined as “a company incorporated outside Nepal”. In other words, if an overseas business wants to operate directly in Nepal without creating a new Nepali company, it is considered a foreign company and must follow special registration rules (explained later). Most foreign investors, however, choose to form a Nepalese company (usually a private limited company) with foreign ownership. Such companies are treated the same as local companies under the Act, though additional approvals under investment laws are required before registration (e.g. foreign investment approval from relevant authorities).
Structure of the Act: The Company Act 2063 is organized into numerous chapters and sections. Key parts of the Act that concern foreign businesses include:
Chapter 2: Incorporation of Company – outlines how to register a company in Nepal, documentation needed, and the legal effect of incorporation.
Chapter 3: Memorandum and Articles of Association – covers the company’s constitutional documents and their contents (objectives, capital, governance rules, etc.).
Chapter 4: Share Structure and Shareholders – details share capital requirements, share issuance, shareholder rights, and transfer processes.
Chapter 6: Management and Administration – deals with the Board of Directors, appointment of directors, their powers and duties, and company meetings.
Chapter 10 & 11: Company Closure and Liquidation – provisions for voluntary liquidation and cancellation of company registration.
Chapter 14: Special Provisions for Private Companies – offers compliance relaxations for private companies (smaller, closely-held firms), which are very relevant since most foreign-owned companies in Nepal are private limited companies.
Chapter 16: Provisions Relating to Foreign Companies – specific requirements for foreign-incorporated companies registering a branch or liaison office in Nepal (important if a foreign company prefers not to create a separate Nepali subsidiary).
Chapter 17: Offenses and Penalties – penalties for violations of the Act’s provisions.
In the sections below, we will summarize these key areas with a focus on practical implications for foreign investors.
The Company Act allows several types of companies, but the two main categories are private limited companies and public limited companies. Foreign investors can choose either form (depending on their business goals), though private limited companies are far more common for ease of setup and compliance.
Private Limited Company: A privately held company that cannot publicly trade shares. The Act permits a private company to have a minimum of one (1) shareholder and up to 101 shareholders maximum, making it suitable for wholly foreign-owned ventures or joint ventures with a few partners. Private companies enjoy certain relaxations under the law – for example, they are not required to hold formal annual general meetings in the way public companies must. Most foreign investors establish a private limited company in Nepal, as it allows 100% foreign shareholding (subject to government approval for the investment) and simpler administration.
Public Limited Company: A company that can offer shares to the public and may be listed on the stock exchange. A public company requires at least 7 shareholders and typically a higher minimum paid-up capital (at least NPR 10 million). It must also have a larger Board (minimum 3 directors, including independent directors) and is subject to stricter reporting and auditing standards. Public companies are usually chosen for large-scale ventures or sectors like banking and insurance. While foreign investors can form public companies, this route is less common unless the intention is to raise capital from the public in Nepal.
Single Shareholder Company: A special subset of private company allowed by the Act, where one person (or one company) is the sole shareholder. The Act’s Chapter 15 provides that a single-shareholder company doesn’t need to hold board or general meetings, simplifying compliance. A foreign investor can utilize this provision to form a wholly-owned subsidiary in Nepal, holding 100% shares individually.
Company Not Distributing Profit (Non-Profit Company): The Act also provides for not-for-profit companies (Section 166) which operate for social or public welfare objectives and cannot distribute profits as dividends. These might be relevant if a foreign entity wants to establish a foundation or NGO-type entity under company law. We will not focus on this type here since our emphasis is on business operations and profit-making companies.
It’s important to clarify the distinction between a foreign-owned Nepali company and a foreign company (branch) in legal terms. A foreign-owned Nepali company is incorporated in Nepal (hence subject entirely to the Company Act like any local company), albeit with foreign shareholders. By contrast, a “foreign company” in Chapter 16 refers to an existing company incorporated abroad that opens a branch or liaison office in Nepal without creating a new Nepali legal entity. The Act treats these scenarios differently in terms of registration and compliance, as explained below.
Registering a new company in Nepal is a relatively straightforward process under the Company Act. The regulatory authority is the Office of the Company Registrar (OCR), the government body that oversees company registration and maintenance. For foreign investors, the process involves some additional steps (such as obtaining foreign investment approval), but fundamentally it follows the standard company incorporation procedure outlined in the Act.
1. Name Reservation: The first step is choosing a unique company name and reserving it with the OCR. The Act requires that a proposed name not conflict with existing company names or trademarks and not be misleading or offensive. Foreign investors usually submit a few name options through the OCR’s online portal or manually. Once approved, the name is reserved for the incorporation process.
2. Memorandum and Articles of Association: The promoters (founders) must draft the company’s Memorandum of Association (MOA) and Articles of Association (AOA). The MOA states the company’s name, registered office address in Nepal, objectives (the types of business activities the company will undertake), the amount of authorized capital and share structure, and the liability of shareholders. The AOA outlines the internal governance rules – how directors are appointed, their powers, how meetings are conducted, dividend policies, etc. These documents need to be in line with the Act’s requirements. For example, if the company is private, the AOA can include provisions to restrict share transfers and detail any special rights among shareholders.
3. Foreign Investment Approval: A crucial extra step for foreign promoters is obtaining approval under Nepal’s foreign investment regulations (even though we are not delving into FITTA, the Company Act itself mandates this approval be in place). Section 4 of the Act requires that if a promoter is a foreign person or company, they must attach evidence of government approval for their investment when applying to register the company. In practice, this means the foreign investor needs to get a Letter of Approval from the relevant department (such as the Department of Industry or Investment Board Nepal) before OCR will incorporate the company. Additionally, the foreign promoter must provide identification (passport copies for individuals, or incorporation certificates for corporate investors) as part of the application. Digital Consulting Ventures can guide investors through this approval process to ensure all prerequisites are met.
4. Application to OCR: With the name reservation, MOA/AOA, and necessary approvals in hand, the promoters submit the company registration application to the Office of the Company Registrar. Section 4 of the Act specifies the documents to be submitted, which include:
The signed Memorandum and Articles of Association of the proposed company.
In case of any pre-incorporation agreements between partners (for public companies, or a consensus agreement for private companies), copies of those agreements.
If the business is of a type that requires a prior license (for example, banking or telecom), the relevant license or letter of authority must be attached.
For foreign promoters: the foreign investment approval, proof of identity/nationality, and if a foreign company is investing, a certified copy of that company’s incorporation documents(as noted above).
The OCR charges a registration fee based on the company’s authorized capital (this can range roughly from NPR 5,000 up to NPR 30,000+ for very large capital companies). Upon receiving the application, the OCR conducts an administrative review. The law provides that if all documents are in order, the OCR should register the company and issue a Certificate of Incorporation within 15 days of the application. Once the registration certificate is issued, the company is legally established as a separate corporate entity (a body corporate) distinct from its shareholders. The newly incorporated company will also be assigned a unique company registration number by the OCR.
5. Post-Incorporation Compliance: After incorporation, a few immediate steps are mandated by law and regulations. The company must register for a Permanent Account Number (PAN) with the Inland Revenue Department for tax purposes, as this is mandatory for all companies to file returns and conduct financial transactions. Similarly, if the company will engage in transactions requiring VAT (Value Added Tax) and expects annual turnover above the threshold, it should register for VAT. Additionally, the Act requires every company to maintain certain registers (such as a shareholder register, director register) and minute-books of board meetings and resolutions. Even though private companies are exempt from holding annual general meetings formally, they are still expected to document important decisions via written resolutions (Section 149 allows written resolutions in lieu of meetings) and submit annual information as required (more on this in compliance section). DCV assists new companies in completing all these post-registration formalities – obtaining PAN/VAT, setting up statutory books, and ensuring initial compliance – so that foreign investors can start operations smoothly.
Instead of incorporating a new local company, an alternative for foreign companies is to register as a branch office or liaison office of the overseas parent company. The Company Act 2063, in Chapter 16, provides the framework for this. A branch or liaison office is not a separate legal entity; it is an extension of the foreign company in Nepal. This can be suitable for projects of limited duration, market research activities, or when a foreign company wants a presence in Nepal without full local incorporation (for example, to oversee local agents or execute a specific contract).
Obligation to Register: The law is strict that any foreign company engaging in business in Nepal must register a branch. “No foreign company shall carry on any business or transaction in Nepal without having a branch office… registered with the Office [of the Company Registrar]”. In fact, if a foreign company even establishes a place of business or has a physical presence for more than a short period, it is deemed to be doing business and must register. As one legal summary explains, the Act considers a foreign company to be undertaking business in Nepal if it operates through an office in Nepal or appoints a person for regular contacts/services in Nepal. This means that activities like opening a project office, hiring a representative, or executing contracts in Nepal for over a month would trigger the branch registration requirement. Simply put, you cannot just informally “do business” in Nepal as a foreign entity – you either incorporate a local company or formally register your foreign company’s branch.
Branch vs. Liaison Office: There are two modes of foreign company registration:
A Branch Office is for engaging in income-generating business activities in Nepal. Registering a branch permits the foreign company to conduct the same nature of business in Nepal as it does in its home country. For example, if an overseas company is an engineering firm, its Nepal branch can provide engineering services in Nepal. The branch can earn revenue in Nepal (subject to local tax on branch profits) but cannot raise capital locally (the Act explicitly prohibits a foreign company’s branch from issuing shares or debentures in Nepal). The branch’s liabilities are ultimately borne by the parent company.
A Liaison Office (sometimes called a Representative Office) is for limited, non-commercial operations. The Act allows foreign companies to open a liaison office purely for activities like market research, networking, or coordinating on behalf of the parent company. A liaison office cannot engage in any income-earning activity in Nepal. It acts as a communications channel and is typically not permitted to enter into revenue-generating contracts locally. If a liaison office were to start doing actual business, it would need to upgrade to a branch registration.
The registration process for both branch and liaison offices is similar. The foreign company must apply to the OCR with required documents and fees, and the OCR will issue a Certificate of Registration for the branch/liaison.
Permission from Authorities: The Company Act requires that a foreign company obtain approval from the “concerned body” (relevant Nepali authority) before registering a branch or liaison. In practice, this means if your industry is regulated (say, banking, construction, education, etc.), you need a letter of approval from the corresponding Nepali regulator or ministry. Generally, foreign branch offices also need approval from the Department of Industry or Investment Board Nepal as part of foreign investment regulations. The branch registration application to OCR must include this prior permission along with other documents.
Documents Required: Section 155 of the Act lists the documents/details a foreign company must submit to register in Nepal. Key requirements include:
A copy of the foreign company’s charter, certificate of incorporation, MOA, and AOA, translated into Nepali if they are in another language.
The full name and address of the company’s registered office in its home country, date of incorporation, its paid-up capital, and a description of its main objectives.
List of directors, executives, and company secretary of the foreign company, with names, addresses, and citizenship details.
The name and address of a person in Nepal authorized to receive official notices on behalf of the company. (This is usually fulfilled by executing a Power of Attorney, as per Section 157, appointing a local representative for service of documents).
The address of the principal place of business in Nepal where the branch/liaison will operate, and the intended start date of operations.
Details of the proposed activities and investment in Nepal (to ensure they align with what the company does abroad and are in permitted sectors).
A declaration by a director or authorized person of the foreign company affirming that all information provided is true.
The Power of Attorney document as mentioned, authorizing a local representative (who must be a person residing in Nepal) to act on the company’s behalf for legal and administrative matters.
All foreign-origin documents must be authenticated (notarized and, if required, legalized) in the home country, and accompanied by Nepali translations Digital Consulting Ventures assists foreign companies in preparing and translating these documents and liaising with the OCR.
Timeline and Certificate: Upon receiving a complete application for branch/liaison, the OCR will review and, if everything is in order, register the foreign company and issue a registration certificate within 30 days. The branch or liaison can then formally commence its activities in Nepal. The foreign company’s Nepal registration is recorded in a separate register maintained by the OCR, which is open to public inspection.
Branch Operations and Scope: A registered branch can only pursue the business activities that its parent company is authorized for in its home country. The name of the foreign company and the country of incorporation must be displayed clearly at its place of business in Nepal, along with its Nepal registration number. All official documents (invoices, letterheads, etc.) of the branch should show the foreign company’s name and country of origin as well. This ensures transparency that the entity in Nepal is a branch of a foreign corporation. As noted, a branch cannot independently raise capital from the Nepali public – it relies on funding from the parent company.
A liaison office, while restricted from revenue activities, must also be registered and must confine itself to the purpose stated (e.g., promotional or liaison activities). If a foreign company is found doing business in Nepal without registration, or a liaison office engages in profit-making activities, the OCR can take action including penalties or shutting down the operations for non-compliance.
Closure of Branch/Liaison: If a foreign company decides to close its branch or liaison office, the Act (Section 158) outlines a closure procedure. The company must apply to the OCR to cancel the registration, providing evidence that it has cleared all liabilities in Nepal. The OCR will publish public notices for any claims before striking the branch off the register. Essentially, the foreign company needs to ensure no debts or obligations are left in Nepal. In case the foreign parent company goes into liquidation or insolvency abroad, it must notify the OCR and the branch’s operations in Nepal will be subject to Nepali insolvency laws for the local segment of business.
For foreign investors, an important concern is often ownership structure and how much equity they can hold. Under the Company Act 2063, there is no restriction on foreign shareholding percentage in a company – a Nepali company can be 100% foreign-owned. The Act’s provisions on share capital and shareholders apply equally whether owners are Nepali or foreign. The key points to note include:
Minimum Shareholders: A private company can be formed with as few as one shareholder (which can be a foreign individual or a foreign company). If there are multiple investors, their share portions will be outlined in the MOA. The Act sets an upper limit of 101 shareholders for a private company, which is rarely an issue for typical foreign investments. Public companies require at least 7 shareholders.
Authorized Capital: At incorporation, the company defines an authorized capital (the maximum amount of shares value it can issue). There is no statutory minimum for authorized capital in the Act for private companies (other than at least some capital like NPR 100,000 is commonly used as a base). Public companies, however, must have a minimum paid-up capital of NPR 10 million (Nepalese Rupees one crore) as per the Act. Foreign investors should choose an authorized capital sufficient for their investment needs and note that separate foreign investment regulations may impose a minimum investment amount (e.g., a minimum foreign capital requirement currently around NPR 5 million under FITTA).
Share Classes: The Act allows companies to issue different classes of shares (e.g., ordinary shares and preference shares). In practice, most foreign-owned private companies issue only ordinary shares (common stock) all held by the foreign shareholder(s). The par value of shares is typically NPR 100 per share (or another specified amount) for ease of division.
Capital Contribution: Foreign shareholders must bring in their share capital from abroad through banking channels as per Nepal Rastra Bank regulations (this is outside the Company Act, but an important practical step). The Company Act requires that the amount of paid-up capital and details of share allocation be recorded at registration and any subsequent changes in share capital be approved and recorded via amendments to the MOA.
Share Transfers: Foreign investors can transfer their shares to another party (foreign or Nepali) by executing a share transfer deed and registering the change with OCR. The Act mandates that any transfer of shares must be recorded in the company’s Share Register and notified to the OCR within 30 days of transfer. In a private company, there might be restrictions in the AOA requiring offering shares to existing members first (right of first refusal), but there is no blanket restriction on foreigners selling or foreigners buying shares under the Act. Do note, if a transfer results in a new foreign shareholder or change in foreign ownership percentage, approvals from the investment authority may be needed correspondingly.
Substantial Shareholders: Section 50 of the Act defines “substantial shareholders” (holding more than a certain percentage, often 10%) and may require the company to maintain records of such shareholders. For internal purposes, foreign investors should be aware of these definitions, though in a wholly foreign-owned private company, all shares may be owned by one or a few entities making this straightforward.
In summary, the Company Act imposes no onerous local partnership requirements – foreign investors can own all shares, and any equity participation by Nepali partners is a business decision rather than a legal mandate. This is a very investor-friendly aspect of Nepal’s law. Digital Consulting Ventures often advises clients on optimal capital structure (for instance, whether to keep a nominal Nepali shareholder for practical facilitation, even if not legally required, or how to maintain compliance when increasing capital or issuing new shares).
Board Composition: The Board of Directors (BOD) is the executive body responsible for a company’s management and compliance. In a private company, the Company Act allows flexibility in board composition. There is no minimum number of directors mandated for a private company in the Act – it can have a single director or as many as the company deems appropriate, unless otherwise specified in the Articles of Association. Many foreign-owned companies in Nepal appoint a small board (one to three directors, for example) for simplicity. Public companies, on the other hand, must have a Board of at least 3 directors (and no more than 11), including at least one independent director as per regulatory requirements.
Importantly, directors are not required to be Nepali citizens or residents. The Act does not impose any nationality or residency restriction on who can be a director of a Nepali company. This means foreign nationals can serve on the Board freely. For instance, a wholly foreign-owned company might have all directors from the parent company’s management. However, it is often practical to have at least one local person in the Board or as an authorized signatory to handle day-to-day matters in Nepal. Some companies designate a local manager or hire a company secretary to ensure smooth communication with Nepali authorities, even if that person is not formally a board director (the Act does allow appointment of a company secretary for administrative compliance, and in public companies having a qualified company secretary is mandatory.
Appointment and Removal: Section 86 and 87 of the Act deal with appointment of directors. In a new company, the promoters usually appoint the first directors at incorporation. Thereafter, directors are typically appointed or re-elected by the shareholders (in an annual meeting or by written resolution for a private company). The tenure of directors can be defined in the AOA. A private company’s AOA might allow a director to hold office indefinitely until removed, or have rotating terms. Public companies often have fixed term for directors (e.g., 4 years). Shareholders have the right to remove directors by a majority vote (except any who may have special protections under shareholder agreements).
Roles and Duties of Directors: Directors have a fiduciary duty to act in the best interest of the company and its shareholders. The Act and accompanying principles of company law oblige directors to avoid conflicts of interest, exercise due care and diligence, and not exceed their authority. For instance, if a director has any personal interest in a contract the company is entering, that interest should be disclosed to the Board. The Act (under Chapter 12: Protection of Shareholders) even empowers authorities or shareholders to prevent directors from engaging in unauthorized or prejudicial conduct. In practical terms, for foreign investors, this means that if you appoint local nominee directors or any managers, they are legally bound to uphold the company’s interest and comply with the Act’s standards.
The Board of a company is responsible for maintaining statutory records, calling meetings, and ensuring timely filings. It must approve the financial statements and present them (in public companies, to the AGM; in private companies, to the shareholders via written resolution). In a foreign-owned private company, board meetings can be relatively informal – the sole director or a small board can simply record decisions as resolutions. The Act even allows board decisions by circulation (i.e., written consent) which is convenient when directors are not physically in Nepal.
Representative Authority: A company acts through either its board or authorized officers. The Board may delegate certain powers to an individual (for example, authorizing an executive or a Power of Attorney holder to sign contracts on behalf of the company). This is particularly relevant when foreign directors are not based in Nepal – they often give a local manager or advisor a power of attorney to handle administrative tasks. As mentioned earlier, foreign companies registering a branch must appoint a Nepal-based representative via power of attorney; similarly, foreign-owned local companies commonly use a power of attorney for convenience in dealing with government offices, banks, etc., though it is not a legal requirement under the Act, just a practical approach.
Digital Consulting Ventures can serve as a nominee representative or advisor on the Board for compliance purposes if needed, and we routinely assist in preparing board resolutions, minutes, and POA documents to ensure that our foreign clients’ companies meet all governance requirements without confusion.
Compliance under the Company Act 2063 involves various periodic and annual requirements. Nepal’s corporate compliance regime is reasonably straightforward, but foreign investors should stay mindful of the duties to avoid penalties. Below are the key ongoing obligations once your company (or branch) is registered:
Registered Office and Notices: Every company must have a registered office address in Nepal (which was provided at incorporation). Any change of the registered office address must be notified to the OCR within a prescribed time (usually 7 days of the change). Official correspondence from regulators will be sent to this address. The company must also affix its name and company registration number outside its registered office and on its documents (for transparency of identity).
Annual Financial Statements: The Company Act requires that all companies prepare an annual financial statement comprising the balance sheet, profit & loss account, and cash flow, reflecting the true state of affairs for the fiscal year. For companies, Nepal’s fiscal year runs from Shrawan 1 to Ashad end (mid-July to next mid-July) unless otherwise approved. Financial statements must comply with Nepal Financial Reporting Standards (NFRS), which are largely in line with International Financial Reporting Standards. Double-entry accounting is mandatory for all companies, and records should be maintained in Nepali or English.
Annual Audit: Every company in Nepal is required to have its annual financial statements audited by a licensed independent auditor. The auditor must be a member of the Institute of Chartered Accountants of Nepal (ICAN) holding a practicing certificate. Even a single shareholder private company must undergo an audit. The audit report and audited financials should be approved by the Board and (for public companies) presented to the shareholders in the AGM. In a private company, the shareholders can simply adopt the audited accounts via resolution. The Company Act sets certain thresholds for additional audit oversight (e.g., large public companies need an Audit Committee in the Board if capital exceeds a certain amount). For most private companies, the process is: appoint an auditor annually, have them audit the books, then file the audited accounts with regulators.
Filing of Returns: Companies have to file annual returns to the Office of the Company Registrar. This includes submitting the audited financial statements and possibly an annual report on the company’s affairs. Specifically, for private companies that do not hold AGMs, Section 147: Return of Transactions implies they must file an annual return detailing important particulars of the company (such as changes in shareholders, directors, and summary of profit/loss). The exact format is prescribed by OCR. Essentially, even without an AGM, the company must update the government on its yearly status. Public companies file annual returns and their annual report (including audited accounts, directors’ report, etc.) after their AGM.
For foreign company branches, the Act’s Section 156 obligates them to prepare financial statements of their Nepal operations, get it audited, and submit it to OCR within 6 months of the financial year end. Additionally, the foreign company must submit a copy of its audited global accounts and directors’ report from the home country to OCR within 3 months of those being finalized. Liaison offices have to submit certified statements of their expenses (since they have no revenue) and tax deductions made, within 3 months of year end. In summary, both local companies and foreign branches have annual reporting duties. Failing to file annual returns or accounts on time can lead to fines or complicate future administrative requests.
Tax Filings: Parallel to company law compliance, companies must also comply with tax laws. After obtaining the PAN from the Inland Revenue Department, a company must file annual tax returns (and periodic VAT returns if applicable). PAN registration is mandatory for all companies to conduct financial transactions and file taxes. The Company Act itself doesn’t cover tax filing, but it’s a legal obligation under tax law – typically, annual tax returns are due within 3 months of fiscal year end for companies. DCV provides accounting and tax assistance to ensure foreign companies meet these deadlines.
Other Mandatory Registrations: If the company hires employees, it must register with the Social Security Fund (SSF) and contribute as required. If it will deal in foreign currency (especially relevant for companies bringing in investment or repatriating dividends), compliance with Nepal Rastra Bank regulations is necessary (NRB requires reporting of foreign investments and approvals for repatriation of profits, which DCV can help navigate). These are not stipulated in the Company Act, but are part of the broader regulatory compliance for operating in Nepal.
Meetings and Resolutions: A public company is required to hold an Annual General Meeting (AGM) of shareholders within 6 months of fiscal year end. Private companies are exempt from compulsory AGMs, but they must use written resolutions to approve annual accounts and any other decisions that would ordinarily be taken at a general meeting. All companies (private and public) should hold Board meetings periodically and record minutes. The Act does not dictate a minimum number of board meetings for private companies, but good governance might be to have at least one meeting (or written resolution) a year for approving accounts and key matters. Any changes in directors or share ownership must be decided via resolution and filed with OCR within 30 days of the change.
Statutory Registers: The Act requires companies to maintain certain registers at the registered office:
Register of Shareholders (with details of each shareholder and their holdings, updated whenever shares are transferred or new shares issued).
Register of Directors and Officers (with names, addresses, and appointments of directors, managing director, company secretary, etc.).
Minute Book for Board Meetings and General Meetings.
Register of Mortgages/Charges (if the company takes loans secured by its assets, such charges must be registered with OCR and recorded).
Keeping these up-to-date is part of compliance. They can be inspected by shareholders, and in some cases by regulators.
Auditor Appointment: Companies must appoint an auditor annually. In a private company, the shareholders (or sole shareholder) can appoint the auditor each year by ordinary resolution. If they fail to do so, the board can appoint, or the OCR may designate an auditor in default. It’s wise for foreign investors to engage a reputable local audit firm. Not only is it a legal requirement to have audited books, but audited financials are often needed to remit dividends abroad through banking channels (as proof of profit).
Practical Tip: Many foreign investors engage corporate secretarial services (such as those provided by DCV) to handle routine compliance – maintaining statutory registers, preparing resolutions and minutes, and reminding when filings are due. This ensures nothing falls through the cracks, especially since failing to meet a deadline (like annual return filing) can result in fines or even a situation where the company is marked as non-compliant in government records.
Nepal places a strong emphasis on financial transparency in companies, which is reflected in the auditing requirements of the Company Act. For foreign companies and investors, adhering to these standards not only keeps you on the right side of the law but also instills confidence when repatriating funds or dealing with local partners.
Accounting Standards: As noted, Nepal has adopted Nepal Financial Reporting Standards (NFRS), which closely mirror the International Financial Reporting Standards (IFRS). All companies are expected to follow accrual-based accounting and maintain accounts that represent a true and fair view of their financial position. While small private companies might not be rigorously enforced for every NFRS nuance, any significant foreign venture should prepare financials to international standards. This becomes important when auditors review the books.
Annual Audit Process: Typically, towards the end of the fiscal year (or just after it ends), the company’s accounts team (or an outsourced accountant) will finalize the financial statements. An independent auditor then examines the financial records, verifies balances, and ensures compliance with accounting standards and Nepal’s laws. The auditor’s report will state whether the financial statements give a true and fair view and whether they are in accordance with the Company Act’s requirements. The auditor also checks compliance points – for example, whether proper books have been kept, whether required registers are maintained, and whether the company has complied with applicable provisions (like Section 79, 80 regarding loans to directors, etc., if any).
Filing of Audited Statements: After the audit, companies must file their audited financial statements with the OCR. In fact, it is a legal requirement that audited statements be submitted to the OCR (and to the tax office along with the tax return). As one guide notes, this includes “filing of audited financial statements with OCR and IRD” as part of the annual obligations. The OCR keeps these on record; for public companies, they are public documents accessible to anyone (ensuring public disclosure), whereas for private companies they are filed but not proactively published.
Audit for Branch Offices: For foreign company branches, the Act’s Section 156 is very explicit: the branch must maintain separate books of account of its Nepal operations and have them audited annually just as if it were a local company. The financial statement should cover assets and liabilities in Nepal, income and expenses of the Nepal branch, etc., and be submitted within six months after year-end. Additionally, as mentioned, a copy of the parent company’s audited accounts must be given to Nepali authorities within three months of their preparation. This ensures transparency that the foreign company remains sound. Liaison offices must submit a certified statement of their expenses and tax withholdings since they don’t generate income.
Appointment of Auditor: The Act outlines eligibility for auditors – the auditor cannot be a shareholder or closely related to directors of the company, to ensure independence. Auditors have the right to access all accounting information and can ask directors for explanations. The Act also gives auditors a duty to report any fraud or irregularity they discover to the OCR if it is serious.
Audit Committees: Large companies (particularly public companies with significant capital or those in regulated industries) are required to form an Audit Committee on their Board. This committee (comprising board members, including a non-executive director) oversees the financial reporting process, interacts with the auditors, and reviews internal controls. For a typical small foreign-owned private company, an audit committee is not mandatory, but the concept of internal controls is still relevant – the owners should ensure there are checks and balances in how finances are managed.
For foreign investors, the auditing process in Nepal should not be seen as just a bureaucratic hurdle – it can be a useful annual checkup on your company’s financial health and compliance status. Moreover, having clean audited financial statements is essential when you want to repatriate dividends or profits: Nepal Rastra Bank will ask for copies of audited accounts and tax clearance certificates to approve repatriation. DCV often helps coordinate between our client companies and independent auditors to facilitate a smooth audit, and we ensure that all audit findings (if any) are addressed to keep the company in good standing.
Compliance with the Company Act is not something to be taken lightly, as there are legal penalties for various violations. The Act’s Chapter 17 outlines punishments for different offenses. While the fines may not seem very large in absolute terms (often in the range of a few tens of thousands of rupees), serious breaches can also carry the threat of imprisonment, and non-compliant companies could face suspension of their operations.
Some key points on penalties:
Operating Without Registration: If someone attempts to operate a business in the name of an unregistered company (for example, a foreign entity not registering its branch but doing business), the authorities can penalize them. Section 5(5) explicitly prohibits anyone from carrying on transactions under a business name resembling a company without registering. This could subject the person to fines and closure of the business activity.
Failure to File or Notify: Not filing annual returns, not submitting accounts, or not informing OCR of changes (like a change in director or address) within the stipulated time is an offense. Typically, such lapses incur fines which can accumulate the longer the delay. The Act provides for fines for contraventions of various sections. For instance, failing to file the required branch office documents or statements might lead to penalties on the foreign company.
False Statements: If a company or its officers provide false information in any document submitted under the Act (say, falsifying the accounts or misrepresenting shareholder information), this is considered an offense. Section 160 of the Act sets a punishment of a fine up to NPR 50,000 or imprisonment up to 2 years, or both, for such serious violations. This underscores that accuracy and honesty in filings are essential.
Other Offenses: There are specific offenses like conducting business beyond the scope of the objectives in MOA, or issuing shares without following procedures, etc. Many of these would not usually trouble a small foreign investor company which is straightforward in operations. However, if a company were to, say, fail to keep proper accounts or refuse to allow an authorized inspection, there could be fines imposed by the OCR.
Liability of Directors and Officers: The Act can hold company directors or officers personally liable for certain breaches. For example, if the company fails to maintain required registers or neglects to pay the government fees, the directors can be fined. In cases of fraud by management, those individuals can face legal action independent of the company. The Act’s shareholder protection provisions even allow shareholders to file complaints if directors are doing unauthorized acts (Section 139, 140) – which could lead to regulatory action.
Penalties for Foreign Company Branches: If a foreign company doesn’t register its branch but continues business, any contracts it enters in Nepal might become unenforceable or it may face injunctions. The OCR has the power to cancel the registration of a company (domestic or foreign) if it finds the registration was obtained fraudulently or the company is acting against law or public interest.
In practice, Nepal’s OCR gives chances to rectify compliance issues – usually a warning or directive to comply before taking punitive action. Penalties are often the last resort. Still, as a foreign investor, it’s wise to stay proactive: file everything on time, keep records diligently, and respond to any notices from regulators promptly.
Remember, being in good compliance standing also projects credibility. If you ever need to expand your operations, apply for additional licenses, or seek government approvals (or even if you plan to sell your company stake to a new investor), a clean compliance history will smooth the process. Digital Consulting Ventures assists clients in conducting periodic compliance health-checks – for instance, we can review if all required filings have been made for your company in a given year and help address any gaps before they escalate into penalties.
Navigating a foreign country’s legal requirements can be challenging, but that’s where Digital Consulting Ventures (DCV) comes in as a reliable partner for foreign investors in Nepal. With extensive experience in Nepal’s corporate and regulatory landscape, DCV offers end-to-end support to ensure foreign companies not only register successfully but also remain fully compliant with the Company Act 2063 and other local laws.
Here are some ways DCV can assist foreign businesses in Nepal:
Pre-Incorporation Advisory: We provide clarity on the best structure for your venture (private company vs. branch office), explain ownership rules, and liaise with government bodies to obtain necessary foreign investment approvals. By understanding your business goals, DCV can advise whether you should incorporate a new Nepali entity or register a branch, and outline the pros/cons of each in light of the Company Act provisions.
Company Registration Service: Our team helps prepare all required documents for company incorporation. This includes drafting a tailored Memorandum and Articles of Association that comply with Nepali law yet capture your desired provisions, arranging official translations, and completing the OCR application forms. We coordinate the name reservation, ensure all promoter details are correctly documented (especially for foreign shareholders), and submit the application on your behalf. Essentially, DCV manages the paperwork and follow-up with OCR, making the registration process hassle-free for you.
Branch/Liaison Setup: If you choose to register a branch office, DCV will guide you through obtaining the sectoral approvals and prepare the detailed submission per Section 155 of the Act. We understand the nuances – for example, how to draft the board resolution from your parent company authorizing a branch, or how to structure the power of attorney for your local representative. We will also interface with the OCR examiners to address any queries during the branch registration.
Statutory Compliance and Filings: Once your company is up and running, DCV offers ongoing secretarial services. We handle annual return filings, maintain your statutory registers, and remind you of key dates (like audit and tax filing deadlines). If there are changes such as an address shift, new shareholder, or director change, we promptly prepare the necessary resolutions and file the notice with OCR within the legal time frame. By entrusting these tasks to DCV, you reduce the risk of missing filings and incurring penalties.
Accounting and Audit Coordination: DCV’s consulting includes accounting support – we can help set up your bookkeeping in line with Nepali accounting standards and even manage routine accounting if needed. When audit time comes, we connect you with reputable independent auditors and help in the audit process by providing them with needed schedules and explanations, ensuring your audit gets completed smoothly. We then assist in filing the audited accounts with OCR and IRD.
Corporate Governance Support: For clients who are new to Nepal’s business environment, DCV can provide a nominee local director or company secretary if required, to fulfill any governance needs. We also advise your appointed directors (whether foreign or local) on their duties under Nepali law – for example, briefing them on how to record meeting minutes or how to legally approve transactions. Think of us as your on-call corporate advisor making sure your board and management actions align with Nepali regulations.
Legal and Regulatory Liaison: Should any issue arise – say, an inquiry from the OCR or a need to amend your MOA for expansion of objectives – DCV liaises with the authorities on your behalf. In the rare event a compliance issue occurs, we help rectify it and handle communications with regulators. Our goal is to protect your company’s standing so that you can focus on business operations.
Wind-up and Exit Planning: If in the future you plan to wind up the company or branch, repatriate capital, or transfer ownership, DCV will guide you through the steps in compliance with the Company Act (like the Section 158 process for branch closure) and other laws. We aim for a smooth exit with all legal obligations settled, ensuring your good track record remains intact.
In essence, DCV acts as a bridge between foreign investors and Nepal’s regulatory framework. We interpret and implement the Company Act requirements for you, ensuring that nothing is lost in translation. With professional support, foreign companies can greatly minimize compliance risks and concentrate on growing their business in Nepal’s promising market.
Q1. Can a foreign investor own 100% of a company in Nepal?
A: Yes. The Company Act 2063 does not impose any local ownership requirement. A private company can be fully foreign-owned – even a single foreign shareholder can incorporate a company in Nepal. (However, the foreign investor must obtain approval under Nepal’s foreign investment regulations before registration.) Many foreign businesses operate in Nepal with 100% ownership. The key is to follow the proper registration process and sectoral guidelines, but there is no need for a compulsory Nepali partner by law.
Q2. What is the difference between incorporating a company and registering a foreign company branch in Nepal?
A: Incorporating a company means creating a new Nepali company (a separate legal entity) in which you, as a foreign investor, hold shares. That company is treated as a local company under Nepali law. Registering a foreign company’s branch means your existing company (from abroad) is just registering its presence in Nepal without creating a new entity. The branch is an extension of the foreign company. Incorporation is generally preferred if you plan long-term operations in Nepal, as it limits your liability to the company and is easier for local banking and contracts. A branch might suit short-term projects or liaison activities, but the foreign parent company remains directly liable for branch obligations. Also, branches must confine to the parent’s business scope and cannot raise local capital, whereas a local subsidiary can diversify and even take local loans or investors (subject to laws outside the Company Act).
Q3. Do I need a Nepali citizen as a director or partner in my company?
A: No, Nepali law does not require a local director or partner for general businesses. Foreigners can be the sole shareholders and also serve as directors of the company. Directors are not required to be residents of Nepal and can be foreign nationals. That said, having a local representative or advisor can be practical for liaising with authorities. If none of your directors reside in Nepal, you will likely appoint an authorized person (via power of attorney) to receive official notices on the company’s behalf – but this person doesn’t have to be a shareholder or director. In summary, there is no legal mandate to include a Nepali person in ownership or directorship just for the sake of it, except in certain regulated sectors (which is outside the Company Act’s scope).
Q4. What are the ongoing compliance requirements for a foreign-owned company under the Company Act?
A: The ongoing requirements include:
Preparing annual financial statements and getting them audited by a licensed auditor every fiscal year.
Filing annual returns with the Office of the Company Registrar, which entails submitting the audited accounts and details of any changes in the company’s structure.
Paying government fees (if any annual fees are levied) and filing tax returns with the Inland Revenue Department (tax compliance is parallel to company law compliance).
Maintaining statutory records (share register, minute books) and updating OCR on changes (e.g., new director or changed address, typically within 30 days of the change).
For a foreign company’s branch: in addition to the above, submitting the branch’s audited accounts within 6 months of year-end and the parent company’s audited report within 3 months of its preparation.
DCV typically helps client companies by reminding and assisting with all these filings. The compliance calendar in Nepal usually has auditing and OCR filing completed by Poush/Magh (Dec–Jan) for the previous fiscal year, and tax filings by Ashwin/Kartik (Sept–Oct). Staying on top of these obligations ensures you avoid fines.
Q5. How does the Company Act protect foreign investors’ interests?
A: The Act provides a neutral framework ensuring all shareholders (domestic or foreign) have defined rights. For instance, it mandates that major decisions (like amending the MOA, merging, or winding up) require a special resolution by shareholders – so a majority owner cannot unilaterally make fundamental changes without broader approval. Minority shareholders have rights to information and can seek remedies if directors act against their interests. The requirement for independent audits and financial transparency adds a layer of protection, as it becomes difficult for any malpractice to be concealed in the books. If a foreign investor is the sole or majority shareholder, the Act gives them full control in proportion to their shareholding – they can appoint directors, make decisions (with respect to any minority protections if applicable), and repatriate dividends once due taxes are paid. Nepal’s legal system upholds contracts and property rights, so a foreign investor’s ownership in a company is legally secure as long as the company complies with the law.
Q6. What penalties might a company face for non-compliance?
A: Penalties vary depending on the offense:
For minor lapses like late filing of annual returns, the company can be fined (often a few thousand rupees plus additional fees per month of delay). These fines can accumulate if delays are prolonged.
For more serious violations – such as knowingly filing false information, carrying on business without registration, or defrauding stakeholders – the Act prescribes fines up to NPR 50,000 and even imprisonment up to two years for responsible individuals in some cases. Such heavy penalties are typically reserved for willful misconduct or fraud.
If a foreign company operates in Nepal without registering (no branch registration), the government can order it to cease activities and may impose fines retroactively for the period of unregistered operation. Similarly, if a liaison office engages in profit-making contrary to its permitted scope, it would be violating the terms of registration and could be penalized or shut down.
In general, the OCR or regulators will often issue notices to comply or pay fines by a deadline. It’s rare for criminal penalties (like imprisonment) to be pursued unless there is egregious fraud. Keeping your company compliant and addressing any issues early will prevent such troubles. DCV’s compliance management services are designed to ensure our clients never reach the stage of facing penalties.
(All information is based on the Nepal Company Act 2063 (including amendments up to 2017) and current regulatory practices as of 2025. Investors should consult updated legal counsel or DCV for any changes beyond this scope.)