Partnership Agreement Drafting in Nepal (2026): A partnership agreement, also called a partnership deed, is one of the oldest and simplest forms of business documentation recognized under Nepali law. It sets out how two or more partners will run a business together, share profits and losses, and manage disputes. For individuals and businesses planning to work together in Nepal, a properly drafted partnership agreement protects the interests of every partner and ensures that the firm operates within the boundaries of Nepali law. CompanyNP assists local and eligible foreign clients in drafting, reviewing, and registering partnership agreements in line with the Partnership Act, the Companies Act, the Foreign Investment and Technology Transfer Act (FITTA), the Income Tax Act, and relevant Nepal Rastra Bank (NRB) directives.
This article explains, in simple and factual terms, how partnership agreements work in Nepal, who can form one, what clauses are legally necessary, and what steps are involved in registration.
Understanding Partnership Agreements and the Law Governing Them in Nepal
Before drafting any partnership agreement, it is important to understand the legal basis on which partnership firms operate in Nepal, since this determines what the agreement must contain and who may lawfully enter into it.
What Is a Partnership Agreement Under Nepali Law?
A partnership agreement is a written contract between two or more persons who agree to carry on a business together and share its profits and losses according to agreed terms. Under Nepali law, a partnership is treated as a relationship between the partners rather than as a separate legal entity, which is different from a company registered under the Companies Act.
Which Law Governs Partnership Firms in Nepal?
Partnership firms in Nepal are primarily governed by the Partnership Act, 2020. This Act lays down the rules for formation, registration, rights and duties of partners, and dissolution of partnership firms. In addition to the Partnership Act, the following laws are also relevant depending on the nature of the business:
- Companies Act, 2063, for businesses that later convert into a private or public company
- Foreign Investment and Technology Transfer Act (FITTA), 2075, for matters involving foreign investment
- Income Tax Act, 2058, for tax registration and filing obligations
- Nepal Rastra Bank Act and NRB directives, for foreign currency transactions and repatriation of profit
Who Can Form a Partnership in Nepal?
Any two or more competent persons who are legally capable of entering into a contract may form a partnership firm in Nepal. The Partnership Act requires a minimum of two partners, and the firm must be registered with the concerned registration authority to be legally recognised. Partnership firms are generally intended for Nepali citizens conducting domestic trade, services, or small-scale business activities.
Can Foreign Nationals Join a Partnership Firm in Nepal?
Foreign nationals face restrictions when it comes to forming a partnership firm in Nepal. Under FITTA, 2075, foreign investment is permitted only through specific modalities, which generally means investment in a company registered under the Companies Act, 2063, rather than a partnership firm. This is because partnership firms do not provide the limited liability protection and corporate structure required for recognised foreign direct investment (FDI). As a result, most foreign investors are advised to register a private limited company instead of a partnership firm if they wish to bring foreign capital into Nepal.
Role of FITTA and the Department of Industry in Foreign Investment Structuring
The Department of Industry is the designated authority that approves foreign investment proposals under FITTA. Sectors open and closed to foreign investment are listed under the negative list of FITTA. Where a foreign client wishes to collaborate with a Nepali partner, CompanyNP typically recommends a joint venture company structure rather than a partnership firm, since this aligns with the approval requirements of the Department of Industry and the reporting requirements of Nepal Rastra Bank.
What Are the Mandatory Clauses in a Partnership Deed?
A well-drafted partnership agreement should clearly define the rights, duties, and obligations of each partner to avoid future disputes. While the Partnership Act does not prescribe a single rigid format, certain clauses are considered essential for legal clarity and for registration purposes.
Clauses Related to Capital Contribution and Profit Sharing
The agreement must state the amount of capital contributed by each partner, the mode of contribution, and the ratio in which profits and losses will be shared. This clause prevents disagreements regarding financial entitlement among partners.
Clauses Related to Management, Rights and Duties of Partners
This section outlines who will manage daily operations, who has authority to sign contracts on behalf of the firm, and what decisions require unanimous or majority consent. Clear management clauses reduce the risk of internal conflict.
Clauses Related to Dispute Resolution and Dissolution
Every partnership agreement should include a clause describing how disputes will be resolved, whether through mediation, arbitration, or the courts of Nepal. It should also describe the process for admitting new partners, the exit of existing partners, and the dissolution of the firm in line with the Partnership Act.
What Is the Step-by-Step Process to Draft and Register a Partnership Agreement in Nepal
The registration process for a partnership firm in Nepal involves several sequential steps. CompanyNP guides clients through each of these stages to ensure full legal compliance.
Step 1: Selection of Business Name and Partners
The proposed partners must agree on a unique business name that is not already registered and decide on the number of partners joining the firm.
Step 2: Drafting the Partnership Deed
A partnership deed is drafted containing details such as the firm’s name, address, objectives, capital contribution, profit-sharing ratio, and rights and duties of each partner.
Step 3: Notarization of the Partnership Deed
Once finalised, the partnership deed is signed by all partners and notarised by a licensed notary public in Nepal to give it legal validity.
Step 4: Submission to the Office of Company Registrar
The notarised deed, along with required documents, is submitted to the Office of Company Registrar for formal registration of the partnership firm.
Step 5: Registration with the Inland Revenue Department
After firm registration, the partnership must obtain a Permanent Account Number (PAN) from the Inland Revenue Department and register for Value Added Tax (VAT) if applicable.
Step 6: Obtaining Local Business Registration and Permits
Depending on the nature of the business, the firm may also need to register with the local ward office or municipality and obtain sector-specific operating licenses before commencing operations.
What Documents Are Required for Partnership Firm Registration
The table below summarises the standard documents generally required when registering a partnership firm in Nepal.
| Document | Purpose |
|---|---|
| Citizenship certificate of all partners | To verify identity and nationality of partners |
| Partnership deed (notarised) | Primary legal document defining the partnership |
| Passport-size photographs | For identification records |
| Proof of business address | To confirm the firm’s registered office location |
| Ward recommendation letter | Required by local authorities for address verification |
| PAN registration application | For tax identification purposes |
What Are the Tax Obligations of a Partnership Firm in Nepal?
Once registered, a partnership firm becomes subject to several tax and compliance obligations under Nepali law.
PAN Registration and VAT Requirements
Every partnership firm must obtain a Permanent Account Number from the Inland Revenue Department. Firms exceeding the prescribed annual turnover threshold must also register for VAT and file periodic VAT returns.
Income Tax Filing Obligations Under the Income Tax Act 2058
Partnership firms are required to file annual income tax returns under the Income Tax Act, 2058. The firm’s income is generally assessed, and tax is paid either at the entity level or distributed among partners according to the applicable tax provisions and the firm’s structure.
What Is the Difference Between a Partnership Firm and a Private Limited Company in Nepal?
Foreign clients often ask CompanyNP whether a partnership firm or a private limited company is the better structure. The table below highlights the main differences.
| Feature | Partnership Firm | Private Limited Company |
|---|---|---|
| Governing law | Partnership Act, 2020 | Companies Act, 2063 |
| Legal entity status | No separate legal entity | Separate legal entity |
| Liability of owners | Unlimited liability | Limited to share capital |
| Foreign investment eligibility | Generally restricted under FITTA | Permitted under FITTA, subject to approval |
| Registration authority | Office of Company Registrar | Office of Company Registrar |
| Minimum members | Two partners | One shareholder |
What Happens If a Partnership Agreement Is Not Registered?
A partnership that is not formally registered with the Office of Company Registrar may face legal limitations, such as the inability to sue third parties to enforce contractual rights or to claim set-off in legal proceedings. Registration also provides evidentiary proof of the terms agreed between partners, which becomes important in the event of a dispute.
Why Should Foreign Investors Consult Axion Partners Before Drafting a Partnership Agreement?
Because partnership firms are subject to specific restrictions for foreign nationals under FITTA and NRB regulations, foreign investors should seek professional guidance before choosing a business structure in Nepal. CompanyNP reviews each client’s objectives against the Partnership Act, Companies Act, FITTA, and Income Tax Act to recommend the most compliant and practical structure, whether that is a partnership firm for Nepali citizens, a joint venture, or a wholly foreign-owned private limited company.
Frequently Asked Questions About Partnership Agreement Drafting in Nepal
Is a partnership agreement legally required in Nepal?
Yes, a written partnership deed is required to register a partnership firm with the Office of Company Registrar. Without a registered deed, partners may face difficulties enforcing their rights and obligations in legal proceedings under the Partnership Act, 2020.
Can a foreigner register a partnership firm in Nepal?
Generally, foreign nationals cannot register a partnership firm for foreign direct investment, since FITTA recognizes company structures for FDI. Foreign investors are usually advised to register a private limited company instead, subject to Department of Industry approval.
Which government office registers partnership firms in Nepal?
Partnership firms are registered with the Office of Company Registrar after the partnership deed is notarized. Following firm registration, the entity must also obtain a Permanent Account Number from the Inland Revenue Department for tax purposes.
How many partners are required to form a partnership firm?
The Partnership Act, 2020 requires a minimum of two partners to form a partnership firm in Nepal. The Partnership Act does not prescribe a strict upper limit, but the registered partnership deed must clearly state the number of partners.
Does a partnership firm need to register for VAT?
A partnership firm must register for VAT with the Inland Revenue Department if its annual turnover exceeds the threshold prescribed under VAT law. Firms below the threshold may register voluntarily or remain under simplified tax arrangements.
What happens if partners do not have a written agreement?
Without a written partnership agreement, partners may find it difficult to resolve disputes regarding profit sharing, capital contribution, and management authority legally. The Partnership Act’s default provisions may apply, which may not reflect the actual understanding between the partners.
Checkout out some related posts:
- https://taxconsultantnepal.com/nrn-citizenship-process-in-nepal-2025-2/
- https://lawaxion.com/foreign-direct-investment-approval-process-in-nepal/
- https://companynp.com/trademark-registration-process-in-nepal/
- https://taxconsultantnepal.com/company-registration-process-in-nepal/
- https://lawaxion.com/manpower-license-process-in-nepal/
- https://taxconsultantnepal.com/export-import-license-process-in-nepal/
- https://lawaxion.com/criteria-for-five-star-hotel-in-nepal/
- https://companynp.com/travel-and-tours-company-registration-in-nepal/
- https://taxconsultantnepal.com/branch-office-registration-in-nepal-contact-liaison-office/
- https://lawaxion.com/non-resident-nepali-nrn-id-card-in-nepal/
- https://taxconsultantnepal.com/non-profit-organization-registration-process-in-nepal/
- https://lawaxion.com/education-consultancy-license-process-in-nepal/
