Profit not distributing companies, also known as non-profit companies, are legal entities established in Nepal for charitable, social, or public benefit purposes. These organizations operate under the Companies Act, 2063 (2006) and are regulated by the Office of the Company Registrar. Non-profit companies in Nepal are prohibited from distributing profits to their members or shareholders. Instead, any surplus generated must be reinvested in the company’s objectives. These entities play a vital role in Nepal’s social and economic development, addressing various issues such as education, healthcare, environmental conservation, and community development. Non-profit companies differ from non-governmental organizations (NGOs) in their legal structure and regulatory framework, offering unique advantages in terms of operational flexibility and fundraising capabilities.
Legal Framework Governing Non-Profit Company Registration
The registration and operation of non-profit companies in Nepal are governed by several key laws and regulations. The primary legislation is the Companies Act, 2063 (2006), which provides the legal basis for establishing and regulating companies, including non-profit entities. Section 166 of the Act specifically addresses the formation of companies not distributing dividends. Additionally, the Social Welfare Act, 2049 (1992) and the Association Registration Act, 2034 (1977) influence the regulatory environment for non-profit organizations. The Income Tax Act, 2058 (2002) outlines the tax treatment of non-profit companies. The Company Registration Rules, 2063 (2006) provide detailed procedures for registration. These laws collectively establish the legal framework for non-profit company registration, governance, and compliance in Nepal, ensuring transparency and accountability in their operations.
Eligibility Criteria for Registering a Non-Profit Company
To register a non-profit company in Nepal, applicants must meet specific eligibility criteria:
- The company must have a minimum of 7 founding members
- At least one Nepali citizen must be among the founding members
- The proposed company name must be unique and not misleading
- The objectives of the company must be clearly defined and align with non-profit purposes
- The company’s memorandum and articles of association must comply with legal requirements
- The registered office address must be within Nepal
- The company must have a board of directors with at least 3 members
- The company must not have the intention of distributing profits to its members
- The proposed activities must not contradict Nepali laws or public policy
- The company must have a clear plan for utilizing any surplus funds for its stated objectives
Meeting these criteria is essential for successful registration and operation of a non-profit company in Nepal.
Required Documents for Non-Profit Company Registration Process
To register a non-profit company in Nepal, the following documents are required:
- Application form for company registration
- Proposed company name and alternative names
- Memorandum of Association (MoA)
- Articles of Association (AoA)
- List of promoters/founding members with their details
- Citizenship certificates or passport copies of all promoters
- Passport-sized photographs of all promoters
- Board resolution authorizing the registration process
- Proof of registered office address (rental agreement or ownership document)
- Bank statement showing the initial capital deposit
- No Objection Letter from relevant government department (if applicable)
- Power of Attorney for the authorized representative
- Declaration of compliance with company registration requirements
- Proposed organizational structure and governance plan
- Initial action plan or project proposal
These documents must be prepared accurately and submitted to the Office of the Company Registrar for processing.
Step-by-Step Procedure for Registering a Non-Profit Company
- Choose a unique company name and check its availability
- Prepare the Memorandum and Articles of Association
- Gather all required documents as listed in the previous section
- Submit the application and documents to the Office of the Company Registrar
- Pay the required registration fees
- Undergo document verification by the Company Registrar’s office
- Receive and respond to any queries or requests for additional information
- Obtain approval from the Company Registrar
- Receive the Certificate of Incorporation
- Apply for a Permanent Account Number (PAN) from the Inland Revenue Department
- Register with the Social Welfare Council (if required for specific activities)
- Open a bank account in the company’s name
- Obtain any necessary permits or licenses for specific activities
- Hold the first board meeting and adopt initial resolutions
- Begin operations as per the approved objectives
Following these steps ensures a smooth registration process for non-profit companies in Nepal.
Government Authorities Involved in Non-Profit Company Registration
Several government authorities play crucial roles in the registration and oversight of non-profit companies in Nepal:
- Office of the Company Registrar (OCR): The primary authority responsible for company registration, including non-profit entities. It processes applications, issues certificates of incorporation, and maintains company records.
- Inland Revenue Department (IRD): Handles tax-related matters, including issuing Permanent Account Numbers (PAN) and overseeing tax compliance.
- Social Welfare Council (SWC): Regulates and monitors social organizations, including some non-profit companies engaged in social welfare activities.
- Ministry of Home Affairs: Involved in security clearances and monitoring of non-profit activities, especially those with foreign funding.
- Nepal Rastra Bank (NRB): Oversees financial transactions and foreign currency approvals for non-profit companies.
- Relevant Line Ministries: Depending on the company’s objectives, specific ministries may be involved in granting approvals or monitoring activities.
- District Administration Offices: Play a role in local-level monitoring and coordination of non-profit activities.
These authorities collaborate to ensure proper registration, regulation, and monitoring of non-profit companies in Nepal.
Time Frame for Completing Non-Profit Company Registration
The registration process for a non-profit company in Nepal typically takes between 2 to 4 weeks, depending on various factors. Here’s a breakdown of the estimated timeframes for each stage:
- Name approval: 1-3 days
- Document preparation: 3-7 days
- Initial submission to the Company Registrar: 1 day
- Document verification by the Registrar: 5-10 days
- Addressing queries or providing additional information: 2-5 days
- Final approval and issuance of Certificate of Incorporation: 2-3 days
- PAN registration: 1-2 days
- Social Welfare Council registration (if required): 7-14 days
- Bank account opening: 1-3 days
The total time can vary based on the completeness of submitted documents, the workload of government offices, and the complexity of the proposed non-profit activities. Efficient preparation and prompt responses to queries can help expedite the process.
Fees and Costs Associated with Non-Profit Registration
Registering a non-profit company in Nepal involves various fees and costs:
- Name reservation fee: NPR 100
- Registration fee: NPR 1,000 for companies with authorized capital up to NPR 100,000; additional fees apply for higher capital
- Application fee: NPR 5,000
- Stamp duty: Varies based on the authorized capital
- PAN registration fee: NPR 200
- Social Welfare Council registration fee (if applicable): NPR 5,000
- Legal and professional fees: Varies, typically NPR 20,000 – 50,000
- Notary charges: Approximately NPR 1,000 – 2,000
- Document translation costs (if required): Varies based on volume
- Bank charges for initial capital deposit: As per bank policies
Additional costs may include office rent, utility connections, and initial operational expenses. The total cost can range from NPR 50,000 to NPR 150,000 or more, depending on the company’s size and complexity. It’s advisable to budget for unforeseen expenses during the registration process.
Tax Implications and Exemptions for Non-Profit Companies
Non-profit companies in Nepal enjoy certain tax benefits but are also subject to specific tax obligations:
- Income Tax Exemption: Income derived from the company’s core non-profit activities is generally exempt from income tax under Section 2(dha) of the Income Tax Act, 2058 (2002).
- VAT Exemption: Non-profit companies are exempt from Value Added Tax (VAT) on goods and services directly related to their charitable activities.
- Custom Duty Exemptions: Certain imports for charitable purposes may be eligible for customs duty exemptions, subject to approval from relevant authorities.
- Property Tax: Non-profit companies may be eligible for property tax exemptions on buildings used for charitable purposes, depending on local regulations.
- Tax Deductible Donations: Donors to registered non-profit companies may claim tax deductions for their contributions, subject to certain limits.
- Withholding Tax Obligations: Non-profit companies must withhold taxes on salaries, rent, and certain other payments as per the Income Tax Act.
- Annual Tax Returns: Despite exemptions, non-profit companies must file annual tax returns with the Inland Revenue Department.
- Social Security Fund Contributions: Non-profit companies with employees must contribute to the Social Security Fund.
These tax implications aim to support the non-profit sector while ensuring transparency and compliance with fiscal regulations.
Compliance Requirements for Registered Non-Profit Companies
Registered non-profit companies in Nepal must adhere to various compliance requirements:
- Annual General Meeting (AGM): Hold an AGM within 6 months of the fiscal year-end and file AGM minutes with the Company Registrar.
- Board Meetings: Conduct regular board meetings and maintain proper minutes.
- Financial Statements: Prepare annual financial statements and have them audited by a registered auditor.
- Annual Returns: File annual returns with the Company Registrar within 60 days of the AGM.
- Tax Filings: Submit annual income tax returns to the Inland Revenue Department, even if exempt from tax.
- Social Welfare Council Reporting: If registered with SWC, submit annual progress and financial reports.
- Foreign Currency Approvals: Obtain necessary approvals from Nepal Rastra Bank for foreign currency transactions.
- Project Approvals: Seek approvals from relevant line ministries for specific projects or activities.
- Employee-related Compliance: Adhere to labor laws, social security contributions, and provident fund regulations.
- Record Keeping: Maintain proper books of accounts, membership registers, and other statutory records.
- Amendments Reporting: Report any changes in company structure, objectives, or key personnel to the Company Registrar.
- Renewal of Registrations: Renew registrations with relevant authorities as required.
Strict adherence to these compliance requirements is essential for maintaining the legal status and good standing of non-profit companies in Nepal.
Restrictions on Activities of Non-Profit Companies in Nepal
Non-profit companies in Nepal face several restrictions on their activities:
- Profit Distribution: Prohibited from distributing profits or dividends to members or promoters.
- Political Activities: Restricted from engaging in direct political activities or supporting political parties.
- Religious Proselytization: Prohibited from activities aimed at religious conversion.
- Commercial Activities: Limited in conducting commercial activities unrelated to their core objectives.
- Foreign Funding: Must obtain prior approval from the Social Welfare Council for receiving foreign funds.
- Investments: Restricted from making speculative investments or engaging in high-risk financial activities.
- Lobbying: Limited in their ability to engage in lobbying activities that may influence legislation.
- Cross-Border Operations: Require special permissions to operate outside Nepal.
- Remuneration: Restrictions on excessive remuneration to board members or key personnel.
- Asset Disposal: Cannot dispose of assets for personal benefit of members or promoters.
- Scope of Activities: Must operate within the scope of objectives stated in their registration documents.
- Fundraising: Subject to regulations on public fundraising activities.
These restrictions aim to ensure that non-profit companies remain focused on their charitable objectives and operate transparently within the legal framework of Nepal.
Governance Structure and Management of Non-Profit Companies
Non-profit companies in Nepal must establish a robust governance structure:
- General Assembly: Comprises all members and is the highest decision-making body.
- Board of Directors: Elected by the General Assembly to oversee operations and strategic direction.
- Executive Committee: Responsible for day-to-day management and implementation of board decisions.
- Chairperson/President: Leads the board and represents the company externally.
- Secretary: Manages administrative functions and maintains company records.
- Treasurer: Oversees financial management and reporting.
- Advisory Board: Optional body providing expert guidance on specific issues.
- Subcommittees: May be formed for specific functions or projects.
- Executive Director/CEO: Appointed by the board to manage daily operations.
- Staff: Employed to carry out the company’s activities and programs.
The governance structure must ensure:
- Clear separation of roles and responsibilities
- Transparent decision-making processes
- Regular board and general meetings
- Proper documentation of all decisions and activities
- Mechanisms for conflict resolution and accountability
- Compliance with legal and regulatory requirements
Effective governance is crucial for maintaining the integrity and efficiency of non-profit companies in Nepal.
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Reporting and Auditing Requirements for Non-Profit Companies
Non-profit companies in Nepal must adhere to strict reporting and auditing requirements:
- Annual Financial Statements: Prepare detailed financial statements including balance sheet, income statement, and cash flow statement.
- Audit Report: Engage a registered auditor to conduct an annual audit and provide an audit report.
- Annual Report: Submit a comprehensive annual report detailing activities, achievements, and financial performance to the Company Registrar.
- Tax Returns: File annual tax returns with the Inland Revenue Department, regardless of tax-exempt status.
- Social Welfare Council Reports: If registered with SWC, submit periodic progress and financial reports.
- Project-specific Reports: Provide reports to relevant line ministries or donors for specific projects.
- Board Meeting Minutes: Maintain and submit minutes of board meetings to the Company Registrar.
- Membership Register: Keep an updated register of members and submit changes to the Registrar.
- Foreign Currency Transaction Reports: Report all foreign currency transactions to Nepal Rastra Bank.
- Compliance Certificates: Obtain and submit annual compliance certificates from relevant authorities.
- Internal Audit: Conduct regular internal audits to ensure financial integrity and operational efficiency.
- Public Disclosure: Make key financial and operational information available to the public upon request.
These reporting and auditing requirements ensure transparency, accountability, and proper governance of non-profit companies in Nepal.
Dissolution Process for Non-Profit Companies in Nepal
The dissolution of a non-profit company in Nepal involves several steps:
- Board Resolution: The board must pass a resolution to dissolve the company.
- General Assembly Approval: Obtain approval from the general assembly with a two-thirds majority.
- Notification to Creditors: Publish a notice in national newspapers informing creditors of the dissolution.
- Liquidator Appointment: Appoint a liquidator to manage the dissolution process.
- Asset Disposal: Dispose of company assets and settle all liabilities.
- Final Accounts: Prepare final accounts and have them audited.
- Submission to Registrar: Submit dissolution documents to the Company Registrar.
- Tax Clearance: Obtain tax clearance certificates from the Inland Revenue Department.
- SWC Clearance: If registered with SWC, obtain clearance for dissolution.
- Asset Transfer: Transfer any remaining assets to another non-profit entity with similar objectives.
- Final Report: Submit a final report to the Company Registrar detailing the dissolution process.
- Striking Off: The Company Registrar will strike off the company’s name from the register.
- Publication: The dissolution is published in the Nepal Gazette.
The dissolution process ensures proper closure of the company’s affairs and appropriate distribution of remaining assets in line with non-profit principles.
Recent Changes in Non-Profit Company Registration Regulations
Recent changes in non-profit company registration regulations in Nepal include:
- Online Registration: Introduction of an online registration system for faster processing.
- Enhanced Due Diligence: Stricter background checks on promoters and key personnel.
- Foreign Involvement: New guidelines for non-profit companies with foreign involvement or funding.
- Compliance Reporting: Increased frequency and detail in compliance reporting requirements.
- Tax Regulations: Updated tax guidelines for non-profit entities, clarifying exemptions and obligations.
- Social Impact Assessment: Requirement for social impact assessments for certain types of non-profit activities.
- Governance Standards: Introduction of minimum governance standards for non-profit companies.
- Financial Transparency: Enhanced requirements for financial disclosure and public accessibility of information.
- Cross-border Operations: New regulations governing non-profit companies operating across borders.
- Digital Documentation: Shift towards digital documentation and record-keeping requirements.
- Renewal Process: Streamlined renewal process for existing non-profit companies.
- Sector-specific Guidelines: Introduction of sector-specific guidelines for non-profits in areas like education and healthcare.
These changes aim to enhance transparency, accountability, and efficiency in the non-profit sector while aligning with international best practices.
FAQs
- What is a profit not distributing company in Nepal? A profit not distributing company in Nepal is a legal entity registered under the Companies Act, 2063 (2006) that operates for charitable, social, or public benefit purposes. It is prohibited from distributing profits to its members or shareholders and must reinvest any surplus in its stated objectives.
- How long does it take to register a non-profit company? The registration process for a non-profit company in Nepal typically takes 2 to 4 weeks, depending on the completeness of documents, government office workload, and the complexity of the proposed activities.
- What are the main compliance requirements for non-profits? Key compliance requirements include holding annual general meetings, filing annual returns, preparing audited financial statements, submitting tax returns, maintaining proper records, and adhering to governance standards set by regulatory authorities.
- Can foreigners establish non-profit companies in Nepal? Yes, foreigners can establish non-profit companies in Nepal. However, at least one Nepali citizen must be among the founding members, and additional approvals may be required for foreign involvement or funding.
- Are there any tax benefits for non-profit companies? Non-profit companies in Nepal are generally exempt from income tax on their core activities and may receive VAT exemptions on certain goods and services. They may also be eligible for customs duty exemptions on imports for charitable purposes.
- What activities are prohibited for non-profit companies? Non-profit companies are prohibited from distributing profits, engaging in direct political activities, religious proselytization, and conducting commercial activities unrelated to their core objectives. They are also restricted in their lobbying activities and speculative investments.
- How is a non-profit company different from an NGO? While both serve social purposes, non-profit companies are registered under the Companies Act and have more flexibility in operations and fundraising. NGOs are registered under the Association Registration Act and are subject to different regulatory requirements, often with more restrictions on their activities and funding sources.
Table of Contents
- 1 Legal Framework Governing Non-Profit Company Registration
- 2 Eligibility Criteria for Registering a Non-Profit Company
- 3 Required Documents for Non-Profit Company Registration Process
- 4 Step-by-Step Procedure for Registering a Non-Profit Company
- 5 Government Authorities Involved in Non-Profit Company Registration
- 6 Time Frame for Completing Non-Profit Company Registration
- 7 Fees and Costs Associated with Non-Profit Registration
- 8 Tax Implications and Exemptions for Non-Profit Companies
- 9 Compliance Requirements for Registered Non-Profit Companies
- 10 Restrictions on Activities of Non-Profit Companies in Nepal
- 11 Governance Structure and Management of Non-Profit Companies
- 12 Reporting and Auditing Requirements for Non-Profit Companies
- 13 Dissolution Process for Non-Profit Companies in Nepal
- 14 Recent Changes in Non-Profit Company Registration Regulations
- 15 FAQs