The recent amendments to the Company Act 2063 mark a significant turning point for Nepal’s entrepreneurial and business landscape. By introducing the "Ordinance for Amendment of Certain Nepali Acts for Improvement of Financial and Professional Environment and Advancement of Investment 2025", the Nepal Government has introduced some sweeping changes. These changes are tailored to foster innovation, simplify business operations, and bring Non-Resident Nepali (NRN) citizens into the fold of nation-building through investments. This article focuses on how these updates unlock opportunities for startups and entrepreneurs, with actionable insights and legal considerations for businesses to capitalize on these reforms.

1. Recognizing NRNs as Eligible Promoters (Section 4)

The new ordinance allows NRN citizens to act as company promoters, provided they submit a certified copy of their NRN Citizenship Certificate during the registration process.

Implications for NRNs:

• Unlocking Opportunities: NRNs can now formally establish businesses in Nepal, making it easier to channel their expertise and financial resources.
• Building Stronger Ties: Strengthens the connection between the global Nepali diaspora and Nepal’s economic development.

Example:

An NRN entrepreneur in the US with expertise in technology can now easily establish a startup in Nepal to introduce innovative solutions, creating jobs and fostering local innovation.

Legal Note: NRNs must ensure that their NRN Citizenship Certificate is valid and issued as per the provisions of Nepal’s immigration and citizenship laws. Any discrepancies in documentation could delay the registration process.

2. Innovative Share Issuance Mechanisms (Section 18)

The updated Act revolutionizes the concept of "sweat equity" i.e. share issuance by allowing companies to issue shares for non-cash contributions such as intellectual property, goodwill, or technical know-how.

Special Provisions for Startups:

• Startups can allocate up to 40% of their paid-up capital for non-cash shares (compared to 20% for other companies).
• Encourages innovation by valuing intangible assets.

What Can Be Considered for Non-Cash Shares?

• Intellectual Property: Patents or proprietary algorithms.
• Goodwill: A founder’s established reputation.
• Services Provided: Technical advice or creative contributions.

Legal Safeguards for Non-Cash Contributions:

1. Certified Valuation Required: All non-cash contributions must be valued by a certified engineer or accountant as stipulated by Nepal’s laws.
2. Documentation of Valuation Reasons: The company must document the reasons behind the valuation during AGMs or when submitting details to the Company Registrar’s Office.

Non-compliance risks: Failure to follow proper valuation procedures could result in the rejection of the share issuance or penalties.

Example Scenario:

A software startup could allocate shares to a co-founder who contributes a patented AI algorithm, valued by an independent engineer, instead of requiring cash investments upfront.

3. Employee Stock Option Plans (ESOPs) (Section 66A)

The ordinance introduces Employee Stock Option Plans (ESOPs), giving companies a structured way to issue shares as part of employee remuneration.

Key Features:

1. Requires a special resolution passed during the Annual General Meeting (AGM).
2. Lock-in periods prevent immediate resale, promoting long-term commitment.
3. Employees have voluntary participation rights.

Benefits:

• Talent Retention: Aligns employee interests with the company’s success.
• Cost-Effective Incentives: Conserves cash for operations while rewarding employees.

Legal and Tax Considerations for ESOPs:

1. Legal Compliance: The ESOP scheme must clearly define eligibility criteria, purchase prices, lock-in periods, and the total number of shares available.
2. Tax Obligations: Shares allotted under ESOPs may be treated as taxable income for employees, subject to Nepal’s income tax laws. You may want to try Tax Calculator Nepal by MySalarySlip.com to understand how income tax on salary is calculated in Nepal. 
3. Reporting Requirements: Companies must maintain accurate records of ESOP allocations and include them in their annual reports to shareholders.

Example:

A growing fintech startup offers 5% of its shares under an ESOP to key employees, incentivizing them to stay and drive the company’s growth while conserving cash for expansion.

4. Simplified Premium Share Issuance (Section 29)

The removal of the requirement to submit three years of audited financial statements makes it easier for newer companies to issue premium shares.

Implications:

• Easier Fundraising: Startups can attract investments without delays.
• Reduced Bureaucracy: Lowers compliance hurdles, particularly for emerging businesses.

Comparison Table:

Legal Note: Companies should ensure that they comply with other disclosure requirements when issuing premium shares, such as providing adequate information to shareholders about pricing and valuation.

5. Enhanced Role of AGMs in Decision-Making

The ordinance underscores the importance of Annual General Meetings (AGMs) in ensuring transparency and shareholder engagement. Special resolutions are now required for decisions such as non-cash share issuance and ESOP implementation.

Why AGMs Are Important:

• Strengthen accountability and trust among shareholders.
• Provide a forum for stakeholders to discuss and approve critical decisions.

Special Considerations for Private Companies:

Private companies may not need to hold formal AGMs if permitted by their Articles of Association. Instead, they can pass resolutions in writing.

Legal Note: Consult a legal expert to determine whether AGMs or written resolutions are required for your private company’s structure and governance.

6. Opportunities for Startups in Nepal

Nepal’s startup ecosystem is set to benefit immensely from these reforms:

What Startups Should Do:

• Identify founders’ and partners’ non-cash contributions (e.g., patents, goodwill).
• Design ESOP plans to attract and retain employees.
• Use AGMs strategically to secure shareholder approval for growth-oriented initiatives.

Legal Risks of Non-Compliance

Businesses should be aware of the potential legal risks if they fail to comply with the amended provisions:

1. Non-Cash Shares: Improper valuation or documentation can result in the rejection of the issuance by regulatory authorities.
2. ESOPs: Non-compliance with AGM approval or reporting obligations may lead to penalties under corporate laws.
3. Premium Shares: Inadequate disclosure during premium share issuance may expose companies to shareholder disputes or regulatory scrutiny.

Pro Tip: Consult legal or financial experts to ensure full compliance with the amended Act.

Unlocking Nepal’s Entrepreneurial Potential

The amendments to Nepal’s Company Act 2063 pave the way for a more inclusive and innovative business environment. By recognizing NRNs as promoters, introducing non-cash share issuance, and formalizing ESOPs, the ordinance empowers startups and investors to thrive.

Now,  we’ll explore governance simplifications, compliance relief, and foreign company regulations.

Following the amendments to the Company Act 2063 through an ordinance , significant updates like NRN eligibility, ESOPs, and non-cash share issuance, particularly beneficial for startups and entrepreneurs. In this second part, we focus on governance flexibility, compliance relief, foreign company regulations, and processes for inactive companies, ensuring businesses of all sizes can operate efficiently within Nepal’s evolving corporate framework.

7. Governance Flexibility for Directors (Section 89)

The ordinance introduces provisions allowing directors to hold positions in multiple companies with similar objectives, subject to certain exceptions.

Key Changes:

1. A person can now serve as a director in:
   • Multiple private companies with similar objectives.
   • Both a holding company and its subsidiaries.
2. Directors of public companies can serve in other public companies with similar objectives, except in banking, financial, and insurance sectors.

Implications:

• Flexibility in Governance: Enables experienced directors to manage multiple ventures, fostering shared expertise.
• Alignment Across Companies: Strengthens operational cohesion between holding companies and subsidiaries.

Example Scenario:

A director of a tech startup can now serve on the board of another tech-focused private company, leveraging expertise to promote synergies.

Legal Note: Directors must ensure their actions do not violate fiduciary duties to any company they serve. It is crucial to disclose cross-directorships in board meetings or corporate filings to comply with conflict-of-interest rules.

8. Penalty Relief for Late Submissions (Section 81)

A one-time relief provision offers companies a 90% discount on penalties for late submissions of required documents, provided they comply by Ashar 2082 (mid-2025).

Key Features:

• Applicable for overdue details, notices, or information required under the Act.
• Aims to encourage compliance without imposing significant financial burdens.

Benefits:

• Financial Relief: Reduces the cost of rectifying past non-compliance.
• Encourages Timely Updates: Incentivizes companies to bring their records up to date.

Pro Tip: Companies with overdue filings should act promptly to take advantage of this relief and avoid paying full penalties after the deadline.

Tax Note: Companies benefiting from penalty relief should ensure that any penalty discounts are properly reported in their financial statements and tax filings as required by Nepalese tax laws. And it's noteworthy that such fines and penalties are not allowed as deductions for tax purpose. So, when you company pays fine, it's not only the fine but the tax on top of it due to disallowance. 

9. Simplified Registration Cancellation for Inactive Companies (Section 136A)

Inactive companies can now apply for cancellation of their registration through a streamlined process.

Steps for Registration Cancellation:

1. Resolution Required:
   • Through a general meeting resolution.
   • If a quorum isn’t met, the directors or present shareholders can decide.
2. Penalty Payment: Submit details and pay either:
   • Penalty amounts under Section 81, or
   • 0.5% of the paid-up capital, whichever is lower.
3. Public Notification: The Registrar’s Office will issue a 30-day notice, allowing objections to the cancellation.
4. Final Decision: If no valid objections arise, the company’s registration will be canceled.

Implications:

• Eases Administrative Burden: Allows businesses to formally exit the market without prolonged bureaucratic hurdles.
• Transparent Process: Ensures creditors and stakeholders are informed through public notifications.

Legal Note: Unresolved liabilities such as unpaid debts, taxes, or employee dues must be addressed before applying for cancellation. Companies must clear all obligations or settle them through formal agreements with creditors.

Example:

A dormant trading company that stopped operations in 2018 can now resolve its outstanding tax dues, pay a reduced penalty under Section 81, and apply for cancellation without the burden of long and costly bureaucratic delays.

10. Regulation for branch office of  Foreign Companies (Section 154)

Foreign companies operating in Nepal now face clarified regulatory oversight. In the absence of a designated governing body, the Company Registrar’s Office will act as the relevant authority.

Implications:

• Enhanced Accountability: Brings foreign companies under Nepal’s corporate framework.
• Streamlined Operations: Provides a single point of contact for regulatory compliance when no sector-specific authority exists.

Compliance Checklist for Foreign Companies:

1. Submit annual filings and tax returns to the Registrar.
2. Ensure registration of all business activities under Nepal’s laws.
3. Adhere to relevant sector-specific laws, if applicable.

Legal Note: Foreign companies failing to comply with filing and registration requirements may face penalties or restrictions on their operations.

11. Mandatory Special Resolutions for Key Actions (Section 176)

Certain corporate actions, such as providing loans, guarantees, or securities, now require a special resolution passed during an AGM.

Implications for Corporate Governance:

• Enhanced Transparency: Shareholders are directly involved in significant decisions.
• Risk Mitigation: Ensures that major financial commitments align with shareholder interests.

Practical Advice:

• Maintain detailed records of AGM minutes and resolutions to avoid disputes or regulatory challenges.
• Consult legal advisors before proposing resolutions for complex transactions to ensure compliance with shareholder rights.

12. Auditor Appointment Simplifications (Section 113)

The ordinance streamlines the process for appointing auditors in case the annual general meeting fails to appoint the auditor as per section 111 or if the company fails to conduct the annual general meeting altogether or if the auditor appointed as per the Act fails to perform their duty:

• Private and Unlisted Public Companies: The Board of Directors can now appoint auditors and inform the same to the OCR,  without requiring extensive approvals.
• Listed Public Companies: For listed companies, the earlier provisions continue to apply where the Board of Director is required to request the Office of Company Registrar to appoint and auditor, thus providing additional oversight to ensure greater transparency and accountability.

Implications:

• Ease of Operations: Simplifies compliance for smaller companies.
• Enhanced Oversight: Improves trust in financial reporting for listed companies.

Pro Tip: Regularly review your company’s Articles of Association to ensure auditor appointments align with internal governance policies.

13. Special Relief for Operational Transactions of Private Companies (Section 63)

Private companies converting into public companies no longer require special approval to conduct transactions after conversion.

Implications:

• Simplified Transition: Encourages private companies to go public without additional regulatory hurdles.
• Streamlined Operations: Reduces delays in accessing capital markets.

Legal Note: Companies must still comply with public company reporting and governance standards upon conversion.

Opportunities for Businesses

These provisions create several opportunities for businesses operating in Nepal:

What Businesses Should Do Next

1. Leverage Penalty Relief: Submit overdue filings before Ashar 2082 to minimize penalties by claiming 90% waiver.
2. Evaluate Board Memberships: Ensure compliance with new cross-directorship rules.
3. Prepare for AGMs: Plan AGMs to pass required special resolutions, particularly for significant financial decisions.
4. Review Foreign Company Compliance: Foreign companies should align with Nepali laws and reporting standards.
5. Streamline Auditor Appointments: Simplify processes where permitted to reduce administrative costs.

A Path Toward Simplified Governance

The amendments to Nepal’s Company Act 2063 reflect a progressive approach to governance and compliance, promoting accountability, transparency, and ease of business operations. Whether you're managing a startup, an established business, or a foreign company operating in Nepal, these changes offer opportunities to optimize operations and reduce bureaucratic burdens.

Actionable Next Steps:

• Consult legal and financial advisors to ensure compliance with the amended Act.
• Use the penalty relief period to bring records up to date.
• Regularly engage with shareholders through AGMs to foster trust and transparency.

Legal Disclaimer

This article provides general insights into the amended Company Act 2063 and is intended for informational purposes only. It does not constitute legal advice. For tailored guidance on compliance, penalties, or corporate governance, consult a qualified legal professional familiar with Nepalese corporate and tax laws. You may do so by downloading the Khatapana app or by sending a message to +977-9818098098.