Unit-2

Session-1

Forms of Business (Name )

Faculty : S. S. Paudel
 Introduction to Business Entity
• The concept of business entity is also known as economic
entity it assumes that it is separate and distinct from its
owners and from other business entities. Each entity owns its
own assets and incurs its own liabilities.
• A separate set of accounting records is maintained for each
business and the financial statements prepared represent the
financial position and results of operations of that business
only.
• Business Entity comprises all types of business organizations
sole proprietorship, partnership company and corporation
even if a law does not recognize a business and its owner as
the separate entities.
• The transactions related to a business must be recorded
separately from those of its owners and any other business.
Why We need Forms and Name of
Business?
 Business’ Identity
 Means of protection of Intellectual Property
 Identity of Reputation and Goodwill
 Identity of Production and Service
 Protection of interest of Consumer
 Legal Requirement
What is organized Entity ?
 It is creation of law – legal Personality
 It has certain power, duty and liability provided
by law.
Major Difference between Natural Person
and Legal Person
 It is self governed and operated
 It is created by law and ended only by due
process of law.
 It has certain motives and scopes
 It has predetermined objectives.
 Classification of Business Entity
Government Sector Private Sector
Company Corporation and Firms, Cooperatives and
Development Committee Companies Registered under :
registered Under :
Private Firm Registration Act,
Corporation Act, 2021 2014 & Partnership Act 2020:
- Nepal Food corporation
-Proprietorship / Partnership Firm
Development Committee Co-operative Act, 2074 :
Act, 2012
- Melamchi Water Supply -Co-operatives Organization
Committee
The Companies Act, 2063 :
Special Act, ( i.e. Nepal
Electricity Authority -All types of Company Except the
incorporated under the NEA company incorporated under
Act, 2025) special Act
Types of Company under The Companies
Act 2063
 Bases of Selecting forms of
Business

 Nature of Business
 Capital requirement for Business
 Number of investors in Business
 Legal Compulsion
 Bases to differentiate among
Business
 Institutional Status- Separate Legal entity or not
 Promoter Governmental or Private
 Limited Liability
 Legal Compulsion
 Process of Registration
 Require Documents
 Number of Promoters, Transferable share,
Liquidation etc.
 Session- 2

Incorporation / registration

procedure and requirements

Commencement of Business
 What is Company ?

Company means:

• A Business Vehicle
• Association of a number of People for economic
purpose.
• Legal person: Created and dissolved through legal
process.
• Generally endowed with the benefit of Limited
Liability.
 Contd:

But (Exceptions)...

• Association of People: Single-Man Company

• Economic Purpose: Not- Profit -Sharing Company

• Limited Liability: Unlimited Company

 Contd...

• " A company is a corporation, and is therefore , a person

in the eyes of law quite distinct from the individuals who
are its members. As a distinct person, the company can
own property, have rights and be subject to liabilities."
( Robert R. Pennington)

• "Company is an association of a number of persons for a

common objects, that object normally being the
economic gain of its members." ( L.C.B. Gower)
 Applicable Laws

• The Companies Act, 2063

• Other Special Acts for Prior Approval- Bank and Financial

Institution Act, 2073

• Foreign Investment and Technology Transfer Act, 2075

for Prior Approval/License

• Other Special Act for Post-approval/license such as

Insurance Act, 2049 for Company doing insurance
business
 Types of Company

Basis of Classification:
• Objective: Investment Return Motive or Not ? : e.g. public
company/private company and company not distributing
profit
• Mode of Capital Raising: public or private ?
• Number of Shareholder: Public company, private company
or company not distributing profit
• Country of Incorporation: Foreign Company and Non-
foreign company
• Investor: government or private?:
• Mode of Control: Holding Company and Subsidiary
company
 Contd...

• Private Company (Pvt. Ltd.)

• Public Company (Ltd.)
• Company Not Distributing Profit (Not-for-Profit sharing
company)
• Government Company
• Holding Company
• Subsidiary Company
• Foreign Company

Can the Status of the Company be Changed ?

-Yes (fromprivate limited to public or vice versa)
 Public Company
• Can issue share and debenture publicly.
• There should be at least 7 promoters to register the
company (if company itself promoter no need 7
promoter)
• Require to mention the word "Ltd" at the end of their
name.
• Generally, shares are transferable freely.
• There should be at least 10 million as paid up capital.

• Requires to have certificate of commencement from

Office of the Company Registrar (OCR).

• Require to publish its Memorandum and Articles for

public information.
 Types of Public Company

• Listed company: whose shares are listed in the security

market and are freely traded. For e.g., each bank is
required to sell 30 % of their total shares to public.

• Unlisted company: whose shares are not listed in the

security market. This type of company has limited
number of shareholders.

• Is every company required to issue share to public?-No

 Private Company
• There shall be minimum one and maximum 101
members ( but does not include employee
shareholder)
• It is required to mention the word " Pvt. Ltd." at the
end of its name.
• can not sell share or debenture publicly
• can make special operational and management
mechanism through unanimous agreement
• Generally shares are not freely transferable
(restrictions)
• Need not to obtain certificate of commencement from
OCR
• Need not to publish MoA and AoA for public
information
 Types of Private Company

• Single Shareholder Company: has only one

shareholder and does not require to have General
Meeting and Board of Directors.

• Multi Shareholder Private Company: Having more

than one shareholder.

• Even multi shareholder private company may be

exempted from holding General Meeting and Board
of Directors if so provided in its AoA or Unanimous
Agreement.
 Company Not Distributing Profit

• It can be registered for realizing social, charitable or

philanthropic objectives or for the protection of
interest of certain professionals.
• It does not have any share capital. Its fund includes
membership contribution, donation or loan.
• It can earn profit but can not distribute such profit to
shareholders as dividend or as bonus to employees.
Such profit should be utilized for the attainment of set
objectives.
• It requires at least 5 promoters for registration.
• No limit on the maximum number of members
• It should not write the word " company" or "ltd" or
"pvt. ltd" without approval from OCR.
 Foreign Company
• A company incorporated in other jurisdictions (foreign
countries) but recognized under the Companies Act,
2063.
• There is a difference between subsidiary company
having foreign investment and foreign company.
• A company incorporated in the foreign jurisdiction
can operate in Nepal by any of two ways:
– As a subsidiary company
– As a foreign company
• Foreign Company are of two types:
– Branch Office : can undertake business activities
– Contact Office : can not carry out income
generating activities in Nepal
 Formation of Company (Incorporation
Procedure)

• Giving Birth to a legal entity in the form of Company

• Based on the type of the Company you desire to form,

procedure of Formation differs.

• Generally Company is allowed to be operated within the

area pre-defined in its incorporation documents.

• Office of Company Registrar (OCR) is a registering

authority of company in Nepal.
 Related Provisions

• Section 3 -6 of the Companies Act, 2063 (for all types of

company)

• Section 154-155 of the Companies Act, 2063 (applicable

to foreign company only)

• Section 3-7 of the Bank and Financial Institution Act, 2073

(applicable for only bank and financial institutions)

• Related section Foreign Investment and Technology

Transfer Act, 2075 (applicable to the company having
foreign investment)
 What is Required ?

• Number of Promoters

• Incorporation Documents

• Requirement of Prior Approval

• Registration Process and Time Frame

 Who are Promoters ?

• Promoters are the Founder of Company Signing

the Incorporation Documents

• They are Architecture of Company.

• They Decide on the Nature of Business,

objectives, name, address, Share Capital and its
source.
 Who can not be the Promoter ?

• Minor ( below 16 years)

• Person incapable to make agreement (insane)

• Private Firm

• Partnership Firm
 Number of Promoters

• Private Company: 1 to 101( In case of transportation

related company, and affiliated with transpiration committee
company not applicable)

• Public Company: 7 to No-Limit

But number of 7 promoters is not required for
– Public Company incorporating Another Public
Company.
– Conversion of government owned Company
into Public Company.

• Not-for-Profit Company: 5 to No-Limit

 Incorporation Documents

• Application for Registration

• Memorandum of Association (MoA)- 2 copies

• Articles of Association (AoA)-2 copies

• Promoters' Agreement, If any for Public Company

Unanimous Agreement, if any, for Private Company-2
copies

• Copy of Citizenship of Promoter/Registration

Documents of Legal Person (such as Certificate of
Registration of MoA and AoA of Promoter Company)
Contd...
• Passport of Foreign Promoter
• Incorporation Document of Foreign Legal Person

• License or Approval from Regulatory Body, if required

(such as License from Nepal Rastra Bank for registering
Bank or Financial Institution)

• License/Approval for foreign investment/for operating

Business in Nepal from the Government Authority
( Department of Industry)

• Power of Attorney ( if you do not like to go to OCR for

registration)
 Memorandum of Association (MoA)

• MoA is the Fundamental incorporation document

defining the ambit of operation of company
• MoA Sets out the fundamental business matters
such as
–Name and address of Registered Office
–Objectives and Nature of Business
–Share Capital and Types of Shares
–Restriction on the Transferability of Shares
–Limited Liability
• MoA can rightly called the Constitution of company.
 Articles of Association (AoA)

Contains Internal rules of operation and management

of company such as:
• Procedure of General Meeting and Board Meeting
and their notice

• Composition of Board of Directors and Authorities,

Responsibilities of Board Member and other Chief
Officers
• Account and Audit

• Class of Shares, their Transferability and Alteration of

Share Capital
Contd...
Note that,
•MoA and AoA to be prepared in the prescribed format.
There is a different format of MoA and AoA prescribed
for each type of company.
•One-man-company is not required to submit separate
AoA if he agrees to follow the prescribed format.
•MoA and AoA should not conflict with existing laws.
•Two Copies of MoA and AoA should be submitted to
the OCR.
•Promoters need to sign in each page of MoA and AoA.
•Each Promoter should have one witness signing the
MoA and AoA.
 Two Procedure for Incorporation
(Requirement of Prior Approval)

• We can classify the registration procedure of the

company into two types:
– Special Procedure (regulated by other related Act)
– General Procedure (regulated by Companies Act,
2063)
• Special Procedure Can be Called Condition-
Precedent for Registration without completing which
you can not initiate the general procedure.
• For completing special procedure you may need to
submit additional documents to the regulatory body (
for e.g., promoters of the proposed bank or financial
institution are required to submit the feasibility study
to NRB to get license
 Contd...

• When you require to obtain the prior approval

(requirement of complying with special procedure)?
– If required by Special legislation: e.g. license of Nepal
Rastra Bank is required for forming bank or financial
institution
– If foreign investment is to be injected into the
company, then prior approval from Department of
Industry is required to be obtained under the Foreign
Investment and Technology Transfer Act, 2075
– You should submit the application for Registration to
the OCR along with those licenses.
Contd...

• Note that
• Name of the proposed company should not be identical
or similar to other existing company.

• Name or objective of the proposed company should not

be against the law or public morality.

• The objective should be set out in clear and

unambiguous manner.

• The registration fee is prescribed by the government.

The prescribed fee should be paid after the OCR
decides to register your company.
 Registration Process and Time Frame
• The OCR is required to register provide the certificate the
company within 7 days from the date of application if:
– Proposed name is compatible with law
– Proposed objectives are not contrary with law
– incorporation documents are prepared in due manner
• If not requirement fulfill need to inform within 3 days to the
applicant
• For foreign company: 30 days
• What would you do if the OCR refuses to register your
company ?
– You can file the petition with the Court within 15 days
from the date of receipt of the notice of refusal.
 Commencement of Business

• A company may need to complete some other legal

formalities under the Companies Act and other related
laws even after it gets certificate of registration to
commence business.

• For e.g. without obtaining the certificate from the OCR,

the Ltd. can not start its business.
 Main Formalities and Process

• Holding the First Board Meeting

• Setting Up the Registered Office
• Making the Call on the Share
• Obtaining the approval, license or permit from other
regulatory body, if required
• Obtaining certificate to commence business in case of
Ltd.
• Registering the industry or business
• Obtaining PAN Certificate
 Approval/License/Permit

• A public company or Private company may need

to have approval from the regulatory body.
• The approval requirement depends upon the
nature of business, e.g.
– College: Affiliated University
– Insurance Business: Insurance Board
– Bank/Financial Institution: NRB
– Hydro Power: Electricity Development Board
– Tourism: Ministry of Culture, Tourism and Civil Aviation
• All company need not to have obtain such
approval. For e.g. Law Firm
 Certificate to Commence Business

• Only public company needs to obtain Certificate to

Commence Business

• The Certificate is issued by the OCR.

• For this, the public company needs to:

– obtain the approval/license from regulatory body, if
required
– get the call amount from promoters ( the paid up
amount should not be less than 10 million)
– have audit report and certified copy of Balance
Sheet.
 Registration of Industry or Trade

• Industrial Enterprises Act, 2020 (2076 BS) (the "Act") has been
introduced repealing the Industrial Enterprises Act, 2016 (2073 BS)
(the "Previous Act"). The Act has been authenticated by the President
on February 11, 2020 (2076/10/28). The Act is in effect since the date
of authentication.  
• The Act is a principal legislation for registration, establishment and
pre/post operational compliances of industry.
• No person (either natural or legal) is permitted to operate its business
without establishing industry under this Act.
• Company registered under the Companies Act at the Office of
Company Registrar (the “OCR”) is not allowed to operate business
transaction without registering its industry under the Act. 
 
• Department of Industry: Company acting as agent under the Nepal
Agency Act, 2014 only
• Registering with the Local Bodies
 PAN registration for income Tax: Every company is
required to be registered.

 PAN registration for VAT: Annual transaction 50 lakhs and

more in case of product and transaction of product and/or
service 20 lakhs or more required to be registered.
 Up to above mentioned limit not mandatory to register VAT.
(VAT Regulation 2053 (with amendment) rule 6.
 Excise duty Registration: Company carrying the excise-duty-
transaction is required to be registered. For e.g. alcohol and
cigarette manufacturing company.
THANK YOU