The Companies Act, 2063 (2006) introduced into Nepalese company law a distinct institutional model known as a “company not distributing profits” (मुनाफा वितरण नगर्ने कम्पनी). This structure is designed for organizations that pursue professional advancement, educational initiatives, social development, charitable work, or public utility objectives, but do so within a corporate framework and without distributing profits to their members.
Unlike associations registered under Association Registration Act, a company not distributing profits is incorporated under Chapter 19 of the Companies Act and is therefore governed by corporate law principles, statutory disclosure obligations, and structured regulatory oversight. At the same time, it is legally restrained from operating for private gain.
Under the Act, the term “company not distributing profits” refers to a company incorporated on the condition that profits or savings earned in achieving its objectives shall not be distributed as dividends or otherwise to its members.
1. Statutory Basis and Purpose
Section 166 of the Companies Act permits incorporation of a company without dividend distribution for specific purposes. The law contemplates formation for the following objectives:
- development and promotion of professions or occupations;
- protection of collective rights and interests of persons engaged in a particular profession or business;
- for scientific, educational, academic, social, charitable/benevolent, public utility, or welfare objectives.
Incorporation may be initiated by individuals, by the trustees of a public trust registered under prevailing laws of Nepal. The legislative intent is to provide a corporate vehicle to entities that require structured governance and legal personality but do not intend to operate for private profit.
The law requires that at least five (5) promoters incorporate such a company. After incorporation as well, the number of members must not fall below five (5).
2. Registration Procedure
The following procedure is application for the registration of company not distributing profits in Nepal:
| Steps | Procedure |
| Step 1 | Reservation of proposed company’s name in the digital portal of Office of Company Registrar’s (the “OCR”) (Camis); |
| Step 2 | Drafting Memorandum of Association, and Articles of Association and uploading in the digital portal of OCR for company registration; |
| Step 3 | After company registration is completed at the OCR, tax registration (PAN/VAT) at the relevant Inland Revenue Office; |
| Step 4 | Business registration at the relevant local level ward office; |
| Step 5 | Enlistment of the company at the Social welfare Council if the company desired to receive foreign grant from foreign countries. |
3. Required Documents for Registration
The documents required for registration of company not distributing profits are set out below:
- Memorandum of Association (“MOA”) and Articles of Association (“AOA”) of proposed company;
- Citizenship certificate and National Identity Number of promoters;
- If the promoter is a company, a copy of certificate of registration, MOA, AOA and board resolution of the promoter company; and
- Application and Power of attorney for the company registration.
Note: The government registration fees of NPR 15,000 is payable to the Office of the Company Registrar.
Upon submission of all required documents, the company registration procedure will be completed in seven (7) days.
4. Capital Structure and Liability
A defining feature of a company not distributing profits is that share capital is not required. The company does not issue shares and therefore does not have shareholders in the conventional corporate sense. Instead, it is a membership-based entity.
The absence of share capital does not prevent the company from collecting membership fees or receiving donations and grants permitted by law.
With respect to liability, members are not personally liable for company debts unless they have expressly agreed in writing to assume liability. Where such written acceptance exists, liability is limited to the extent specified.
5. Non-Distribution Constraint
The cornerstone of this legal structure is the absolute prohibition on profit distribution. Section 167 clearly provides that profits, bonuses, or any form of financial benefit cannot be distributed to members or employees. The restriction extends to direct as well as indirect payments, and includes payments to close relatives of members.
All income and surplus generated by the company must be applied either to capital strengthening or to the attainment of its stated objectives. The non-distribution rule is not merely a policy principle; it is a statutory condition of existence.
6. Administrative Expense Limitation
To safeguard the non-profit character of these entities, the Act restricts administrative expenditure. Administrative expenses cannot exceed twenty-five percent (25%) of total expenditure. Furthermore, remuneration, meeting allowances, operational costs, and other payments to officers must remain within limits determined by the Registrar, taking into account the company’s financial condition and income.
7. Compliance Requirement and Consequence of Non-Compliance
Section 167 provides that, except for provisions applicable exclusively to companies with share capital, all legal provisions applicable to listed companies apply to companies not distributing profits. This means that three-month compliance, annual compliance, governance standards, disclosure norms, audit requirements, and director responsibilities applicable to listed public companies also extend to these entities. The legislature has thus imposed a higher compliance threshold to ensure accountability.
Regarding consequence of non-compliance, although companies not distributing profits do not have share capital, in the event of failure to submit required information, statements, or filings within the prescribed period, the company shall be subject to penalties equivalent to those applicable to a public company with paid-up capital of up to NPR 10,000,000 (Nepalese Rupees Ten Million).
8. Conclusion
While companies not distributing profits offer a flexible and credible corporate structure for social and public interest initiatives, registration requires careful legal structuring, particularly in drafting objectives and governance provisions.
Early legal review and alignment with OCR practice significantly reduce regulatory friction and ensure smoother incorporation. For promoters seeking a compliant and sustainable structure, understanding the registration process is not just procedural, it is foundational.
Disclaimer: This article is for general informational purposes only and does not constitute legal advice, advertisement, personal communication, solicitation or inducement. No attorney-client relationship is created through this content. Gandhi & Associates assumes no liability for any consequences resulting from actions taken based on information contained herein.
For quick legal assistance:
Phone/Viber/WhatsApp: +977 9709035477
For specific legal advice regarding registration of company not distributing profit in Nepal, please contact our office to schedule a consultation with our experts.