1. What Is a Company Not Distributing Profits?
Section 166 of the Act permits incorporation for purposes such as:
- Developing or promoting a profession or business;
- Protecting the collective interests of persons engaged in a particular profession or business; and
- Advancing educational, academic, social, charitable, public-utility or welfare objectives.
2. Founders, Membership and Capital
A minimum of five founding members is required to establish the company. Additional members may join after incorporation, provided the total membership remains at least five. Membership cannot be transferred.
The company may collect membership fees and receive donations or grants in accordance with law.
It therefore operates through membership rather than shareholders holding transferable ownership interests.
3. Registration Procedure
Registration takes place at the Office of the Company Registrar (OCR).
Prepare the Objectives and Governance Documents
The Memorandum of Association should clearly describe the proposed activities and their connection to the permitted purposes. The Articles of Association should address membership, admission and termination, meetings, election of directors, financial management and dissolution.
Avoid objectives that promise returns to founders or permit distribution of company assets contrary to the Act.
Submit the Application and Supporting Documents
OCR’s published registration guidance identifies the following principal documents:
- The prescribed registration application;
- Memorandum of Association in the format applicable to companies not distributing profits;
- Articles of Association in the applicable format;
- Certified National Identity Card and Citizenship documents of individual Nepali founders;
- Registration documents, authorising resolutions and representative details where an eligible entity participates as a founder; and
- Prior approval or a licence where required for the proposed activities.
Applicants should follow OCR’s current submission and identity-verification requirements and address any clarification requested during examination.
4. Restrictions on Profits and Expenditure
Section 167 of the Act prohibits distribution of profits as dividends, bonuses or other amounts to members or employees. Profits must be applied towards the company’s capital or objectives.
The Act nevertheless contemplates legitimate salaries, allowances and operating expenses, subject to its restrictions and OCR’s prescribed limits. Administrative expenditure must not exceed 25% of total expenditure.
Organisations should distinguish payment for actual services from distribution of surplus. Remuneration decisions should be documented, justified and reflected accurately in the accounts.
5. Tax Status and Operational Approvals
Incorporation establishes the company’s legal status. Tax treatment must be assessed separately under the applicable tax law.
Similarly, the registration certificate does not replace licences or approvals required for particular activities. Before accepting funding or commencing a regulated programme, review the conditions applicable to that activity and source of funds.
6. Assets on Dissolution
After liabilities are settled, remaining assets are dealt with according to the Articles or, where the Articles are silent, pass to the Government of Nepal.
The Act prohibits transferring those assets to founders, members, their close relatives or entities in which those relatives are founders or members. Dissolution provisions should therefore preserve the organisation’s non-distribution character.
Frequently Asked Questions
Is share capital compulsory?
No. Section 167 expressly states that share capital is not required.
Can founders or members receive salaries?
Payment for genuine work should be assessed against the applicable remuneration and expenditure restrictions. Membership alone does not create an entitlement to payment.
Can membership be sold or transferred?
No. Section 166 makes membership non-transferable.
Must the name include “Private Limited”?
This structure generally does not require “Company,” “Limited” or “Private Limited” in its name. The proposed name remains subject to OCR approval.
Is registration the same as recognition as a tax-exempt organisation?
No. Eligibility and any required recognition must be assessed separately under tax law.
Can members divide the remaining assets when the company closes?
No. The statutory restrictions on disposal of remaining assets continue to apply on dissolution.
How Alpha Law Associates Can Assist
Alpha Law Associates assists with selecting the appropriate organisational structure, drafting incorporation documents, registration and governance arrangements. We also advise on operational approvals, funding arrangements, tax compliance and continuing corporate obligations.