Opening a business in Nepal requires a nuanced understanding of the legal framework surrounding businesses. The incorporation of a company/business entity is the very first step in officially starting a business in Nepal. Usually, all further licensing/ registration requires the incorporation of a business entity. 

The type of business entity you select directly impacts important issues like tax liability, personal liability, and administrative compliance requirements. The legal framework of Nepal essentially recognizes the following business entities: Sole Proprietorship (Private Firm), Partnership Firms, a single-shareholder Private Limited Company, a multiple-shareholder Private Limited Company, and a Profit non-distributing company.  

However, the most common business entity today is the “company”. In the case of a private limited company, public limited company, and profit non-distributing company, the law essentially gives birth to a new legal person. This person has an identity in the eyes of the law that is separate from its founder and life independent from its founders.  

As decided by the UK House of Lords, in the case of Salomon v. Salomon & Co., as early as 1897, a founder and their company have a separate legal identity. This case elaborates on the concept of “corporate veil”, which is essential to the global business environment. The concept of “corporate veil” essentially acts as a primary safeguard that allows investors to be bold and open new businesses.  

In Nepal, a company is incorporated under the Company Act, 2063. The incorporation of a new company requires a Memorandum of Association, Articles of Association, an Application, and other requirements provided by section 4 of the Act. The primary governing authority for the incorporation of a company is the Office of the Company Registrar. This process is streamlined and user-friendly through the official CAMIS (Company Administration Management Information System) portal. The first step to incorporating a company is the name reservation system. Through the CAMIS system, you can reserve the name of your proposed company. In this process, the portal allows you to check if the name you propose is acceptable. Once the name is reserved, the MOA, AOA (constitutions of the company), and application of the proposed company, along with notarized citizenship/ other official identifying documents, need to be submitted to the portal. After the completion of this process, the OCR will verify these documents and provide approval. After the payment of the designated fees for the incorporation according to your nominal capital, the OCR will issue a certificate of incorporation to your company.  

In contrast, a private firm can be registered under the Private Firm Registration Act, 2014. Although this creates a business entity, the liability of the business is incorporated into the business as the firm operates in its own name but is managed by a single individual.   

Although there are various benefits to incorporating your company, such as limited liability, perpetual succession, corporate veil. There are things that make a company not a suitable entity for your business. One of the most annoying issues for any company founder will be compliance with the corporate governance structure. This structure is complex and requires an understanding of the Companies Act. There are compliance requirements of any company as outlined by the OCR, such as 3 months update, share lagat (capital allotment), and annual compliance. Being unfamiliar with these requirements results in noncompliance, thus leading to business owners incurring huge fines at the OCR. There will be additional requirements, like audits, that may not be appropriate and feasible for all business owners. Furthermore, the tax rates for a company are substantially higher than those for a private firm. Thus, opening a company may incur huge tax bills at the IRD.  

Thus, the choice of incorporating a company needs to be evaluated on a case-by-case basis; you should analyse whether the benefits of limited liability and perpetual succession outweigh  risks of rigorous compliance requirements and high tax rates.