The Companies Act, 2063 (2006)

Date of Authentication: 7 Kartik 2063 (3 November 2006)
Act No. 18 of 2063 (2006)
An Act made to amend and consolidate the law relating to companies.
Amended by:
The Act Amending Some Nepal Acts, 2064 (26 August 2007)

Preamble

Whereas, it is expedient to amend and consolidate company law to promote economic development through investment in industry, trade, and business by fostering economic liberalization, and to simplify, streamline, and ensure transparency in the incorporation, operation, and administration of companies.
Now, therefore, be it enacted by the House of Representatives in the First Year of the issuance of the Proclamation of the House of Representatives, 2063 (2006).

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                                         Chapter 1

PRELIMINARY

1. Title and Commencement:
   (1) This Act shall be called the Companies Act, 2063 (2006).
   (2) It shall be deemed to have come into force on 20 Ashwin 2063 (6 October 2006).

 

2. Definitions: In this Act, unless the subject or the context otherwise requires,

(a) “Company” means a company incorporated under this Act.

(b) “Private company” means a private company incorporated under this Act.

(c) “Public company” means a company other than a private company.

(d) “Holding company” means a company-having control over a subsidiary company.

(e) “Subsidiary company” means a company controlled by a holding company.

(f) “Foreign company” means a company incorporated outside Nepal.

(g) “Listed company” means public company which has its securities listed in the stock exchange.

(h) “company not distributing profits” means company incorporated under Chapter 19 on conditions that it shall not be entitled to distribute or pay to its members any dividends or any other moneys out of the profits earned or savings made for the attainment of any objectives.

(i) “Promoter” means a person who, having consented to the matters contained in the memorandum of association and the articles of association to be furnished in the Office for the incorporation of a company, signs the same in the capacity of promoter.

(j) “Officer” includes director, chief executive, manager, company secretary, liquidator and any employee undertaking departmental responsibility of the company.

(k) “Memorandum of association” means the memorandum of association of a company.

(l) “Articles of association” means the articles of association of a company.

(m) “Prospectus” means a prospectus to be published by a company pursuant to Section 23.

(n) “Share” means the divided portion of the share capital of a company.

(o) “Preference share” means a share issued as a preference share pursuant to this Act.

(p)  “Ordinary share” means a share other than a preference share.

(q) “Bonus share” means a share issued as an additional share to shareholders, by capitalizing the saving earned from the profits or the reserve fund of a company, and this term includes the increase of the paid up value of a share by capitalizing the saving or reserve fund.

(r) “Shareholder” means a person having ownership in the share of a company.

(s) “Debenture” means any bond issued by accompany whether putting its assets as collateral or not.

(t) “Debenture trustee” means a body corporate undertaking the responsibility for the protection of interests of debenture-holders at the time of issuance of debentures by a company.

(u) “Register” means a register of shareholders or debenture-holders maintained under Section 46. (v) “Seal of company” means the seal of a company to be used by it.

(w) “Securities Board” means the securities board established under the prevailing law to regulate and manage securities.

(x) “Securities” means any shares, bonds, debentures or stocks issued by a company, and this term includes the receipt relating to deposits of securities and the rights and entitlement relating to securities.

(y) “Director” means any director of a company and this term includes any alternate director.

(z) “Board of directors” means the board of directors of a company.

(z1) “Managing director” means a managing director of a company.

(z2) “Premium share” means a share so issued by a company as to sell it for a value in excess of its face value.

(z3) “Net worth” means the assets of a company remaining after deducting the paid up capital, reserve, fund or free reserve of whatever designation to which shareholders have right or all other liabilities other than goodwill, if any, of the company as well as loss provisions , if any, from the total assets of the company for the time being.

(z4) “Consensus agreement” means an agreement made unanimously by all the shareholders of a private company existing for the time being in respect of the operation of the company.

(z5) “Office” means the Company Registrar’s Office set up by the Government of Nepal for the administration of companies.

(z6) “Register” means the Registrar of the Office.

(z7) “Independent director” means any independent director appointed under Sub-section (3) of Section 86.

(z8) “Court” means the commercial bench of a court specified by the Government Nepal by a notification in the Nepal Gazette, with the consent of the Supreme Court.

(z9) “Close relative” means a partition shareholder in joint family or husband, wife, father, mother, mother-in -law, father-in- law, elder brother, younger brother, elder sister, younger sister, sister in–law ,(elder or younger brother’s wife), brother-in law , sister–in–law, brother-in- law, (husband of elder sister), uncle, aunt, maternal uncle, maternal aunt, son, daughter, daughter-in-law ,grand–son, grand-daughter, grand-daughter-in– law or son-in law .

(z10) “Prescribed” or “as prescribed” means prescribed or as prescribed by the Government of Nepal by a notification in the Nepal Gazette.

 

                Chapter 2: Incorporation of Company

 

3. Incorporation of Company:
   (1) Any person, individually or jointly, may incorporate a company for profit to achieve objectives stated in the memorandum of association.
   (2) A public company must have at least seven promoters, except when incorporated by another public company.
   (3) A company not distributing profits may be incorporated under Chapter 19 to pursue specific objectives.
4. Application for Incorporation:
   (1) A person intending to incorporate a company under Section 3 shall apply to the Office in the prescribed format with the required fee and the following documents:

(a) Memorandum of Association

(b) Articles of Association

(c) For a public company, any pre-incorporation agreement among promoters (if any)

(d) For a private company, a copy of the consensus agreement, if any.

(e) Required approval or license under prevailing law, if applicable to the business.

(f) For a Nepali promoter: a certified copy of citizenship; for a corporate promoter: incorporation certificate, board decision, and key incorporation documents.

(g) For foreign promoters: permission under prevailing law to invest or do business in Nepal.

(h) For a foreign individual: proof of citizenship.

(i) For a foreign company/body: certified incorporation documents and related records.

(2) If a single promoter accepts the prescribed format of Articles of Association, submission of a separate articles document is not required.

5. Registration of Company

(1) Upon application under Section 4, the Office must, after due inquiry, register the company within 15 days and issue a certificate in the prescribed format.
(2) Upon registration, the company is deemed incorporated.
(3) The Office shall maintain a prescribed register of companies.
(4) The memorandum and articles of association are binding on the company and its shareholders as if by contract.
(5) No one shall use “company” or conduct business under an unregistered name.

 

6. Power to Refuse Registration

(1) The Office may refuse to register a company if:
(a) The proposed name is identical or similar to an existing company, causing confusion.
(b) The name/objective violates law, public interest, morality, or appears improper.
(c) The name matches a deregistered or insolvent company within the last 5 years.
(d) Incorporation requirements under this Act are not met.
(2) Refusal must be notified with reasons within 15 days of application.
(3) Dissatisfied applicants may appeal in court within 15 days.

 

7. Company as a Corporate Body

(1) A company is an autonomous corporate body with perpetual succession.
(2) It may own, acquire, or dispose of property.
(3) It may sue and be sued.
(4) It may enter contracts and fulfill rights and obligations.

 

8. Limited Liability

Shareholders’ liability is limited to the value of their subscribed or committed shares.

 

9. Number of Shareholders

(1) A private company can have up to 50 shareholders.
(2) A public company must have at least 7 shareholders.
(3) Employees with shares under employee schemes are not counted.

 

10. Terms to be Abided by Companies

Companies must:
(a) Operate under their registered name.
(b) Include “Private Limited” or “Limited” in their names, except non-profits.
(c) Private companies cannot publicly trade shares or debentures.
(d) Private companies cannot transfer securities outside shareholders without agreement.
(e) Companies cannot operate as partnerships.
(f) Non-profits cannot distribute profits or pay members or their relatives.

 

11. Paid-Up Capital for Public Companies

(1) Minimum capital is NPR 10 million, unless otherwise notified.
(2) Existing public companies must meet this requirement by 8 December 2008.

 

12. Mandatory Public Company Status

Companies involved in banking, insurance, securities, mutual/pension funds, etc., must register as public companies.

 

13. Conversion of Private to Public Company

(1) A private company must convert into a public company if:
(a) A special resolution is passed and legal requirements are met.
(b) 25%+ of its shares are held by public companies (except as trustees).
(c) It holds 25%+ shares of a public company.
(2–3) Application must be made with resolution and fee within 30 days; the Office shall register and issue a certificate within 60 days.
(4–5) For (b) and (c), application must be made within 7 days; the Office shall issue a certificate if legal criteria are met.
(6–7) A subsidiary of a converted company is also deemed public and must register.
(8–9) After conversion, public company provisions apply, and all assets/liabilities transfer.

 

14. Conversion of Public to Private Company

(1) A public company must convert if:
(a) Shareholders fall below 7.
(b) Paid-up capital falls below the legal minimum (except certain cases).
(2) Amendments must be made within 6 months.
(3–4) Apply to the Office within 30 days of amendment; the Office must issue a certificate within 60 days.
(5) All assets and liabilities transfer to the converted private company.

 

15. Service of Summons and Notices

(1–2) Notices to companies, directors, shareholders, etc., are valid if sent to the registered office or via registered post, email, fax, etc.
If delivery fails, notice via national media suffices.
(3) Notices may be served electronically with prior consent; others shall receive them by post or reliable means.

 

16. Functions and Duties of Registrar

(1) The Registrar shall implement this Act and oversee company administration.
(2) May issue binding directives for proper implementation.
(3) Directives must be publicly accessible.
(4) Powers may be delegated to subordinates.
(5) Regulatory bodies retain authority under applicable laws.

 

17. Pre-Incorporation Contracts

(1) Pre-incorporation contracts are not binding on the company.
(2) Persons entering such contracts are personally liable unless:
(3) The company, after incorporation, accepts or endorses the contract—then the company is bound, and the person is released.
(4) Private companies may follow their consensus agreement for such contracts.

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                                          Chapter 3

Memorandum of Association, Articles of Association and prospectus

18. Memorandum of Association (MOA)

1. The MOA shall include:
   • (a) Company name
   • (b) Registered office address
   • (c) Company objectives
   • (d) Activities to achieve objectives
   • (e) Authorized and issued capital, and promoter’s commitment
   • (f) Types, rights, value, and number of shares
   • (g) Share transfer/purchase restrictions
   • (h) Number of shares promoters will subscribe
   • (i) Share payment terms
   • (j) Limited liability of shareholders
   • (k) Max number of shareholders (for private companies)
   • (l) Other necessary matters
2. The MOA must also mention if:
   • (a) Shares are issued for non-cash consideration
   • (b) Company acquires any property from promoters
   • (c) Company bears incorporation costs
   • (d) Promoters have special rights/privileges
3. In case of non-cash consideration or property acquisition (for public companies), valuation must be done by a certified engineer/accountant.
4. Valuation criteria shall be as prescribed; otherwise, valuator must specify the basis used.
5. Inconsistent MOA provisions with this Act are void to that extent.
6. MOA format shall be as prescribed.

 

19. Signing the MOA

1. MOA must state full names, addresses, and share commitments of promoters and be signed by all.
2. Each promoter’s witness name, address, and signature must be included.
3. Promoters must subscribe as per Articles; if not specified, at least 100 shares.
4. Minor corrections to MOA/Articles may be requested within one year of incorporation.
5. Office may rectify errors upon review, without altering company objectives.

 

20. Articles of Association (AOA)

1. AOA must support MOA objectives and ensure proper governance.
2. AOA must include:
   • General meeting procedures and notices
   • Meeting proceedings
   • Board structure, alternates, and terms
   • Meeting minutes, copies, and inspection
   • Share requirement to be a director
   • Independent director provisions (for public companies)
   • Appointment of non-shareholder directors
   • Powers/duties of board and MD
   • Delegation of authority
   • Board meeting quorum and procedures
   • Lien, types of shares, rights, and restrictions
   • Share calls, forfeiture, transfer, buybacks
   • Share capital changes
   • Company secretary appointment
   • Director remuneration and facilities
   • Use of company seal
   • Accounts, audit, loans, debentures
   • Amalgamation
   • Legal compliance for special businesses
   • Other necessary matters
3. Inconsistent provisions in AOA are void.
4. AOA format shall be as prescribed.

 

21. Amending MOA and AOA

1. Special resolution required for any amendments.
2. Amendments must be reported to the Office within 30 days.
3. Company name changes require prior Office approval with fee.
4. Shareholders with 5%+ shares (excluding consenting voters) may petition the court against objective amendments within 21 days.
5. Petition must be notified to the company unless it refuses acknowledgment.
6. Amendment becomes ineffective until court decision.
7. Court may:
   • Declare amendment valid/void
   • Require company to repurchase shares of dissenting shareholders
   • Reduce capital if needed and amend MOA/AOA accordingly
8. Future amendments on the same matter require court approval.
9. Court-approved changes are treated as if passed by general meeting.

 

22. Publication of MOA and AOA

1. Public companies must publish MOA and AOA within 3 months of license issuance.
2. Amendments must also be published within 3 months.
3. Published documents must be kept at registered office for access.

 

23. Prospectus Publication

1. Prospectus required before public issuance of securities.
2. Must be approved by Securities Board and registered with the Office.
3. No publication without such approval and registration.
4. Securities Board may demand amendments before approval.
5. Approved prospectus must be notified to the Office with proof of approval.
6. Office may reject registration if non-compliant.
7. Prospectus must state approval and registration details.
8. Cover page must disclaim Securities Board/Office responsibility for content.
9. Declaration of compliance required before approval.
10. Format and content to comply with prevailing securities law.

 

24. Prospectus Liability

1. Company is bound by its published prospectus.
2. Signing directors are liable for its content.
3. Directors are personally liable for damages from false or misleading statements unless:
   • They resigned before the decision to issue
   • They publicly disclosed falsehood before issue
   • They were unaware of false statements

 

25. Issuance of Duplicates

1. Upon request and payment, company must provide copies of MOA, AOA, prospectus, financials, etc.
2. If not provided, the Office will issue copies for a fee.

 

26. Company Seal

1. Companies using a seal must clearly inscribe their name.
2. Seal must be used on reports, letters, financials, invoices, instruments, and official documents.
3. Failure to mention the company name on such documents makes the signer personally liable.

                                                               Chapter 4

SHARES AND DEBENTURES

27. Face Value of Shares and Application

1. A private company’s share face value shall be as specified in its Articles of Association.
2. A public company’s share face value shall be Rs. 50 or any amount over Rs. 50 divisible by 10, as per its Memorandum and Articles of Association.
3. A public company cannot demand more than 50% of the face value per share at the time of application.
   • Exception: Companies operating for at least 3 years and publishing audited financials for those years may be exempt from this.
4. Applications to subscribe to shares must follow the prescribed format.

 

28. Allotment of Shares

1. A public company must allot shares and notify applicants in the prescribed format within 3 months of the public offering’s closure.
   • Exception: If less than 50% of the offered shares are subscribed and no underwriting is in place, shares cannot be allotted.
2. The company may apply for up to a 3-month extension within 7 days of the original deadline, citing valid reasons. If allotment still fails, shares may be allotted via negotiation or alternative methods.
3. If shares are not allotted within the allowed period, the application money and prescribed interest must be refunded.
4. If refund funds are insufficient, promoters must personally bear the shortfall.
5. Discriminatory or harmful allotments may be challenged in court by any affected investor.
6. If deliberate violation by an officer causes investor loss, the court may order personal compensation by the officer, including legal costs.

29. Power to Issue Shares at Premium

1. A company may issue shares at a premium with prior approval from the Office if:
   • It has made profits and paid dividends for the last 3 consecutive years,
   • Its net worth exceeds its liabilities, and
   • A general meeting approves the premium issuance.
2. The premium amount (excess over face value) must be deposited into a separate premium account.
3. The premium account funds may be used for:
   • Issuing bonus shares,
   • Paying premiums on redemption of preference shares,
   • Writing off preliminary expenses,
   • Covering expenses, commissions, or discounts on share issuance.
4. The application for Office approval must include audited financial statements of the last 3 years.

 

30. Shares with Different Rights and Rights of Such Shareholders

1. A company may issue shares with different rights if authorized by its Memorandum and Articles of Association.
2. Alteration of class rights requires approval from shareholders of that class, unless otherwise provided in the Articles.
   • No changes can be made that negatively affect rights of another class.
3. Shareholders representing at least 10% of a class may file a petition in court within 30 days if dissatisfied with any alteration.
   • Such a decision will be stayed until the court decides.
4. If the court finds the alteration harmful to petitioners’ rights, it may void the change.
5. Any proposed change to class rights must be passed as a special resolution by the concerned class’s general meeting.
6. In a government-owned company undergoing privatization, the Government of Nepal may retain special voting rights (as per Articles) on:
   • Disposal of undertakings (Section 105(1)(a)),
   • Voluntary liquidation,
   • Amalgamation decisions.

31. Special Voting Rights in Privatized Companies

In companies fully or partially privatized by the Government of Nepal, the Government may retain special voting rights (as stated in the Articles of Association) in decisions related to:

• Disposal of undertakings (as per Section 105(1)(a)),
• Voluntary liquidation, and
• Company amalgamation.

 

32. Return of Share Allotment

1. A company must file a return of allotment with the Office within 30 days of share allotment. This return must state the number and amount of shares issued, the names and addresses of the allottees, and the amounts paid or payable.
2. If shares are allotted fully or partly for non-cash consideration, the company must also submit relevant contracts and a return specifying the share details and payment status.

 

33. Dealing in Securities & Share Certificates

  (A) Securities Transactions

1. Public companies must conduct public share issuances through recognized securities dealers for all related actions (sale, allotment, collection, etc.).
2. A copy of the agreement with such dealer must be filed with the Office within 7 days of execution.

(B) Share Certificates

1. Companies must issue share certificates in the prescribed format within 2 months of allotment, signed by two authorized officers and bearing the company seal (if any).
2. For joint shareholders, the certificate may be issued in one name, but all names must be entered in the shareholder register.
3. If a share certificate is lost or destroyed, the shareholder must notify the company immediately.
4. Upon reasonable verification, the company must issue a duplicate certificate, charging the prescribed fee, and must record the reissue.
5. Listed companies using an authorized securities registrar may issue a securities passbook or equivalent document instead of a share certificate.
6. Any certificate signed and sealed by the company confirming a shareholder or debenture-holder’s ownership shall be valid as prima facie evidence of title.
7. Sub-section (1) does not apply when shares or debentures are allotted or transferred to licensed securities dealers.

34. Raising Loans or Issuing Debentures

1. A public company may raise loans or issue debentures—secured or unsecured—by specifying the purpose, proposed use of funds, and budget. However, debentures cannot be issued unless the company has obtained a business commencement approval and fully paid-up issued capital.
2. Companies may raise additional loans or debentures using existing securities already pledged, provided prior creditors and loan amounts are clearly disclosed.
3. Terms such as interest rate, repayment period, etc., shall be governed by the contract between the company and the creditor.
4. The company must inform the Office about such loans or debentures, including reasons.

 

35. Procedures for Issuing Debentures

1. Public companies must appoint a licensed debenture trustee when issuing debentures.
2. A formal agreement must be executed between the company and the trustee, outlining their rights and obligations.
3. Debentures may be converted into shares if permitted by the Memorandum/Articles or as specified before issuance, subject to applicable share capital rules.
4. Conversion rights must be disclosed in the prospectus.
5. Courts may order specific performance of debenture subscription contracts if necessary.

 

36. Debenture Trustee Agreement

1. A formal agreement must be signed between the company and the debenture trustee for the protection of debenture-holders.
2. The agreement must include:
   • Trustee’s right to asset valuation and project/management review,
   • Terms of repayment, interest, and possible conversion into shares,
   • Details on rights of other creditors,
   • Authority of trustee to take control of company’s financial assets upon breach,
   • Payment of trustee’s fees,
   • Trustee’s exemption from liability for actions done in good faith,
   • Trustee’s legal standing in case of liquidation.
3. Trustee may take and register security in their name and conduct prior assessments.
4. Any debenture issuance requires trustee approval.

 

37. Trustee’s Right to Inquiry Before Agreement

Before entering an agreement, a debenture trustee may request the following from the company:

• MOA/AOA provisions allowing debt or trustee-based debenture issuance,
• Board’s authority for debenture issuance,
• Asset sufficiency to cover debenture value,
• Existing liabilities and creditors,
• Balance sheet and audit report,
• Any other relevant details.

 

38. Periodic Statements to Debenture Trustee

1. The company must submit financial statements to the trustee every six months after agreement.
2. Any changes in ownership or management after debenture issuance must be reported within seven days.
3. The trustee may request additional documents, which the company must provide as required.
4. Rights and Liabilities of Debenture Trustee

• If a company breaches the debenture agreement, the trustee may demand fulfillment or repayment within a set time.
• The trustee can take control of secured assets, sell them, and repay debenture-holders from the proceeds. Surplus is returned to the company.
• If proceeds are insufficient, payments are made on a pro-rata basis. Trustees are not liable for shortfalls (unless they purchase the assets themselves).
• Debenture-holders owning over 50% may apply to the Securities Board to remove a trustee for negligence. The Board may replace the trustee after review.

40. Service Charges of Debenture Trustee

• Trustees can charge service fees as agreed in the contract and recover actual costs for services like valuation, possession, or auction.

41. Trustee as Legal Representative

• In cases of company liquidation or insolvency, the trustee acts on behalf of debenture-holders and may file legal actions to recover their dues.

42. Sale or Pledge of Shares or Debentures

• Shares/debentures are movable assets and may be sold or pledged, except by promoters before the first general meeting and full payment of calls.
• Pledges must be recorded in the company register upon application with relevant documents. Redemption is also to be updated in the register.

43. Transmission of Shares/Debentures

• Buyers must apply with documents to have ownership transferred in the register within 15 days.
• Where permitted, no transfer deed is required under securities law.
• Transfer applications may also be submitted by the seller with buyer’s signed deed.
• Transfers by operation of law (e.g., inheritance) are valid upon proper documentation.

44. Grounds for Refusing Registration

• A company may reject transfers or pledges if:
  (a) Call money is unpaid,
  (b) It violates the articles of association or shareholder agreements,
  (c) Transfer fees are unpaid.
• Rejections must be communicated within 15 days.

45. Other Modes of Transmission

• If a shareholder/debenture-holder dies or is declared insolvent, the rightful successor may apply to have ownership transferred.
• Even without formal transfer, rights may pass to heirs under law if properly documented.

46. Register of Shareholders and Debenture-Holders

• Companies must maintain separate registers for shareholders and debenture-holders at their registered office, detailing names, holdings, payments, dates of registration/removal, and nominee information.
• Registers may be inspected, except during closed periods (max 45 days/year).
• Duplicate copies can be issued for a fee.
• Listed companies may maintain registers through a licensed securities registrar.
• False entries affecting rights are punishable, and aggrieved parties may claim damages.

Section 47: Information on Title to Shares

• Shareholders must disclose:
  • In what capacity they hold shares.
  • Whether another person has a beneficial interest in the shares.
  • Identity and nature of title of such beneficial owners.
• Deadline: 30 days after company’s request.
• Company must record and report this info to the Office within 7 days.

 

Section 48: Address of Shareholder

• The address in the share register is considered the real address unless changed by notice.
• Shareholders must notify the company in writing of any address change immediately.
• The company must update the register accordingly.
• Notices sent to the listed address are considered duly served.

 

Section 49: Index of Shareholders

• Companies with more than 50 shareholders must maintain an index unless the register itself functions as one.
• Updates to the shareholder register must be reflected in the index within 30 days.
• Index should allow quick reference and must be kept with the register.
• Non-compliance constitutes a legal violation.

 

Section 50: Substantial Shareholders

• A person holding:
  • ≥5% of the paid-up capital in a public company, or
  • ≥1% if the paid-up capital is over 250 million,
    is a substantial shareholder.
• Such shareholders must report:
  • Personal and shareholding details within 35 days of becoming substantial.
  • Details when they cease to be substantial shareholders.
• Companies must maintain a separate register for such shareholders.

 

Section 51: Inventory of Shares, Debentures, and Loans

• Must be prepared 30 days prior to AGM.
• Includes data on:
  • Share capital (authorized, issued, paid-up),
  • Calls and payments,
  • Debts, guarantees, directors, and more.
• Must be signed by at least one director and submitted within 30 days of AGM.
• Changes after submission must be reported.
• If included in annual report (Section 78), a separate inventory is not needed.

 

Section 52: Lien on Shares

• Companies can attach dividends and shares for unpaid dues from shareholders and recover from dividends.

 

Section 53: Payment for Shares

• Share payment must follow article-based call schedule.
• Written notice must be sent giving ≥30 days.
• Public companies must publish this notice 3 times in a national daily.
• Failure to pay:
  • Additional 3-month grace with interest.
  • After that, forfeiture of shares possible.
• Forfeited shares:
  • May be refunded within 3 months.
  • Refund failure attracts interest.
  • Can be resold or otherwise disposed.
• Profitable companies (3+ years) may resolve not to make further calls except in insolvency.
• Requires special resolution.

 

Section 54: Joint Shareholders

• Each co-holder pays proportionally unless a deed says otherwise.
• In absence of a deed, equal ownership is assumed.

 

Section 55: Ownership of Shares and Debentures

• Person listed in the register is deemed owner unless proven otherwise.

 

Section 56: Power to Alter Share Capital

Companies can:

• Increase authorized capital,
• Consolidate/split shares, or
• Cancel unissued or forfeited shares.

Procedure:

• Requires a special resolution.
• MoA and AoA are deemed amended accordingly.
• Must notify the Office and pay prescribed fees.
• Cancellation isn’t considered capital reduction.
• Issued capital can be increased by ordinary resolution.
• Public issues must follow securities law.
• Exceptions apply for:
  • Bonus/right shares to existing shareholders,
  • Shares to employees, creditors, restructuring cases, etc.
• Right issues require 15-day prior notice and 35-day subscription window.
• Non-subscribed shares may be disposed by the board.
• Share capital cannot be increased via asset revaluation.

 

Section 57: Reduction of Share Capital

• Requires:
  • Special resolution,
  • Court approval,
  • MoA/AoA amendment.
• Modes:
  • Reduce unpaid capital.
  • Refund paid-up capital.
  • Revalue shares post-loss/natural disaster.
• Insolvent companies cannot reduce capital.

 

Section 58: Court Approval Process for Capital Reduction

• Petition must be submitted to Court after passing special resolution.
• Notice in newspaper (3 times) before hearing.
• Creditors can submit objections.
• Company must submit a true creditor list.
• If:
  • Creditors are paid,
  • Consented, or
  • Secured via bond,
    the Court may approve reduction.
• Court may waive notice requirements for some creditors.
• False creditor list = legal liability unless the error is justified.
• Upon confirmation, Court may require:
  • Company to add “capital reduced” to its name temporarily.
  • Publish public notice explaining reasons for reduction.

59. Liability of Shareholders in Reduced Share Capital:

• Shareholders (past or present) are not liable beyond the difference between the amount paid (or deemed paid) on a share and its face/reduced value, except as stated below.
• If a creditor entitled to object to capital reduction is omitted from the list and remains unpaid, shareholders must pay as per Sub-sections (3) or (4).
• No liability arises if the creditor was omitted due to their own fault or negligence.
• Shareholders at the date of court order confirming capital reduction are liable as if the company had entered insolvency just prior to that date.
• The Court may settle a list of shareholders to recover debts from omitted creditors in case of insolvency, treating them as contributors in insolvency.
• No shareholder shall be liable beyond the face value of the shares subscribed.

 

60. Director’s Responsibility for Loss of Net Worth:

• If a public company’s net worth falls to half or less of its paid-up capital, directors must prepare a strategy within 35 days and present it at the next general meeting or call an extraordinary general meeting.
• Directors failing to do so, or intentionally avoiding the meeting, are punishable.
• Directors acting with bad intent or recklessness causing such loss are liable for compensation.

 

61. Prohibition and Conditions on Buy-Back of Shares:

• Companies cannot buy their own shares or provide loans secured by them.
• Buy-back is allowed in certain cases, including when:
  • Shares are fully paid-up.
  • Public company shares are listed.
  • Articles allow buy-back and a special resolution is passed.
  • Debt-to-capital ratio remains within 2:1 post buy-back.
  • Buy-back is under 20% of paid-up capital and reserves.
• The resolution must include reasons, impact analysis, class/quantity, funding details, timeline, mode, and disclosures as required by law.
• Buy-back must be completed within 12 months via:
  • Stock exchange
  • Employees holding allotted shares
  • Existing shareholders proportionately
• A return must be filed within 30 days of buy-back.
• A Capital Redemption Reserve equal to nominal value of bought shares must be created.
• Bought-back shares must be cancelled within 120 days.
• Re-issuance of such shares is restricted for 2 years (except bonus shares or liability payment).
• Buy-back must not reduce minimum shareholder number or capital below the legal limit.
• Other restrictions and compliance requirements shall be as prescribed.

 

62. Prohibition on Company Lending for Purchase of Own Shares:

• Companies cannot provide financial aid for purchase or entitlement to their own or holding company’s shares.
• Exception: Loans to employees for purchasing fully paid shares under a share scheme.

 

63. Approval to Commence Business (Public Companies):

• A public company must obtain approval to start business.
• Application must show full payment of share calls subscribed by promoters.
• Approval is granted if share payment meets Section 11(1) requirements.
• Until approval, only internal acts (e.g., board/general meetings) are allowed.
• If a regulatory body imposes preconditions for specific business, approval is withheld until conditions are met.
• Private companies may commence operations upon registration unless specific regulatory approvals are required.

64. Prohibition on Issue or Sale of Shares at a Discount:

• A company shall not issue or sell shares at a discount.
• Exception: Shares may be issued/sold at a discount with a special resolution in the following cases:
  • Under a capital restructuring scheme.
  • For conversion of loans into shares with creditor consent.
  • Under an employee share scheme.
  • Under other conditions approved by the Office.

 

65. Preference Shares:

• A company may issue preference shares as per the law, MOA, or AOA.
• Such shares cannot be converted into ordinary shares unless stated in the AOA.
• When issuing, the company must disclose:
  • Priority on dividends and liquidation.
  • Dividend rate and whether cumulative or non-cumulative.
  • Voting rights, if any, and their scope.
  • Whether the shares are convertible, redeemable, and if premium applies upon redemption.
• Redemption Conditions:
  • Only fully paid shares can be redeemed.
  • Redemption can be from profits or proceeds of new share issue.
  • If premium is payable, create a separate redemption fund from profits or share premium.
  • If not redeemed from fresh issue, transfer nominal value to a capital redemption reserve, treated as paid-up capital.
  • Redeemed shares are automatically cancelled.
  • Redemption does not reduce authorized capital.
  • Redeemed shares can be re-issued up to the same nominal value.
  • Redemption must follow the company’s AOA and the law.
  • Notify the Office within one month of redemption.
  • Bonus shares may be issued from the capital redemption reserve.

 

66. Restriction on Minors and Legally Disqualified Persons as Promoters:

• Minors under 16 and persons legally disqualified to contract cannot be promoters.
• However, they may acquire shares through inheritance or legal succession.
• For transactions involving such persons, their legal guardian, spouse, or parent must act on their behalf.

                                                                     Chapter 5

MEETINGS OF COMPANY

67. General Meetings of a Company:

1. Two types:
   • Annual General Meeting (AGM)
   • Extra-Ordinary General Meeting (EGM)
2. Public company must:
   • Send AGM notice 21 days and EGM notice 15 days in advance to shareholders.
   • Publish notice twice in a national daily.
   • For adjourned meetings without new agenda, 7-day newspaper notice suffices.
3. Decisions on unnotified matters allowed only if:
   • 67% voting shareholders approve at the meeting, or
   • The matter was on the agenda of an earlier adjourned meeting.
4. Meetings must be held in the registered district or nearby unless approved by the Office.
5. Shareholder list (name, address, shares) must be available at the meeting for inspection.
6. Agenda items must be discussed first in the meeting.
7. Chairperson may adjourn the meeting. New or prior notified items can be decided in the adjourned meeting.
8. Adjourned meeting has equal powers; resolutions are effective from the adjourned date.
9. Corporate shareholders may attend and vote via appointed representative.
10. Proceedings are not invalid due to accidental omission or non-receipt of notice.
11. For private companies, general meeting procedures follow the articles or consensus agreement.
12. Additional procedures governed by the company’s articles of association (AOA).

 

68. Directors’ Presence Required:

• All directors must be present at general meetings as far as possible.

 

69. Legality of Meeting:

• Shareholders present must verify that the meeting complies with the Act and AOA.
• A meeting is deemed valid if notice and quorum requirements are met, even if other legal formalities are missed.

 

70. Restrictions on Attendance and Voting:

1. A shareholder cannot vote on matters involving contracts or transactions with the company in which they have a personal interest.
2. Directors or their proxies/partners cannot vote on:
   • Their own appointment/removal,
   • Remuneration or bonuses,
   • Matters where they have a conflict of interest.
3. Shareholders who have not paid share calls cannot vote.
4. A director appointed as a proxy cannot vote on matters where they have a direct interest.
5. If a bank or financial institution sues a defaulting shareholder who pledged shares as collateral, it may request the company to suspend voting rights of that shareholder until repayment.

 

71. Right to Vote in General Meeting:

1. Shareholders registered in the shareholder register can vote—one vote per share, subject to Section 70.
2. Shareholders may appoint a proxy, unless restricted by AOA.
3. Proxies must be appointed through a signed instrument in the prescribed format.
4. In joint ownership, the vote of the first-named shareholder (or their proxy) is valid, unless another is designated.

 

72. Voting in Director Elections:

1. Unless AOA provides otherwise, each shareholder gets votes equal to:
   (No. of shares × No. of directors to be elected)
   • Votes can be cast for one or multiple candidates.
2. A corporate body may appoint directors proportionate to its shareholding.
   • If it cannot appoint any director based on shares held, it may vote or file candidacy like other shareholders.

73. Quorum:

1. For private companies, quorum is as per their articles of association (AOA).
2. For public companies, unless AOA states otherwise, a meeting requires at least 3 shareholders present, representing over 50% of allotted shares (in person or by proxy).
3. If quorum is not met, a second meeting can be called with at least 7 days’ notice, where quorum is at least 3 shareholders representing 25% of allotted shares.
4. For certain companies (per Section 3(2) proviso or Section 173(1)), the quorum of 3 shareholders is not mandatory.

 

74. Discussion and Decision:

1. General meetings are chaired by the Board Chairperson, or if absent, by a director nominated by the board.
2. All matters must be presented as resolutions, and the chair declares if adopted.
3. Decisions are made by majority vote of shareholders present, by any appropriate voting method (show of hands, voice, poll, etc.).
4. Special resolutions require at least 75% votes in favor of shareholders present.
5. If votes tie, the chairperson has a casting vote and retains their own voting right as shareholder.

 

75. Minutes to be Kept:

1. Minutes of general meeting proceedings must be kept in a separate book, signed by the chairperson and company secretary (or a shareholder representative if no secretary).
2. Minutes must include details on:
   • Notice issuance,
   • Number of shareholders present,
   • Percentage of shares represented,
   • Voting results.
3. Minutes must be sent to shareholders within 30 days of the meeting. If published in a national newspaper, sending to shareholders is not required.
4. Minutes are kept at the company’s registered office and must be made available for shareholder inspection during office hours.
5. Shareholders may request copies of minutes, subject to fees set by the company’s AOA.

76. Annual General Meeting (AGM):

1. Every public company must hold its first AGM within one year of starting business, and thereafter hold an AGM each year within six months after the financial year ends.
2. If the company fails to hold the AGM within three months after the deadline, the Office may direct the company to call the AGM.
3. If the company still fails to hold the AGM within three months of such direction, any shareholder may petition the court, which can order the AGM to be held or issue other orders.
4. Shareholders attending a court-ordered AGM shall be deemed to form a valid quorum, regardless of normal quorum rules.

 

77. Matters to be Presented and Decided at the AGM:

1. Directors must present the audited financial statements, auditor’s report, and director’s report at the AGM.
2. Shareholders holding at least 5% of total votes may request, before notice issuance, to add matters for discussion at the AGM.
3. At least 21 days before the AGM, companies must allow shareholders to inspect and obtain copies of the financial statements and reports, and publish a notice in a national daily newspaper.
4. These documents may also be shared electronically if needed.
5. Companies must provide copies of these reports to any shareholder who requests them.
6. The AGM decides on matters such as dividend distribution, director appointments and remuneration, auditor appointment and fees, and other matters required by law or the company’s articles. Dividend rates decided at the AGM cannot exceed those fixed by the board of directors.

78. Report to be Submitted to the Office

Every public company must prepare a report and submit it to the Office at least 21 days before the AGM. The report must be board-approved and auditor-certified, containing:

• Total shares allotted; fully paid and unpaid shares.
• Details of directors, managing director, auditor, executive chief, and manager, including their remuneration, allowances, and benefits.
• Names of individuals or corporate bodies holding 5% or more of paid-up capital, with share/debenture details.
• Proceeds from share sales, and particulars of new shares and debentures issued during the financial year.
• Amounts due or payable by directors or major shareholders to their close relatives in the company.
• Payments made or to be made related to share sales or other matters.
• Loans borrowed from banks/financial institutions, including principal and interest due.
• Amounts receivable or payable by the company related to ongoing lawsuits, if any.
• Number and remuneration of expatriate employees in management and other levels.
• Details of agreements with foreign bodies/persons exceeding one year, including dividends, commissions, fees, charges, and royalties paid during the year.
• Statement of management expenditures for the financial year.
• Amount of dividends yet unclaimed by shareholders.
• Declaration of full compliance with this Act and prevailing laws.
• Other necessary information as required.

79. Preparation of Documents for Annual General Meeting (AGM)

At least 21 days before the AGM, every public company must prepare and keep at its registered office the annual financial statements, directors’ report, auditor’s report, the report under Section 78, and proposed resolutions for shareholders’ inspection. Copies must be provided on request. Special resolutions must be sent to shareholders with the meeting notice.

80. Return of AGM to be Submitted to Office

(1) Within 30 days after the AGM, every public company must send the Office a return including the number of shareholders present, copies of the annual financial statement, directors’ report, auditor’s report, and adopted resolutions.
(2) Private companies must submit audited annual financial statements to the Office within six months of their financial year-end.

81. Penalties for Failure to Submit Returns

(1) Directors, officers, or shareholders responsible for providing required returns, notices, or information must do so within the prescribed time limits.
(2) Failure to comply results in fines based on paid-up capital and delay duration:

• Up to 3 months late: Rs. 1,000 to Rs. 5,000 depending on capital.
• Additional 3 months late: Rs. 1,500 to Rs. 7,000.
• Additional 6 months late: Rs. 2,500 to Rs. 10,000.
• Beyond that, yearly fines of Rs. 5,000 to Rs. 20,000 apply.
  (3) Companies not distributing profits face fines as for companies with up to Rs. 10 million capital.
  (4) Fines must be paid to the Office, with required returns submitted accordingly.
  (5) Time limits start from the Act’s commencement date.
  (6) Other delays in submitting statements or notices incur a monthly fine of Rs. 200 after one month of the deadline.

82. Extraordinary General Meeting (EGM)

(1) The board may call an EGM when necessary.
(2) If the auditor deems an EGM necessary during account examination and the board fails to call it, the auditor may apply to the Office to convene the meeting.
(3) Shareholders holding at least 10% of paid-up capital or 25% of total shareholders may request the company in writing to call an EGM.
(4) If the board does not call the EGM within 30 days of such a request, shareholders may petition the Office, which may then call the meeting.
(5) The Office may also call or require the board to call an EGM based on inspections, investigations, or other reasons.

83. Special Resolutions to be Presented at General Meeting

Special resolutions must be adopted for:

• Increasing authorized capital
• Decreasing or altering share capital
• Changing company name or main objectives
• Amalgamation with another company
• Issuing bonus shares
• Buying back own shares
• Selling shares at a discount
• Converting between private and public company status
• Other matters requiring special resolution by law or articles.

84. Sending Abstract of Financial Statement to Shareholders

(1) Listed companies need not send full annual financial statements or directors’ reports to shareholders/debenture-holders.
(2) Instead, an abstract based on these documents, following a format prescribed by the Office, must be sent with the AGM notice.
(3) The abstract must include:

• A disclaimer that it is only an abstract
• Auditor’s opinion on its consistency with the full statements
• Any auditor remarks or qualifications with explanations
• Details of any issues with accounts or information.
  (4) Alternatively, the company may publish the abstract twice in a national daily newspaper instead of sending it personally.
  (5) If published, sending to shareholders individually is not required.

85. Registration Number to be Mentioned

Every company must mention its registration number on all reports, statements, records, and documents submitted to the Office under this Act.

                                                              Chapter 6

BOARD OF DIRECTORS

86. Board of Directors and Number of Directors

(1) A private company’s articles of association determine the appointment and number of directors.
(2) A public company must have a board of at least 3 and at most 11 directors.
(3) If there are up to 7 directors, at least 1 must be an independent director; if more than 7, at least 2 independent directors are required. They must have relevant knowledge and experience as defined by the company’s articles.
(4) The directors shall elect one among themselves as the Chairperson.

 

87. Appointment of Directors

(1) Directors are appointed by the general meeting, subject to Section 89 and the company’s articles.

• Promoters appoint directors until the first AGM.
• The board may fill any mid-term vacancy.
  (2) Corporate shareholders may appoint directors proportional to their shareholding and may also appoint alternate directors.
  (3) An alternate director may attend and vote in board meetings if the principal director is unavailable and has informed accordingly.
  (4) Other than under Sub-section (1), alternate directors cannot attend or vote at board meetings.

 

88. Share Qualification of Directors

A director must hold the number of shares specified in the company’s articles, or at least 100 shares if unspecified.
Exception: Independent directors under Section 86(3) and corporate-appointed directors under Section 87(2) are exempt.

 

89. Disqualification from Directorship

(1) A person is disqualified if they:

(a) Are under 21 (for public companies)
(b) Are of unsound mind
(c) Are insolvent within the past 5 years
(d) Were convicted of corruption or moral turpitude (3 years for private companies must pass)
(e) Were convicted of theft, fraud, forgery, embezzlement (3 years must pass)
(f) Have personal interest in company’s business or contracts
(g) Are a director, major shareholder, employee, auditor, or adviser of a similar business (allowed for private companies only)
(h) Are a defaulting shareholder
(i) Were punished under Section 160 (within 1 year) or Section 161 (within 6 months)
(j) Do not meet legal qualifications for specific business activities
(k) Are directors of companies failing to submit required reports for 3 consecutive financial years
(l) Receive compensation (other than meeting allowances and travel expenses) from another listed company.

(2) Independent Directors are further disqualified if they:

(a) Fall under any category of Sub-section (1)
(b) Are shareholders of the company
(c) Do not hold at least a bachelor’s degree in a related subject and 10 years’ experience in the field
(d) Are officers, auditors, or employees of the company, or retired from such positions within 3 years
(e) Are close relatives of any company officer
(f) Are auditors or their partners.

(3) A director must vacate office if:

(a) They become disqualified as per Sub-section (1) or (2)
(b) Removed by a resolution of the general meeting
(c) Resignation is accepted by the board
(d) Court finds them guilty of dishonest or improper conduct in company affairs
(e) Court rules they breached director duties or legal prohibitions
(f) They are blacklisted for loan default and the blacklist period is ongoing.

(4) Right to Defense

Before declaring a director disqualified, the company must notify them and give a reasonable opportunity to respond.

90. Term of Office of Directors

(1) The term of a private company director is as per its articles.
(2) A public company director’s term shall not exceed 4 years, as defined in its articles.
Provided that:

• Government or corporate-appointed directors serve at their appointer’s discretion.
• Directors appointed under Section 87’s provisos serve until the first AGM.
• A director appointed to fill a vacancy serves the remaining term of their predecessor.
  (3) Retired directors are eligible for reappointment.

 

91. Remuneration, Allowances, Rewards

(1) Directors’ meeting allowances, salaries, and other benefits are determined by the general meeting.
(2) A special resolution may grant full-time directors a reward up to 3% of net profits after tax. If additional tax is later assessed, directors must proportionally return reward amounts.
(3) Before the first AGM, the board may set remuneration for full-time directors or the managing director.
(4) A listed company cannot compensate a retiring or removed director unless approved by the general meeting.

 

92. Disclosure by Directors

(1) Within 7 days of appointment, directors must disclose in writing if they or close relatives:

• Have direct or personal interest in the company’s transactions, including holding over 10% in relevant entities;
• Have interest in key appointments (e.g., MD, secretary);
• Are directors in other companies;
• Have dealt in shares/debentures of the company or its subsidiaries/holding companies.
  (2) Relevant agreements must be submitted or key details provided if no formal agreement exists.
  (3) The company must report such disclosures to the regulatory Office within 7 days, which shall record it.
  (4) Any direct or indirect interest in a contract, lease, or transaction must be disclosed immediately with specifics.
  (5) A general written notice of interest in transactions with a specific party counts as full disclosure for future dealings with that party.

93. Transactions Involving Directors

(1) A public company or a subsidiary company must obtain approval from its general meeting (or the holding company’s general meeting) before entering any significant transaction with:

• A director,
• Their close relative, or
• A substantial shareholder.

Significant transaction:
Any sale, purchase, exchange, contract, or rental deal exceeding NPR 100,000 or 5% of the company’s total assets (whichever is lower); or annual rent of NPR 120,000 or more.

(2) If such a transaction occurs without approval, the benefit must be returned and compensation paid for any loss caused to the company.

(3) Exceptions (approval not needed):

• Transactions between a holding company and its wholly owned subsidiary,
• Transactions between subsidiaries fully owned by the same holding company,
• Market-price transactions in the ordinary course of business.

 

94. Disclosure of Shareholdings by Directors

(1) A director acquiring any shares or debentures in the company, or its holding/subsidiary/associated companies, must disclose:

• Ownership details,
• Number, amount, and class of securities held.

(2) Disclosure must be made within 15 days of any of the following:

• Gaining or losing title to shares/debentures,
• Entering a sale agreement for such securities,
• Assigning authority to subscribe on behalf of the company or receiving such authority from a related company.

(3) The number, amount, and class of securities involved must be clearly stated.

(4) The company must maintain a separate register for such disclosures.

(5) These obligations also apply to close relatives of the director.

 

95. Powers and Duties of the Board of Directors

(1) The board of directors shall collectively manage the company’s affairs as per the Act, articles, and general meeting decisions.

(2) Public company directors must not use company resources for personal benefit unless approved by the general meeting.
Private companies may permit reasonable personal benefits through their constitutional documents.

(3) The board may delegate its powers to a director or employee, certifying such delegation through a board decision and signatures of at least one director and the company secretary (if any).

(4) A company can recover damages from a director/representative for losses caused by actions beyond their authority.

(5) If a person knowingly transacts with a director acting in personal interest or causing harm to the company, they cannot claim against the company.

(6) The board must retain the following powers and can only exercise them through board resolutions:

• Making calls on unpaid shares,
• Issuing debentures,
• Borrowing funds (other than via debentures),
• Investing company funds,
• Granting loans.

(7) Clause (e) does not apply to ordinary banking or financial transactions of licensed institutions.

(8) The board may form sub-committees to handle specific tasks.

96. Appointment of Managing Director and Company Management

1. The board may appoint one managing director from among themselves, subject to the articles.
2. Duties and powers of the managing director shall be as defined in the articles or by the board.
3. A written agreement must be made detailing appointment terms, remuneration, and benefits. No other benefits beyond this and those approved by the general meeting are permitted.
4. The term of the agreement cannot exceed four years at a time.
5. Shareholders must be allowed to inspect such agreements free of charge.
6. A director receiving regular remuneration from a listed company cannot be appointed as a managing director of another listed company with similar benefits.

 

97. Meetings of the Board of Directors

1. Private companies: As per their articles.
2. Public companies: At least six meetings per year, with a maximum 3-month gap between meetings.
3. Directors must attend in person; proxies are not valid.
4. At least 51% of total directors must be present for a valid meeting. Directors with a conflict of interest are excluded from the quorum.
5. If quorum is not met, a second meeting may be called with 3 days’ notice. Decisions taken there are valid regardless of attendance.
6. Decisions are by majority vote; Chairperson has a casting vote in case of a tie. Directors with personal interest cannot vote.
7. Minutes of meetings, including attendance and decisions, must be recorded and signed by at least 51% of attending directors. Dissenting opinions may be noted.
8. Decisions remain valid even if a member’s signature is missing.
9. Unanimous written consent of all board or committee members (where allowed by the articles) is valid in lieu of a meeting.
10. Such written consent shall be treated as a formal board decision.

 

98. Notice of Board Meetings

1. Meetings may be called by the company secretary, Chairperson, or CEO unless articles provide otherwise.
2. If 25% of directors request a meeting in writing with an agenda, the Chairperson must call it within 7 days. If not, those directors may convene the meeting themselves.
3. Notice and agenda must be sent in writing (or via electronic means) to each director at their registered address unless the articles state otherwise.

 

99. Responsibilities and Duties of Directors

1. Directors must not derive personal benefit through company business.
2. Any personal gain made contrary to (1) must be repaid as a loan to the company.
3. Directors must take an oath of secrecy and honesty before assuming office in a public company.
4. Directors and officers must act honestly, in good faith, and prudently, prioritizing the company’s interest.
5. The company may recover damages for any loss caused by a director’s bad faith or malicious intent.
6. Directors must comply with the Act, articles, and consensus agreement.

 

100. Disclosure About Securities

1. If company shares or debentures are stock exchange listed, the company must notify the exchange body after receiving the director’s disclosure under Section 94.
2. The stock exchange shall publish such information as it sees fit.

 

101. Prohibition on Loans to Officers or Shareholders

1. A company cannot provide loans or guarantees to:
   • Its officers,
   • Substantial shareholders,
   • Officers or shareholders of its holding company,
   • Their close relatives.

Exceptions:

• Loans to employees under company rules.
• Loans/guarantees by banks and financial institutions in the ordinary course of business, unless restricted by law.

2. Such individuals must repay loans taken before this Act by 22 Ashwin 2065 (8 Dec 2008).

 

102. Prohibition on Giving False Statements by Officers

If any officer knowingly misrepresents the company’s financial condition in a general meeting to justify excessive dividend distribution, causing harm to the company’s capital, that officer shall be personally liable.

 

103. Transactions and Company Jurisdiction

1. Transactions with third parties are not invalid solely because they exceed the company’s objects in the memorandum.
2. Directors and officers must act within the scope of the memorandum of association.
3. Acts beyond a director’s authority can be ratified by special resolution of the general meeting.
4. Ratification does not absolve the director/officer of personal liability for unauthorized actions.

 

104. Binding Nature of Company Acts

1. Acts or documents signed by an authorized director or person are binding on the company.
2. Good faith transactions by third parties are valid even if internal restrictions exist in company documents or resolutions.
3. Officers exceeding their authority are personally liable, unless ratified, and must compensate the company for any losses.

 

105. Restrictions on Directors’ Authority

Public companies or private companies with loans from banks/financial institutions must obtain a special resolution from shareholders before:

• (a) Disposing of over 70% of any undertaking.
• (b) Borrowing funds that exceed the sum of paid-up capital and free reserves, excluding short-term loans under six months.
• (c) Donating or gifting over 50,000 or more than 1% of average net profit from the last 3 years (whichever is lower), unless for employee welfare or business promotion.

Exceptions:

• Clause (a) does not apply if a buyer purchases property at market value from a company engaged solely in property trading.
• Clause (b) does not apply to banks, insurers, or financial institutions accepting deposits/premiums in the ordinary course of business.

 

106. Validity of Past Acts

If a director’s appointment is later found invalid due to non-compliance, any acts done before the discovery remain valid.

 

107. Registers of Director and Secretary

1. Every company must maintain separate registers for directors and the company secretary (if any).
2. Registers must include name, address, citizenship, profession, appointment/removal dates, and updates must be notified within 15 days of any changes.

                                                                                           Chapter 7

ACCOUNTS AND RECORDS OF COMPANY

108. Accounts of the Company

1. Every company must maintain its accounts in Nepali or English, using the double-entry system, following applicable accounting standards and legal provisions to clearly reflect its financial affairs.
2. Books of account must be kept at the registered office, unless otherwise approved by the Office.
3. Company cash (except specified by the board) must be deposited in a bank, and transactions conducted through it.
4. Directors and officers hold ultimate responsibility for maintaining proper accounting records.
5. Failure to properly maintain or prepare books and financial statements makes the responsible director or officer liable under the Act.

 

109. Annual Financial Statement and Board Report

1. The Board of Directors must prepare the following within 30 days before the AGM for public companies, or within 6 months of the financial year’s end for private companies:
   • (a) Balance Sheet
   • (b) Profit and Loss Account
   • (c) Cash Flow Statement
2. These statements must present a true and fair view of the company’s financial position and comply with prescribed formats.
3. Statements must be approved by the board and audited.
4. Public companies and private companies with paid-up capital or turnover of Rs. 10 million or more must prepare a Board Report including:
   • Business performance review and national/international impacts
   • Achievements and future plans
   • Industrial relations and board changes
   • Major transactions and financial highlights
   • Audit remarks and board comments
   • Dividend recommendations and forfeited share details
   • Subsidiary performance, shareholder disclosures, and director shareholding
   • Conflicts of interest, share buy-backs, internal controls, and management expenses
   • Audit committee details and related party outstanding amounts
   • Remuneration to directors/executives and unclaimed dividends
   • Property transactions and inter-company dealings
   • Other matters as per law
5. In the first year, the report shall include data from incorporation to financial year-end; afterward, from the last fiscal year.
6. Financial statements and the board report must be open to shareholders on request.
7. These documents must be signed by the Chairperson and at least one director.
8. Records must be retained for five years after the relevant financial year.
9. Any officer preparing, or director approving, false reports or statements shall be punished under the Act.

                                                                         Chapter 8

AUDIT

110. Company to Appoint Auditor

• Every company must appoint an auditor to audit its accounts.
• The appointed auditor may audit a foreign branch unless restricted by that country’s laws.

 

111. Appointment of Auditor

• Public companies appoint auditors through the general meeting;
  Private companies do so per their constitutional documents or general meeting.
• Auditor must be licensed under prevailing law.
• Name of the auditor must be sent to the Office within 15 days of appointment.
• The board may appoint the first auditor before the first AGM.
• Auditor serves until the next AGM.
• A public company cannot appoint the same auditor (or firm) for more than 3 consecutive terms, except if a partner/employee has not been involved in the past 3 years.

 

112. Disqualifications of Auditor

The following are disqualified:

• Company director, officer, employee, advisor, or their close relatives.
• Debtors or defaulters of the company.
• Persons convicted of audit, corruption, fraud, or moral crimes (within last 5 years).
• Persons declared insolvent.
• Substantial shareholders (1%+ capital) or their relatives.
• Those disqualified under Section 111(3).
• Government employees or those working for government-owned bodies.
• Limited liability companies or those with conflicting interests in the company.
• Auditor must declare in writing that they are not disqualified.
• If disqualified during tenure, they must cease auditing immediately and notify the company.
• Audits done by disqualified auditors are invalid.

 

113. Power of Office to Appoint Auditor

• If the company fails to appoint an auditor, or the appointed auditor vacates office, the Office may appoint a new auditor on the board’s request.

 

114. Accounts and Records to be Furnished

• The auditor may request books and records anytime during office hours.
• Directors/employees must provide explanations as requested.

 

115. Functions and Duties of Auditor

• Auditor must submit a report to shareholders or the appointing authority, certifying:
  • That financial statements are based on proper books.
  • Compliance with applicable accounting and audit standards.
  • A true and fair view of the financial position.
  • Any fraud, misappropriation, or illegal conduct.
  • Any suggestions or concerns.

 

116. Auditor’s Signature

• Audit report must be signed and dated by the auditor.
• For audit firms, a designated partner shall sign the report.

 

117. Information to be Provided

• A copy of the auditor’s report must be sent to shareholders.
• Upon request, one copy shall be given to a registered trade union.

 

118. Remuneration of Auditor

• Auditor’s remuneration is fixed by the appointing authority and paid by the company.

 

119. Removal of Auditor

• Auditor cannot be removed before completing the audit for the financial year they were appointed.
• Exception: If the auditor violates laws or ethical codes, they may be removed:
  • Using the same process as appointment.
  • With prior notice to Nepal Chartered Accountants Institute.
  • With approval of the regulator, or the Office if no regulator exists.
• Auditor must be given a reasonable opportunity to defend.

                                                                                       Chapter 9

CALL FOR EXPLANATION AND INVESTIGATION

120. Power of Office to Call for Explanation

• If documents submitted by a company are unclear or need clarification, the Office may request an explanation within a reasonable time.
• The company must respond properly within the given time.
• If irregularities are found, the Office may issue directives to correct them, and the company must comply.

 

121. Power of Office to Depute Inspector

• If 10% of paid-up capital shareholders, 1/4 of total shareholders, or creditors apply with valid grounds, the Office may appoint an inspector to investigate violations of the Act or company documents.
• The inspector must be an expert in law, accounts, business, etc.
• Applicants must deposit estimated investigation costs.
• The Office can also appoint an inspector on its own if:
  • The company is suspected of fraud or illegal activities, or
  • A public company fails to furnish required information.

 

122. Functions, Duties, and Powers of Inspector

• Inspectors may:
  • Summon and record statements of officers, shareholders, or others.
  • Inspect, seize, or demand documents or property relevant to the investigation.
  • Check if the company maintains proper accounts.
• Statements made before the inspector are legally admissible evidence.

 

123. Assistance to Inspector

• If a person lies, withholds documents or fails to cooperate, the inspector may file a complaint in Court.
• Upon inquiry, the Court may punish the guilty as per Section 162.

 

124. Report to be Submitted

• Upon completing the investigation, the inspector must submit a report with opinions to the Office.
• The Office must provide a copy to the applicant or to shareholders upon request (with fee).
• If the report reveals any officer knowingly caused loss or committed fraud, the Office may:
  • Direct the company to file a lawsuit against them.
  • Order suspension of such persons and direct the company to manage business through other means.
• The inspector’s report is admissible as evidence.

 

125. Expenses of Investigation

• Investigation costs are generally borne by the company.
• If fraud or deceit by any director, manager, or officer is found, they must reimburse costs within 7 days.
• If unpaid, costs are recovered as government dues.
• Inspectors may recommend who should bear the costs in their report.

                                                                                               Chapter 10

VOLUNTARY LIQUIDATION OF COMPANY

126. Liquidation of Solvent Company

1. A company that is not insolvent under prevailing insolvency laws may be liquidated through a special resolution in the general meeting or as per the memorandum, articles of association, or consensus agreement.
2. Conditions for liquidation:
   • (a) The company can pay all debts and liabilities in full.
   • (b) No insolvency review application is pending, and no insolvency process
   • (c) The directors declare in writing that the company can fully pay debts within one year of the liquidation resolution.
   • (d) The directors’ declaration is presented or made during the general meeting.
3. A copy of the special resolution and directors’ declaration must be submitted to the Office within 7 days of the resolution.

 

127. Appointment of Liquidator and Auditor

1. Upon adopting the resolution to liquidate, the company must appoint a liquidator.
2. The liquidator must be a licensed insolvency practitioner, and their remuneration must be fixed.
3. The Office must be notified within 7 days of the liquidator’s appointment.
4. Upon appointment:
   • Directors and officers are relieved of their duties.
   • The liquidator assumes all operational powers of the company.
5. Employees are automatically terminated, but the liquidator may retain or appoint support staff.
6. The liquidation must be completed within the specified time. This time can be extended reasonably through the same procedure used for appointment.
7. An auditor must also be appointed during liquidation, as per the Act.

 

128. Application of Insolvency Law

• In liquidation, whether a person is a creditor shall be determined according to the prevailing insolvency law.

129. Application Upon Inability to Pay

• If the liquidator finds the company insolvent and unable to pay its debts during liquidation, they must apply for insolvency proceedings under the prevailing insolvency law.

 

130. Control of Company Property

• Upon commencement, the liquidator must take custody and control of all company property, accounts, documents, and records.

 

131. Powers and Duties of Liquidator

1. The liquidator has all powers and duties similar to those under insolvency law.
2. Key responsibilities include:
   • (a) Submit income and expenditure statements to the Office every six months.
   • (b) Inform shareholders about liquidation progress every six months.
   • (c) Recover company assets and pay off all debts and liabilities.
   • (d) After settling liabilities, call a general meeting and present a proposed return for asset distribution to shareholders.
   • (e) If 75% of shareholders approve the return, distribute remaining assets.
   • (f) After liquidation, submit a final report, along with the auditor’s report, to the Office certifying completion.

 

132. Cancellation of Company Registration

1. Upon receipt of the liquidator’s final report, the Office shall cancel the company’s registration and strike its name from the register.
2. A notice of dissolution must be published in a national daily.
3. If liquidation is done under the Insolvency Act, 2063, the liquidator must inform the Office.
4. Upon such information, the Office records and confirms the cancellation.

 

133. Complaint by Creditor or Shareholder

• Any creditor or shareholder may file a court complaint within 15 days of becoming aware of any irregularity by the liquidator.

 

134. Action Against Fraud

• If fraud or deception by a director, employee, or shareholder is discovered, the liquidator may take legal action under prevailing law.

 

135. Secured Creditors’ Rights

• Liquidation does not affect the rights of secured creditors to enforce or deal with their secured property under existing laws.

 

                                                                                              Chapter 11

CANCELLATION OF REGISTRATION OF COMPANY

136. Power of Office to Cancel Registration

1. The Office may cancel a company’s registration if:
   • (a) The promoter applies with reasons and fees for cancellation due to failure to start business.
   • (b) The company defaults on filing returns or paying fines for three consecutive years.
   • (c) The Office reasonably believes the company is not operating or carrying on business.
2. Before cancellation, the Office must give written notice stating reasons to the company at its registered office or known address and publish a notice in a national daily if necessary.
3. If the company fails to respond within two months or the reasons are unreasonable, the Office may proceed with cancellation.
4. The Office shall notify directors and publish the cancellation.
5. Cancellation does not relieve officers or shareholders from any company liabilities, and legal action to enforce liabilities may continue.
6. Upon cancellation, the company’s assets, rights, and liabilities vest in shareholders proportionate to their shares, except property held in trust for others.
7. If assets are insufficient to cover liabilities, shareholders, directors, or officers responsible shall personally bear the remaining debts.
8. A canceled company cannot conduct business under the same name.
9. After cancellation, the Office returns any remaining property to shareholders after deducting cancellation expenses.

 

137. Restoration of Registration

1. Within five years of cancellation notice, the company, shareholders, or creditors may petition the Court for restoration if:
   • (a) The company was carrying on business at cancellation.
   • (b) The Court finds restoration just for proper management of assets and liabilities.
2. Upon restoration, the company is deemed to have existed continuously since registration.
3. The Court may issue necessary orders to restore the company and persons to their previous status.
4. Restoration requires payment of any outstanding fines as per Section 81 before re-entry in the register.
5. Restored company recovers:
   • (a) Property or proceeds previously distributed to shareholders due to cancellation.
   • (b) Provided no property already used to pay debts is returned.

 

                                                                                    Chapter 12

PROTECTION OF SHAREHOLDERS

138. Power to Prevent Unauthorized Acts by Directors or Officers

• Shareholders may petition the Court to stop any act by a director or officer beyond their authority, except acts fulfilling existing company liabilities.
• The Office may also petition the Court if company business is conducted prejudicially against shareholders, based on reports.
• The Court may investigate and issue appropriate orders on such petitions.

 

139. Remedy for Acts Prejudicial to Shareholders’ Rights

• Shareholders may petition the Court if company acts or omissions harm their rights or interests.
• They must prove acts were done with ulterior motives or undue discrimination violating company rules or agreements.
• The Court may order remedies, including:
  • Preventing wrongful acts.
  • Requiring or prohibiting specific actions.
  • Instituting civil suits on behalf of the company.
  • Ordering share buybacks or capital reduction.
  • Awarding compensation for discrimination.
  • Liquidating the company.
  • Ordering purchase of shares by the company or others.
  • Recovering losses from responsible directors/officers.
  • Amending company documents as needed.
• Other legal remedies remain available beyond this Section.
• Collective shareholder actions are allowed.
• Court approval is required for certain amendments to company documents for shareholder protection.
• The Office records such Court orders in the company register.
• These provisions apply to persons who have shares transmitted but not yet registered.

 

140. Shareholders’ Right to Institute Cases on Behalf of the Company

• The company may sue directors, officers, or controlling persons to protect company interests.
• If the company fails to act, shareholders holding at least 2.5% individually or 5% jointly may sue on its behalf.
• Shareholders must show efforts to persuade the company to sue first.
• The Court may require the company to take over such shareholder-filed cases.
• Cases cannot be dismissed or settled without Court approval.
• If the shareholder’s claim succeeds, the company reimburses legal expenses; if not, the Court may order partial reimbursement to the company.

141. Acquisition or Sale of Property

• A public company or its subsidiary must notify the Office if:
  • The purchase of property increases the company’s (or consolidated) property value by over 15% compared to the latest audited annual financial statement.
  • The income from selling property exceeds 15% of the consolidated pre-tax income in the latest audited accounts.
• The information submitted must include:
  • Date and parties involved in the transaction.
  • Nature of the property; if it includes shares, the issuing company’s name and business.
  • Transaction value and terms.
  • Basis for property valuation.
  • For sales, whether the sale proceeds are above or below the book value recorded.
• These details must also be included in the board of directors’ report if applicable.

                                                                                      Chapter 13

HOLDING AND SUBSIDIARY COMPANIES

 

142. Control over Subsidiary Company

• A holding company controls its subsidiary by:
  • Direct or indirect control over the board of directors.
  • Holding majority shares.
• If a company is a subsidiary of another subsidiary, it is also a subsidiary of the main holding company.
• Shares held by agents or directors nominated by the holding company or its subsidiary count as control.
• Shares held due to debentures, trust deeds, or as security for loans do not count in determining control.

143. Documents to be Enclosed

• A holding company must attach to its balance sheet for each subsidiary:
  • Annual accounts and board report of the subsidiary.
  • Auditor’s report.
  • Details of investment in the subsidiary at year-end.
  • Information on any change in control if the subsidiary’s financial year differs.
• The investment details must include net profits after losses and undisclosed profits/losses relevant to holding company shareholders.
• If information is unavailable, the holding company’s balance sheet must state this.
• Details must also include loans secured by the subsidiary’s immovable property or for new liabilities.

144. Prohibition on Investment in Holding Company

• A subsidiary company cannot buy shares, debentures, or otherwise invest in its holding company.

                                                                                                    Chapter 14

SPECIAL PROVISIONS RELATING TO PRIVATE COMPANY

145. Consensus Agreement

• A private company’s consensus agreement may cover management, share transfer restrictions, liquidation powers, voting rights, appointment of officers, dividend distribution, existence or non-existence of a board, and types of shares.
• Amendments require written consent of all parties.
• Shareholders acquiring shares after the agreement by gift or with knowledge of the agreement are deemed parties to it.

146. Shareholder’s Right to Inspect Books

• Shareholders or proxies may inspect minute books, annual financial statements, share registers, and accounts during office hours.
• Directors/officers must arrange for such inspection.

147. Return of Transactions

• Any shareholder may request a transaction return for any financial year.
• The company must provide it with certified financial statements within 15 days.

148. Annual General Meeting (AGM) Not Required

• A private company with a consensus agreement waiving AGMs is exempt from holding AGMs during the agreement period.
• The agreement must specify decision-making procedures replacing the AGM.

149. Written Resolutions by Private Company

• Acts usually done at meetings, including special resolutions, can be passed by written resolution signed by shareholders holding at least 75% of voting shares.
• Separate documents signed by shareholders are valid collectively.
• The last signing date is the adoption date.
• Attached documents are deemed presented at a meeting.
• Such resolutions have the same legal effect as meeting decisions.

150. Deemed Participation in General Meeting

• Shareholders participating via communication allowing all to hear/read each other are deemed present at the meeting.
• Shareholders can complain within three months if they claim non-participation; the Office may invalidate decisions if participation is unproven.
• Meetings conducted remotely are deemed held where the chairperson is present.
• These rules apply similarly to directors’ meetings.
• Chairperson must authenticate minutes annually.

151. Special Exemption for Certain Private Companies

• The Government may exempt private companies with turnover below a prescribed limit from Chapter 8 provisions by official notification.

                                                                                      Chapter 15

PROVISIONS RELATING TO SINGLE SHAREHOLDER COMPANY

152. Single Shareholder Company – No Meetings Required

Except as stated in its articles, a single shareholder company does not need to hold board or general meetings. All decisions and acts by the board or general meeting shall be made in writing by the sole shareholder.

153. Transfer and Transmission of Shares in Single Shareholder Company

1. On the shareholder’s death, their heir or legal successor acquires shareholder rights and may perform all shareholder acts in writing.
   • If no heir is found, the Office will appoint a liquidator to wind up the company.
2. The successor must notify the Office within one month, submitting proof of title.
3. The Office records the transfer upon fee payment and notifies the successor.
4. If multiple successors exist, they are deemed directors until shares transfer to one heir, and company documents shall be amended accordingly.
   • Disputes on entitlement are resolved by a competent court.

                                                                                     Chapter 16

PROVISIONS RELATING TO FOREIGN COMPANIES

154. Registration of Foreign Company

• No foreign company may carry on business or transactions in Nepal without registering a branch or liaison office with the Office.
• Investment in shares or lending money with approval is not deemed carrying on business.
• Foreign companies must apply for registration with required permissions, fees, and documents.
• The Office will register or reject applications within 30 days, providing reasons if rejected.
• Registered foreign companies may operate branch offices; liaison offices cannot earn income in Nepal.
• Foreign companies must carry out business only of the type conducted in their home country.
• Names must display the company name, country of origin, and Nepal registration number prominently.
• The Office maintains a public register of foreign companies.
• Foreign companies cannot issue shares or debentures in Nepal.
• Foreign companies operating in Nepal before this Act must register within six months of commencement.

155. Submission of Documents by Foreign Companies

• Applications for registration must include permission from authorities, incorporation documents with Nepali translations, company details, officer names, authorized Nepal representative, business location, proposed investment details, commencement date, declaration of truthfulness, and power of attorney.
• Amendments must be notified within 35 days.
• Foreign documents must be certified under the company’s home country law.

156. Books of Account, Audit, and Annual Report

• Registered foreign companies must prepare, audit, and submit annual financial statements of Nepal operations within six months of the financial year’s end.
• They must also submit audited reports from their home country within three months of preparation.
• Annual reports must detail Nepalese fixed assets, cash held in Nepal, and liabilities to Nepal residents or companies.
• Non-Nepali/English documents require certified translations.
• Liaison offices must certify and submit financial statements of salaries, expenses, tax deductions within three months after the financial year.

157. Power of Attorney

• Foreign companies must submit a power of attorney appointing a Nepal resident as their authorized representative to receive legal notices or summons.
• Any legal notice served on the representative is binding on the company.

158. Cancellation of Registration and Liquidation of Foreign Company

1. A foreign company registered in Nepal may apply to the Office to cancel its registration if it wishes to cease business or if prohibited by competent authority, submitting prescribed fees.
2. The application must include proof that the company has no outstanding liabilities in Nepal.
3. The Office will publish a notice twice in a national newspaper, inviting claims against the company within 21 days.
4. If claims are made, the company must provide proof of settlement. Unsettled claims must be paid from assets in Nepal or abroad.
5. If no claims arise or claims are settled, the Office will remove the company from the register and notify it.
6. If insolvency proceedings begin against the foreign company abroad, the company’s authorized Nepal representative must notify the Office and publish a notice locally.
7. Upon cancellation, the company must cease business in Nepal, and Nepal’s insolvency laws will apply to its local affairs.

                                                                                                 Chapter- 17

PROCEEDING OF LAWSUITS AND PUNISHMENTS

159. Complaints and Proceedings

1. Cases under this Act may be initiated by complaints from the Office, directors, officers, shareholders, members, creditors, or any concerned person.
2. Except where jurisdiction is given to the Office, Courts hear offenses, complaints, applications, and compensation matters under this Act.
3. Courts shall follow the Summary Procedures Act, 2028 (1971), when handling these cases.
4. Appeals against decisions by the Office or Court may be made to a designated Court within 35 days, as specified by the Government with Supreme Court consent.
5. Until the Government designates a Court, the Company Board (Section 169) assumes such jurisdiction.

 

160. Punishment with Fine or Imprisonment (up to 2 years) or Both

Persons committing the following offenses face fines of NPR 20,000 to 50,000, imprisonment up to 2 years, or both:

• Directors or officers causing loss/damage by false documents with mala fide intent.
• Failure to maintain or hiding required accounts or documents.
• Auditors reporting false information or omitting necessary comments maliciously.
• Liquidators neglecting duties or maintaining false accounts.
• Failure to hand over company documents or assets on termination or liquidation.
• Issuing prospectus with false details before registration.
• Acts beyond the company’s or board’s jurisdiction.
• Shareholders giving false returns or failing to provide returns.
• Misappropriation or unauthorized use of company funds or goods.
• Failure to provide required statements or information to authorities.
• Unqualified auditors performing audits knowingly.
• Exercising unauthorized powers or maintaining accounts against the Act.
• Failure to provide required financial statements or reports.
• Improper loans or remuneration contrary to the Act.
• False statements in court applications for share capital reduction.
• Private companies selling shares/debentures in violation of the Act.
• Foreign companies operating contrary to the Act.
• Debenture trustees acting against holders’ interests.
• Violations of specific Sections (26(7), 60, 141, 175, 47, 105, 50) and failure to provide registered office address after notice.

 

161. Punishment with Fine (NPR 10,000 to 50,000)

Persons committing the following offenses face fines between NPR 10,000 and 50,000:

• Unauthorized allotment of shares.
• Purchase of own shares or investments contrary to the Act.
• Failure to provide books of account to auditors.
• Auditors failing to present required reports.
• Directors or officers failing to make required arrangements (e.g., Section 172(3)).
• Violations of Sections 146 or 147 regarding records or returns.
• Violations of Chapter 18 duties and obligations.
• Failure to call or notify general or board meetings properly or prepare/share required documents.
• Falsifying minutes or documents.
• Directors making false declarations under Section 136(2).
• False translation or certification of foreign company documents submitted to the Office.

162. Punishment with Fine up to NPR 20,000

Except for offenses under Sections 160 and 161, the Court may impose a fine of NPR 5,000 to 20,000 on any company or its directors, managing director, manager, company secretary, or employees who:

• Fail to perform any duty required under this Act,
• Commit prohibited acts under this Act,
• Perform permissible acts after deadlines or without following procedures,
• Fail to provide required information or submit returns to the Office.

 

163. Realization of Loss

If a director, officer, or person causes loss or damage to the company, shareholders, creditors, or others by violating this Act, the company’s memorandum, articles of association, or agreements, the aggrieved party is entitled to recover that loss directly from the responsible individual, who shall personally bear the amount.

                                                                              Chapter 18

AUDIT COMMITTEE

164. Audit Committee

1. Companies listed with paid-up capital of NPR 30 million or more, or fully/partly government-owned, must form an audit committee chaired by a non-executive director with at least three members.
2. Close relatives of the company’s chief executive cannot be audit committee members.
3. At least one member must hold a professional accounting certificate or have a bachelor’s degree in accounts, commerce, management, finance, or economics with relevant experience.
4. The board’s report must include a summary of the audit committee’s activities, policies on implementing its suggestions, members’ allowances, and member names.
5. The committee may require attendance of company executives, auditors, or officers involved in daily operations, who must attend if notified.
6. The board must implement the committee’s recommendations on accounts and financial management or explain reasons for non-implementation.
7. Companies must provide adequate resources for the committee, which may set its own internal procedures.
8. The audit committee chairperson must attend the company’s annual general meeting.
9. The committee shall meet as necessary.

165. Functions, Duties, and Powers of Audit Committee

The audit committee shall:

(a) Review the company’s accounts and financial statements to verify their accuracy.

(b) Review the company’s internal financial control and risk management systems.

(c) Supervise and review the company’s internal audit activities.

(d) Recommend potential auditors, fix their remuneration and terms, and present these for approval at the general meeting.

(e) Oversee whether the auditor complies with required auditing standards and directives.

(f) Formulate policies for auditor appointment and selection based on applicable standards.

(g) Prepare and enforce the company’s accounting policies.

(h) Comply with requirements for long-term audit reports as prescribed by regulatory bodies.

(i) Perform other duties assigned by the board related to accounts, financial management, and audit.

                                                                  Chapter- 19

PROVISIONS RELATING TO COMPANY NOT DISTRIBUTING PROFITS

166. Establishment of Non-Profit Companies
     (1) Any company may be incorporated to promote professions, protect collective rights, or pursue scientific, social, benevolent, or public welfare objectives, provided it does not distribute dividends.
     (2) Individuals, trustees, or corporate bodies may apply to register such companies.
     (3) At least five promoters are required, and membership must be a minimum of five, with membership non-transferable.
     (4) Membership terminates on death, deregistration, dissolution, or amalgamation.
     (5) Such companies cannot use “Company,” “Limited,” or “Private Limited” in their name without prior Office approval.
     (6) Branch expansion requires Office approval.
167. Special Provisions for Non-Profit Companies
     (1)

• No share capital is required; companies may receive membership fees, donations, or gifts.
• Members are not liable for company debts unless they accept specific limited liability in writing.
• Applicable provisions for listed companies, excluding share-capital-specific ones, apply.
• Profits must be reinvested or used to achieve objectives; no dividends or bonuses to members or employees.
• Office approval is required to change objectives.
• Non-profit companies cannot merge with profit-distributing companies.
• Directors are elected by members on a one-member, one-vote basis.
• Expenses including salaries and allowances are capped by the Office considering company capital and profits.
• Upon liquidation, remaining assets after debts are settled follow articles of association provisions or else revert to the Government of Nepal, excluding transfer to promoters or their relatives.

(2) Violation of these provisions may lead to registration cancellation by the Office, after giving the company a chance to defend itself.
(3) Aggrieved companies may appeal cancellation decisions in Court within 35 days.
(4) Upon cancellation, the Office appoints a liquidator and auditor to complete liquidation within a specified period.
(5) The liquidator and auditor must act according to this Act and prevailing laws.

                                                                                               Chapter- 20

INTERIM PROVISIONS RELATING TO COMPANY ADVISORY BOARD AND COMPANY BOARD

168. Formation of Company Advisory Board
     (1) The Government of Nepal shall form a Company Advisory Board by notification in the Nepal Gazette, with up to nine members from the fields of law, accounting, tax administration, commerce, trade administration, and a representative from the Federation of Nepalese Chamber of Commerce and Industries. Members must hold at least a master’s degree and have at least seven years’ relevant experience in government or private sectors. The Board advises the Government on practical issues and reforms related to company law and administration. The Registrar acts as the member secretary.
     (2) The notification will also designate one member as the Chairperson of the Board.
     (3) The Board must submit an annual report of its activities to the concerned Ministry.
     (4) The Ministry shall publish the report and ensure it is available to the public at a reasonable price.
169. Provisions relating to Company Board
     (1) Until a court is designated by the Government as per this Act, the Government shall form a three-member Company Board by notification, consisting of a Chairperson and two members.
     (a) The Chairperson shall be a current or former District Judge or a person qualified to be a District Judge, holding at least a bachelor’s degree in law and experience in commercial law.

(b) A member shall be a person registered as an advocate under the prevailing law with at least ten years’ legal practice in commercial law, or a person who has served as Gazetted Class Two in the Nepal Judicial Service for at least four years.

(c) A member shall be a person with a bachelor’s degree in management, commerce, or accounting and at least ten years’ experience in company management, tax administration, or accounting; or an accounting professional with a certification and at least five years’ experience in the accounting profession.

(2) Notwithstanding Sub-section (1), the Government may designate any qualified member of the Company Advisory Board (Section 168) as Chairperson or member of the Company Board.

(3) The Company Board formed under Sub-sections (1) or (2) shall exercise the jurisdiction of the Court under this Act.

(4) The Company Board shall exercise jurisdiction jointly by three members. Cases may be heard with two members if one is Chairperson or both are non-Chairpersons. Decisions shall be by unanimous or majority opinion; in case of disagreement, the Chairperson’s or senior member’s opinion prevails. If no majority is reached, the Chairperson’s opinion prevails on proceedings, but final judgment is referred to the appellate Court.

(5) The Company Board may relocate within Nepal temporarily to manage workload.

(6) The Board shall follow Summary Procedures Act, 2028 (1971) in hearings.

(7) Appeals against Company Board decisions may be made to the Appellate Court within 35 days of notice.

(8) Remuneration and service terms of Chairperson and members shall be prescribed but not reduced once provided.

(9) The Company Board established under Companies Act, 2053 (1996) shall continue until the new Board is formed.

(10) Pending cases before the existing Board at commencement of this Act shall be transferred to and heard by the new Company Board.

170. Secretariat and Employees of Company Advisory Board and Company Board:
     (1) The secretariat of the Company Advisory Board (Section 168) shall be located in the Company Registrar’s Office.
     (2) The secretariat of the Company Board (Section 169) shall be located in the Ministry of Industries.
     (3) The Company Board secretariat shall have employees as specified by the Government of Nepal.
171. Dissolution of Company Board:
     (1) The Company Board shall be dissolved automatically upon designation of the Court by the Government, notified in the Nepal Gazette.
     (2) Upon dissolution, the appointments of the Chairperson, members, and employees shall terminate without compensation; employees on deputation shall return to their original offices.
     (3) All pending cases before the dissolved Board shall be transferred to the Court.

                                                                            Chapter- 21

MISCELLENOUS

172. Record of Company and Use of Computer:
     (1) Records such as minute books, shareholder/debenture registers, indexes, and accounts may be maintained either in physical books or electronically in any form, including non-legible formats, without prejudice to this section.
     (2) If records are maintained other than physical books:
     (a) They must be easily accessible at the place where such records are kept and available for inspection or copying, and shall be deemed properly maintained there.
     (b) The company must ensure records cannot be destroyed or altered and that contents are traceable and accessible.
     (c) Non-legible records must be reproducible in a legible form.
     (3) If records are published on a website, the preparation and amendment dates must be clearly visible.
     (4) When inspection or copying of non-legible electronic records is required by law, the company must provide them in a visible or legible form.
173. Conversion of Government Corporation into Company:
     (1) The Government of Nepal may convert any fully or partly government-owned public corporation or development board into a public company under this Act.
     (2) There is no restriction on the number of promoters or shareholders in such incorporation.
     (3) The corporation’s movable and immovable assets may be valued and converted into share capital, with all assets and liabilities transferring to the new company, except as stated in its articles of association.
     (4) The company’s number of directors shall be as specified in its articles of association, and directors need not hold shares.
     (5) Such company may sell shares in bulk to the private sector via stock exchange or direct negotiation.
174. Handover by Predecessor:
     Directors or officers must hand over all documents to their successors within 30 days of term expiry; successors must take charge accordingly.
175. Transactions Between Associated Companies:
     (1) Transactions involving loans, guarantees, liabilities, or other financial assistance between a company and its holding company, subsidiaries, or related companies are deemed transactions between associated companies.
     (2) Such transactions must be notified promptly to shareholders and the Office, detailing date, parties, nature, and amounts involved.
176. Restrictions on Transactions Between Companies:
     (1) A company shall not lend money, give guarantees, or invest in another company beyond 60% of its paid-up capital and free reserves, or 100% of free reserves, whichever is higher.
     (2) Exceptions include banks, insurance companies, securities traders, private companies without bank loans, infrastructure companies, and holding companies investing in fully-owned subsidiaries.
     (3) Companies must maintain prescribed records of such transactions.
177. Merger of Companies:
     (1) Public companies may merge by special resolution; private companies as per their constitutional documents or agreements.
     (2) Merging between public and private companies results in a public company.
     (3) Within 30 days of resolution, companies must apply to the Office with relevant documents including meeting decisions, financial reports, creditors’ consent, asset valuations, and merger scheme.
     (4) The Office will decide within three months.
     (5) Upon approval, all assets and liabilities of the merging company transfer to the merged company.
     (6) The Office shall keep separate records of the merging company.
     (7) Shareholders dissenting the merger may demand valuation and proportional return of their shares.
     (8) The Office shall refuse approval if the merger creates monopoly, unfair trade restriction, or is against public interest.
178. Power to Give Directive:
     If the Office learns a company, its directors, officers, or employees have not complied with this Act, the memorandum, articles, or consensus agreement, or are about to violate them, the Office may inquire and issue directives to ensure compliance, which must be followed.
179. Bonus Shares:
     A company may issue bonus shares by special resolution from distributable profits and must notify the Office before issuance.
180. Void Acts:
     Any act or action by a company contrary to this Act or its constitutional documents is void unless otherwise provided.
181. Notice on Business:
     If a person entitled to notice waives it in writing or attends the meeting in person or by proxy, the notice is deemed received.
182. Dividend:
     (1) Dividends must be paid within 45 days unless prohibited by law, disputed, or due to uncontrollable reasons.
     (2) Government-owned companies require prior government approval and directives on dividends.
     (3) Late dividend payments incur prescribed interest.
     (4) Dividends belong to shareholders or their legal heirs registered at declaration.
     (5) Dividends can only be paid from profits set aside for distribution.
     (6) Pre-operation expenses, depreciation, legal reserves, or past losses must be deducted before dividend payment.
     (7) Interim dividends may be paid if allowed by articles and based on audited financials.
     (8) No payment to shareholders other than approved dividends.
     (9) Unclaimed dividends after 5 years must be transferred to the Investor Protection Fund (Section 183).
     (10) Companies must publish notice inviting claimants before transfer.
     (11) Dividend amounts must be kept in a separate account and used solely for payment.
183. Investor Protection Fund:
     (1) Unclaimed dividends after 5 years form the Investor Protection Fund.
     (2) Fund usage includes capital market improvement, policy, training, and company administration activities.
     (3) Managed by a committee including Registrar and Securities Board representatives.
     (4) Expenses are recorded and audited by the Office.
     (5) Funds may also include government, donor, or other contributions.
     (6) Notice must be published before transferring unclaimed amounts.
184. Office of Company:
     (1) Companies must display a Nepali name and address signboard at their registered office.
     (2) Registered office address must be filed with the Office within 3 months of incorporation.
     (3) Changes to registered office address must be notified to the Office.
     (4) Companies must provide and update contact details (phone, fax, email) with the Office.
     (5) The Office may maintain and publicly display an index of company addresses.
185. Appointment of Company Secretary:
     (1) A public company with paid-up capital of NPR 10 million or more must appoint a Nepalese company secretary meeting the qualifications in (2).
     (2) Qualifications: Nepalese citizen with either 2 years’ related experience after obtaining a professional company secretary certificate, or 3 years’ related/company management experience after a bachelor’s in law, management, commerce, or economics.
     (3) Incumbent company secretaries at the Act’s commencement are exempt for 3 years.
     (4) Directors cannot be appointed as company secretary.
     (5) A person may not be company secretary of more than one company, except a principal company and its subsidiary.
     (6) If the post is vacant or secretary unable to act, a qualified employee designated by the board may perform the secretary’s duties.
186. Functions, Duties, and Powers of Company Secretary:
     (1) Implement board/general meeting decisions and Office directives; submit required documents to authorities timely.
     (2) Duties include: calling meetings; preparing and distributing agendas; maintaining and authenticating meeting records; issuing share allotment notices; maintaining shareholder and debenture registers; handling share transfers and pledges; transmitting shareholder/debenture-holder claims to authorities and informing them of outcomes; performing other prescribed functions.
     (3) The secretary shall not act for personal gain without general meeting approval.
     (4) Must observe prescribed code of conduct.
187. Validity of Shareholders’ Agreement:
     (1) Agreements among shareholders on management, operation, or voting rights are binding, except provisions harmful to the company or minority shareholders are void to that extent.
     (2) Shareholders must submit two copies of the agreement to the company within 15 days; the company must forward one copy to the Office within 15 days.
188. Effect of Inoperativeness of the Companies Ordinance, 2062 (2005):
     The Ordinance being inoperative shall not:
     (a) revive anything not in force when it became inoperative;
     (b) affect matters done or punishments under it;
     (c) affect rights, obligations, penalties, or actions incurred under it;
     (d) allow legal proceedings related to such rights or penalties to continue as if it were in force.