What is the main source of law authorising this entity form?

The applicable laws regulating private limited companies in Nepal are:

• Companies Act, 2006
• Companies Directive, 2015

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

A private limited company has a separate legal personality.

(Maximum) period of existence

The period of existence of a private company is not prescribed, these are corporate bodies with perpetual succession.

Governing document(s)

A private limited company is governed by its Memorandum of Association ("MOA"), Articles of Association ("AOA"), Shareholders Agreement/Pre-Incorporation Contract/Consensus Agreement (if any), Companies Act 2006 and Companies Directives 2015.

Liability of incorporators / shareholders

Promoters/shareholders’ liability is limited to the extent of their contribution to the capital of the company and are not personally liable for the liabilities/acts of the company. However, this liability may extend to the promoters/shareholders if the corporate veil is lifted by the courts or in case they have provided personal guarantee.

(Governing) bodies

A private company has two decision making bodies, (i) shareholders (ii) board of directors. The Companies Act requires shareholders meetings (Annual and/or Extra-ordinary) to decide on specific matters (such as alteration of capital, mergers, amendment of charter documents etc.). The board of directors manage the day-to-day activities of company as per the power conferred to them under the MOA and AOA, and by the shareholders meeting.

Other particularities

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions and divestitures, equity acquisitions, conversions etc.)?

In general, private limited companies incorporated in Nepal are not allowed to invest outside Nepal. This restriction is set by the Act Restricting Investment Abroad, 1964. Recent legal reforms have introduced some limited exceptions. Under the Financial and Professional Environment Improvement and Investment Increase Ordinance 2025, mainly Information Technology (IT) industries can now invest abroad if they meet specific criteria. These exceptions are based on the provisions of the Foreign Investment and Technology Transfer Act, 2075.

The Nepal Rastra Bank Foreign Investment and Foreign Loan Management Regulations, 2078 (as amended), allows eligible IT industries to invest abroad, subject to these conditions:

• The industry must be registered under Nepali law and must have exported IT services for the previous three fiscal years.
• The investment must be in the IT sector and within the company’s paid-up capital.
• The maximum investment allowed is the lower of:
• 50% of the average foreign currency income from the previous three fiscal years; or
• USD 1 million (or equivalent in other currencies).

These exemptions are limited and only apply to qualified companies. Most private companies in Nepal are still restricted from making foreign investments. Nevertheless, these private limited companies can be included in the cross-border restructuring processes such as mergers, asset acquisitions and divestitures, equity acquisitions etc. During such restructuring, relevant approvals, filings, and notifications must be obtained from or submitted to the Department of Industries and Nepal Rastra Bank, as required. Additionally, applicable control change and capital gains tax must be paid at the tax office.

Can this type of entity be publicly listed or held, or its securities be issued to members of the public?

A private company cannot be publicly listed. However, a private company can be converted into a public company, fulfilling the requirements provided by the Companies Act, 2006, to be listed publicly for its shares to be issued to members of the public, subject to the approval of the Securities Board of Nepal (SEBON) under the Securities Act 2007.

Can this type of entity be used for a non-profit or charitable organization?

Private limited companies cannot be used for a non-profit or charitable organisation, as they are allowed to distribute dividends to their shareholders. An alternative type of company primarily used for non-profit purposes is a company not distributing profits. Under the laws of Nepal, currently, following non-profit or charitable organisations can be incorporated/registered:

• Company not distributing profits under the Company Act, 2006;
• Non-Governmental Organisations under the Associations Registration Act, 1977; and
• Public Trust under The National Civil (Code) Act, 2017..

Give a brief summary of the process of incorporation, formation, or organization, including:

Main documents required

The main documents required for the incorporation of a company are as follows:

• The MOA, which contains the details of the capital and objectives of the company, executed by the shareholder(s);
• The AOA, which contains the details regarding the management of the company and formation of the board of directors, procedure of holding general meetings of shareholders, executed by the shareholder(s);
• A copy of the consensus agreement between the shareholders, if any;
• Foreign Investment approval from the Department of Industries, in case of foreign investment (can be both automatic and manual investment approval, depending on the type of industry);
• Prior approval or licence, required for that particular type of business or transaction, if any;
• A certified copy of the citizenship certificate (if the promoter is a Nepalese citizen), and a certificate of registration of incorporation (if the promoter is a corporate body), the decision of the Board of directors, and other relevant documents;
• Identity document proving the country of his/her citizenship, in case the promoter is a foreign person;
• Registration certificate and charter documents, in case the promoter is a foreign entity.

Involvement of notary, company register, governmental authorities

The company is incorporated by undertaking the following steps:

• Apply for and secure name reservation approval from the Office of the Company Registrar (“OCR”) via its online portal;
• Submit online application for the registration of the company along with the aforementioned documents;
• Pay the registration fee to the OCR (which can be done digitally);
• Obtain the digitally signed company registration certificate along with authenticated MOA and AOA from the online portal.

Except the documents containing original ink signature, all other documents submitted at the OCR must be notarized.

Timing (estimate)

The tentative timeframe for the name approval is five (5) working days and for the incorporation is seven (7) working days.

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Main costs, including registration and similar fees (excluding legal fees)

The registration fees for the incorporation of the Private Company depends upon the paid-up capital of that company which are:

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

The company's activities are limited to the objectives listed under its MOA. Such objective(s) must detail the anticipated business activities to be carried out by the company post-incorporation.

Minimum number of incorporators / shareholders and residency requirements

The minimum number of promoters/shareholders for a private company is one (1) and the maximum number is one hundred and one (101).

Minimum number of directors (or other applicable officers) and residency requirements

For a private limited company with a single shareholder, the AOA can specify that there will be no board of directors, and all board functions will be carried out by the single shareholder's decisions. For the companies with a board of directors, the minimum number of directors is one (1). The director(s) are not required to be a resident of Nepal and can function remotely.

A private limited company with a paid-up capital of more than NPR 1,00,00,000 should appoint a company secretary with prescribed qualifications. The company secretary must be a Nepali citizen.

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

The law does not impose a minimum share capital for private limited companies. Various classes of shares with different rights can be issued, and these variations must be specified in the AOA. The company can open a bank account in its name with the bank and financial institutions by fulfilling the required KYC requirements. The share capital must be deposited by the shareholders in the bank account of the company.

Is the physical presence of incorporators/directors/shareholders required in the jurisdiction for incorporation, formation, or organisation?

The promoters/shareholders can grant authority to any individual for the incorporation and organisation of the entity in Nepal. Hence, their physical presence is not mandatory. Nevertheless, the registered office must be located in Nepal.

For tax registration, a representative of a company must be present at the relevant tax office to provide their photo and biometric details at the time of registration. The person is not required to be a director/shareholder for this purpose and can be an authorized representative of the shareholder.

Is a tax identification number, or equivalent, required? If so, how is it obtained?

The company must obtain a tax registration certificate from the Inland Revenue Office, before starting its operations. If the company's activities fall under the categories specified on the Value Added Tax Act 1996, it must also obtain Value Added Tax (VAT) registration.

Both Permanent Account Number (PAN) and VAT registrations require an online application to be filed. Alongside the submission number obtained from this application filing, other documents such as the company registration certificate, MOA, AOA, rent agreement, PAN reservation letter issued by the OCR, etc., must be submitted at the relevant Inland Revenue Office. Additionally, the authorized representative of the company must be physically present at the Inland Revenue Office for biometric verification. Once these steps are completed, the Inland Revenue Office issues a tax registration certificate containing the PAN.

What is the title of the applicable company registry?

The Office of the Company Registrar is the applicable company registry. It is a government body that functions under the Ministry of Industry, Commerce and Supplies of the Government of Nepal.

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.: Articles or other formation document, Articles or other formation document, Group structure, Share capital, Directors, Accounts, Insolvency, good-standing, liquidation, Liens and encumbrances on the shares, Liens and encumbrances on assets of the entity, Other (e.g. litigation, tax matters)

The information and documents listed below must be filed at the Office of the Company Registrar:

• MOA and AOA, and any alterations thereto;
• Foreign investment approval (in case of foreign investment);
• Details of registered office;
• Shareholders' agreement (if any);
• Share registry;
• Identification documents of the shareholders;
• Directors’ registry;
• Identification of the board of directors and their disclosure as required by the Company Act;
• Business commencement approval (if applicable);
• Annual audited report;
• Director's report (if applicable);
• Appointment of company secretary;
• Changes in the company’s board of directors, shareholders, share capital;
• Insolvency, winding -up, voluntary liquidation;
• Mortgages and charges on company's shares;
• Details of ultimate beneficial owners

Documents of a private limited company are not publicly available

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

The board of directors serves as the executive body of the company, with its composition defined by the AOA. Their general powers and duties encompass managing company transactions collectively as a board, delegating authority to directors or employees within the bounds set by MOA, AOA or consensus agreements, and assuming liability for actions that exceed their authority. Directors are further tasked with responsibilities that include refraining from personal gain during company transactions, acting honestly and in the best interests of the company with due care and diligence, and adhering to statutory requirements, the company's AOA, and any consensus agreements. Additional duties, tasks, and functions may be specified in consensus agreements or the company's constitutional documents.

How are the members of the executive body appointed, dismissed and replaced?

The appointment and replacement of the members of the board of directors in a private limited company is subject to the provisions of the AOA. Directors are generally appointed/elected by the general meeting of the shareholders of the company.

The circumstances under which directors may be dismissed includes situations where a director is disqualified from appointment under the Company Act, where a resolution passed by the general meeting removes the director from their position, or where the director voluntarily resigns and their resignation is accepted by the board of directors. Dismissal can also occur if a court finds the director to have engaged in dishonest or ulterior activities related to the company, or if the director violates any provisions set forth in the Act for directors or fails to fulfil mandated obligations. Additionally, a director may be dismissed if they are blacklisted by a competent authority for defaulting on a loan from a financial institution, provided that the blacklisting period has not expired under prevailing law.

The decision of the board of directors can appoint a replacement director to serve for the remaining tenure of the dismissed or resigned director. However, a permanent appointment for a full tenure must be decided by a resolution passed at a general meeting.

Is it possible to appoint corporate directors or must all directors be natural persons?

It is not possible to appoint an entity as a director. A director of a company must be a natural person.

Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

There are no mandatory requirements for a company to have non-executive directors. A private company may make provisions in the AOA to appoint non-executive directors/managing director. The appointment, dismissal and replacement of the non-executive directors/managing director is done as per the relevant provisions of the AOA.

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

The title of body of shareholders is the shareholder's general meeting. Shareholders can have an Annual General Meeting and/or an Extra-ordinary General Meeting. The main responsibilities of the shareholders are to cast their vote by themselves or through their proxy in general meetings of the company to decide the following (non-exhaustive list) matters:

• appointment of board of directors;
• appointment of auditor;
• issuance of shares at premium;
• issuance of shares at discount;
• alteration of the capital of the company;
• alteration of the name or objectives of the company;
• amendment of the MOA and AOA;
• conversion of the private company to a public company;
• decision regarding the rate of dividend to be distributed;
• issues relating to mergers and acquisitions;
• decisions to wind-up or liquidate the company; and
• any other matter in which the company is required by the Act or the AoA to adopt a special resolution.

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

The quorum for the general meeting of a private entity will be as prescribed in the AoA of the company. A majority is formed by more than fifty percentage (50%) of shares, with a general resolution requiring at least fifty-one percentage (51%) of the votes and a special resolution requiring more than seventy-five percentage (75%). While the quorum requirement is flexible for private companies, the majority requirement cannot be altered.

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

There are no special governance regimes governing private companies.

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

The Company Act imposes the following periodic accounting obligations on a company:

• Accounting Obligations

Every company is required to duly maintain its accounts in either Nepali or English with a double-entry system of accounting, adhering to the accounting standards enforced by the competent body under prevailing law. These accounts are maintained according to the Nepali fiscal year starting from the beginning of Shrawan (tentatively July 16) and ending at the end of Ashadh (tentatively June 15) each year.

• Filing Requirements

Every private company must submit its audited annual financial statements, along with the auditor’s report and other prescribed documents, to the OCR within six months of the end of the fiscal year.

Is the entity permitted to determine its own financial year?

The entity is not allowed to determine its own financial year and the financial statements, audit reports, the annual compliance obligations and tax filings for a company must be undertaken in accordance with the Nepalese financial year.

Is the entity subject to any statutory (external) auditor obligations?

Private Companies must appoint an auditor to have its accounts audited for each fiscal year. The auditor of a company shall be appointed, amongst the auditors licensed to carry out audit under the prevailing laws of Nepal.

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

A private company with a paid-up capital exceeding ten million Nepalese rupees is legally required to appoint a company secretary who must meet the prescribed qualifications. The appointment of a company secretary for a private company not meeting the capital threshold is optional. The company secretary must be a natural person who is a citizen of Nepal. Under the Companies Act, the major functions of the company secretary include:

• Calling meetings of the Board of Directors as well as the general meetings.
• Preparing the agenda for Board and general meetings and sending these to the concerned directors or shareholders.
• Maintaining records, authenticating, and overseeing the decisions made in Board and general meetings.
• Sending notices of share allotment and accurately maintaining, overseeing, and authenticating the shareholder register and the records of shareholders and debenture holders.
• Recording pledges or mortgages and executing the transfer or transmission of shares or debentures, as directed by the board or chief executive.
• Transmitting claims, petitions, grievances, suggestions, and advice from shareholders or debenture holders to the board of directors, chief executive, or other relevant bodies, and informing the concerned parties in writing of any actions taken or decisions made in response.

Additionally, the AoA of the company may prescribe further functions for the company secretary.

There is no statutory requirement to appoint executive officers, internal auditors etc. for a private limited company. Companies can appoint them as and when required.

What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?

Shares are the title designated for ownership interests. The share registry authenticated by the OCR and the share certificate issued by the company to its shareholders as proof of ownership of shares.

Are different classes of ownership interests possible? If so, what are some examples of different classes?

There are different classes of ownership interests that a company can offer based on its needs and as specified in its AOA. Generally, shares can be classified into preference and ordinary shares. Also, the AOA can provision for various classes of shares, such as, class A, class B, class C etc. which are based on the specific features such as redeemable, non-redeemable, convertible, non-voting shares etc.

What documentation is required for the transfer of ownership interests?

The primary document required for the transfer of ownership interest is the share sale deed. Generally, the transferor must notify the company of their intention to sale their share and the share sale transaction must be passed through a decision of the board of directors. In addition to the sale deed and the minutes of the board meetings, an application to sell from the seller, an application to purchase from the buyer, receipt of payment of tax (if applicable), identity document of the buyer is also generally submitted to OCR for the authentication of the new share registry post transfer.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

For a locally owned company, the transfer of shares must be recorded at the OCR, and the new share registry (cancelling the prior shareholder and adding the new shareholder) must be authenticated by the OCR. Additionally, the Share Purchase and Sale Agreement must be authenticated by a lawyer or a notary public, and a Share Sale Deed must be authenticated by a notary public. If the company has foreign investment, consent from the Department of Industries and approval from or notification to the Nepal Rastra Bank are also required. Companies with specific objectives such as hydropower must obtain prior consent or provide notification to the relevant regulatory authority.

Are there any applicable stamp duties imposed when transferring ownership interests?

There is no stamp duty applicable during the transfer of ownership interests. In case there is gain during the transfer of ownership interests, gains tax will be levied as per the Income Tax Act 2002.

How are shares issued? (including information on payment obligations, registration requirements)

During incorporation, shares are initially issued in the names of promoters under the MOA and AOA of the company. After incorporation, the board of directors can request payment for these shares. Once promoters make the payments, the invested amount is recorded as paid-up in their names in the share registry.

Post-incorporation, shareholders, through a general meeting, have the authority to increase the company's share capital. Existing shareholder(s) and/or new shareholder(s) can subscribe to these increased shares, subject to the provisions outlined in the MOA, AOA and Shareholders Agreement.

Further information on equity contributions, e.g., non-cash payments on shares, (share premium) contributions without issuances of shares, can partially paid shares/ownership interests be permitted and what are the restrictions on them?

The price of shares can be paid in kind (non-cash payments) by including such a provision in the MOA of the Company. For the authentication of the share registry for payments in kind, the OCR generally requires an independent valuation of the property being used as payment.

Share premium contributions cannot be made without the issuance of shares. The company can issue shares at a premium, where the premium price of the shares must be justified through a valuation. A capital contribution made by shareholders without the issuance of shares would typically be classified as a shareholder's loan.

In private companies, shares must be issued at their full price. However, shareholders can pay a partial amount initially, with the remaining balance recorded as a due amount on the share registry.

Any requirements with respect to share cancellation, share repurchase and other capital reductions

Generally, a company cannot purchase its own shares back. However, a company may buy back its shares by fulfilling the following conditions:

• The buyback is funded from its free reserves, which are available for distribution as dividends;
• All the shares issued by the company are fully paid up;
• The AOA allows the buyback of shares;
• A special resolution authorizing the buyback has been adopted at a general meeting of the company;
• The company's debt ratio (debt to capital and general reserve fund) does not exceed 2:1 after the buyback;
• The value of shares to be bought back does not exceed twenty percent of the company's total paid-up capital and general reserve fund; and
• The buyback is not in contravention of any directives issued by the OCR.

The company must cancel the purchased shares from its record within 120 days of the buy back

A private company can reduce its capital by adopting a special resolution at its general meeting. This process requires obtaining approval from the Court and making the necessary amendments or alterations to the MOA accordingly.

Any requirements with respect to distributions to shareholders?

The declaration of a dividend must be approved at the company's general meeting. Once approved, the dividend must be distributed to shareholders within forty-five (45) days of the decision. Other matters related to the declaration of dividends are governed by the company's AOA.

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Shareholders can enter into a shareholder's agreement to govern their relationships and the operation of the company. The company itself can be made a party to this agreement. However, any clauses in the shareholder's agreement that are against the interests of the company or minority shareholders will be deemed unenforceable to that extent. If a shareholder's agreement is entered into, it must be submitted to the OCR within fifteen (15) days of signing.

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

There are no maintenance costs for maintaining the existence and legal good standing of a private entity. However, if the company delays in completing required compliances, it may incur fines from the OCR for late filing.

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

Generally, the standard corporate tax rate in Nepal is 25%. However, Corporate tax rates in Nepal vary depending on the type of business entity. Banks, financial institutions, general insurance companies, financial transaction related entities, telecommunication and internet service providers, Money Transfer service providers, Capital markets businesses, Securities businesses, Merchant Banking businesses, Commodity future markets, Securities and commodities broker businesses, Transaction of cigarette, bidi, cigar, chewing tobacco, powder tobacco, gutkha, panmasala, liquor, beer or petroleum related activities face a higher tax rate of thirty percent (30%).

Summary of any specific matters, e.g. recent or prospective major legal developments

There are no substantial changes anticipated to the authorizing law for private limited companies. Recently, Nepal has moved towards fully digitalizing the incorporation processes, compliance processes, meeting procedures and functioning of companies. An amendment was also made to the foreign investment law, which provides an automatic approval process for certain industries with specific investment amounts.