The main forms of business in Nepal are explained in this article
Sole proprietorship (private) firms.
The Private Firm Registration Act of 1957 allows individuals to create sole proprietorship businesses and give them a trading name. Sole proprietorships have no separate legal existence, and the proprietor’s responsibility is unlimited. Individuals that engage in trading activities (such as retailers, shops, and importers of goods) and professional service providers such as lawyers and accountants are the most common users of proprietorship firms.
The following are the advantages of sole proprietorship businesses:
- It is simple to set up, regulate, and disband.
- Making quick and flexible decisions.
Some drawbacks include:
- Ongoing renewal
- There is no distinct legal personality.
Partnership firms
The Partnership Act of 1963 allows for the registration of partnership firms. They lack a distinct corporate personality, and the partners’ liability is boundless (limited liability partnerships have not yet been introduced in Nepal). The maximum number of partners in a partnership firm is unrestricted. Partnership firms are mostly utilized by retailers, shops, and importers of commodities, as well as professional service providers such as lawyers and accountants.
Their benefits include:
- A greater pool of resources is available (as compared to a sole proprietorship).
- Operational/decision-making flexibility (as compared to companies).
Partnerships have the following disadvantages:
- Periodic renewal.
- There is no distinct legal personality.
Limited liability companies
The Companies Act of 2006 establishes limited liability companies (Companies Act).
The Companies Act provides for the incorporation of:
- Private limited companies.
- Public limited companies.
- Not-for-profit companies.
The most prevalent type of business structure is a limited liability company (often a private limited company). A single shareholder can even start a private business under the Companies Act.
Limited liability businesses have the following advantages:
- Limited liability.
- It has its legal personality.
- Permanent succession
- There is no necessity for annual/periodic renewal.
The following are the downsides of limited liability companies:
- It is expensive to form, maintain, and dissolve.
- Extensive reporting and compliance obligations.
Cooperatives
Co-operatives are governed by the Co-operative Act of 1992 and are based on the cooperative principle (that is, business activities of the co-operatives are limited to their members). Members of co-operatives have limited responsibility and have their own legal identity. A co-operative must have at least 25 members to be formed. This vehicle is not commonly utilized by business owners for routine commercial transactions.
Co-operatives have the following benefits:
- Limited liability.
- It has its legal personality.
- Permanent succession
- There is no necessity for annual/periodic renewal.
Co-operatives have the following disadvantages:
- Their business operations are limited to their members.
- It is better suited to organizations with social or community-oriented goals rather than commercial ones.
Options for foreigners
The most common options for foreign companies establishing a business in Nepal are:
Registration of the local subsidiary
In Nepal, an international corporation might establish a joint venture or a wholly-owned subsidiary. For the following reasons, a private company is the most typical corporate vehicle utilized by international enterprises wishing to establish a business presence in Nepal:
- Liability is limited.
- It has its legal personality.
- There is no necessity for annual/periodic renewal.
Although existing foreign investment regulations do not restrict foreign investment by any other type of business entity, authorization for foreign investments is almost exclusively provided to corporations.
In the case of government projects, the winning bidder may be required to form a company in Nepal by the bidding documents. Unincorporated joint ventures are sometimes required to register with the tax department for tax purposes. However, such registration of unincorporated joint ventures is not in compliance with the law.
Registration of branch
Foreign corporations can register a branch office in Nepal under the Companies Act of 2006. The branch can carry out the same business activities as the foreign company in the nation where it was founded. A firm must have one of the following to register a branch office in Nepal (section 154(3) of the Companies Act):
- Approval from Nepal’s relevant authorities allows them to conduct business in Nepal.
- A contract with a Nepalese competent authority to conduct business in Nepal.
In Nepal, there is no distinct state authority in charge of approving branch offices. The Department of Industries (DOI) is responsible under the Foreign Investment and Technology Transfer Act 1992 (FITTA), and the Nepal Rastra Bank (NRB) is responsible under the Foreign Exchange Regulation Act 1962. (FERA). However, the DOI does not currently grant approval to foreign firms for the establishment of a branch office, and its approval is limited to share capital investments. As a result, branch registration is not an option unless DOI changes its current approach to comply with the legislation.
For government initiatives having a government authority, authorization for a branch office will be granted.
