Starting a business in Nepal requires careful planning and compliance with the country’s legal and administrative framework. The first step is to determine the business type—whether it involves trading (commerce and distribution of goods and services) or industrial operations (manufacturing and production).

Depending on the nature of the business, Nepal offers several structural models for operation. Entrepreneurs can select a structure that best aligns with their goals and resources. Common options include:

Sole Proprietorship (Private Firms)

A sole proprietorship is the simplest form of business, owned and managed by a single individual. This type of business is governed by the Private Firm Registration Act, 2014 B.S. (1957) and can be registered with the following appropriate departments based on its nature:

• For Trade and Commerce: Department of Commerce, Supplies & Consumer Protection.
• For Small-Scale Industries: Department of Small and Cottage Industry.
• For Larger Industries: Department of Industry.

Key Characteristics:

• Sole owner has unlimited liability.
• Easy to establish and operate.
• Owner receives all profits but also bears all risks and liabilities.
• Owner has complete authority over business operations.
• The owner and its business is the same entity so in case of lack of successor or heir, the proprietorship will cease to exist and the business will come to an end.

Suitability:

This structure is ideal for small-scale enterprises such as retail stores, professional services (e.g., accountants, lawyers), freelancers and businesses requiring minimal investment.

Partnership Firms

A partnership involves two or more individuals working together under a single business name to share profits, liabilities and management responsibilities. It is governed by the Partnership Act, 2020 B.S. (1964).

Key Characteristics:

• Partners must sign an agreement outlining profit-sharing and operational roles.
• Partners share unlimited liability.
• No upper limit on the number of partners.
• Shared responsibilities and liabilities among partners.
• Partnership dissolves if any partner retires, withdraws, passes away, or if the partners mutually decide to terminate the business.
• Partnerships allow for relatively easy setup and dissolution compared to other business structures.

 

Suitability:

Partnerships are ideal for professional services like law firms, accounting firms, or small trading businesses that require shared capital and expertise.

Companies

A company is a separate legal entity with limited liability, perpetual existence, and its own legal rights. It is governed by the Companies Act, 2063 B.S. (2006) and can be categorized as:

1. Private Limited Companies

Private companies are owned by those who establish them and those invited to invest in them. The public-at-large cannot buy shares or otherwise invest in private companies at their own discretion.

Key Characteristics:

• Can have 1 to 101 shareholders.
• Shares cannot be publicly traded.
• Limited liability for shareholders.
• Profits are distributed as dividends among shareholders based on the number of shares held.
• Private companies are not required to disclose financial details to the public, providing a higher degree of privacy.
• Shareholders’ liability is limited to the amount they have invested in the company.

Suitability:

Private limited companies are ideal for small to medium-sized businesses, tech startups, consultancy firms, and family-owned ventures seeking limited liability protection and operational scalability.

2. Public Companies

A company is public when it has sold all or part of its ownership to the public through a process called Initial Public Offering (IPO). In a public company, stocks are freely traded on a stock exchange.

Key Characteristics:

• Requires a minimum of seven shareholders.
• Publish its prospectus prior to issuing its securities publicly.
• Minimum capital requirement is NPR 10 million unless specified otherwise for specific industries.
• Public companies must disclose their financial performance, annual reports, and other important information to the public.
• Process of incorporation, compliance, and IPO issuance involves significant costs compared to other business structures.

 

Suitability:

Designed for large-scale businesses seeking to raise capital from the public. It is ideal for prominent sectors such as hydropower, telecommunications, commercial banking, and hospitality.

3. Profit Not Distributing Company (PNDC)

A not-for-profit company is set up under conditions that prohibit it from distributing profits or savings as dividends or payments to its members. Instead, all earnings are reinvested to achieve the company’s objectives.

Key Characteristics:

• Requires at least five promoters for registration.
• Focused on long-term social impact.
• Members cannot claim or demand the return of capital invested.
• PNDCs can receive grants, donations, or foreign funding to support their objectives.
• Exempt from certain tax liabilities.

 

Suitability:

It is suitable for entities aiming to achieve long-term social, charitable, educational, or environmental objectives rather than financial profit.

4. Non-Governmental Organization (NGO)

A not-for-profit entity established to address social, cultural, environmental, or humanitarian issues. NGOs in Nepal are governed by the Association Registration Act, 2034 B.S. (1977).

Key Characteristics:

• Requires at least nine members for registration.
• NGOs are registered under the District Administration Office (DAO).
• NGOs cannot distribute any income or assets to their members.
• Affiliation with the Social Welfare Council is not mandatory but beneficial. If the entity receives donations, the entity must register with the Social Welfare Council.
• Can operate at local, national, or international levels.
• Its certificate of incorporation has to be renewed annually.

 

Suitability:

Individuals or groups who are passionate about addressing social, environmental, or humanitarian issues, and want to make a positive impact, should consider opening an NGO. This includes social entrepreneurs, human rights advocates, environmental activists etc.

Cooperatives

Cooperatives are community-based ventures focusing on mutual benefits and member welfare. They are governed by the Cooperative Act, 2074 B.S. (2017) and require registration with the Department of Cooperatives.

Key Characteristics:

• Based on voluntary membership, meaning individuals can freely join or leave the cooperative.
• Operates on a democratic model where each member has one vote.
• Profits are distributed among members based on participation.
• Members collectively own the cooperation.

 

Suitability:

Cooperatives are suitable for groups that seek collective ownership, shared resources, mutual support, and community-oriented goals, especially in rural or underserved areas. For example, dairy cooperatives, savings and credit groups, farming cooperatives, etc.

Local Businesses

For small-scale, localized operations, individuals can register their business at the ward level within the municipality.

Key Characteristics:

• Requires minimal paperwork and investment.
• Serves local communities and neighborhoods.
• Quick registration process.
• Low operational costs.
• Limited geographic scope.

 

Suitability:

Local businesses are suitable for those who are passionate about their local area, community engagement, and delivering personalized services or products while keeping operations small and adaptable. Examples include tea shops, grocery stores, and other micro-businesses.

Conclusion

Starting a business in Nepal involves navigating multiple steps and adhering to various legal frameworks. Entrepreneurs are strongly advised to consult a legal professional or a firm specializing in corporate and commercial law to ensure a smooth setup and compliance with all applicable laws. By understanding the available business structures and their legal requirements, entrepreneurs can make informed decisions to establish and grow their ventures successfully.

 

 

Disclaimer: This note is provided solely for general information and does not constitute legal opinion. For specific legal query, please seek professional counsel.