Profit Not Distributing Company Registration in Nepal

A profit not distributing company (PND) in Nepal is a unique type of legal entity that operates with social objectives rather than for commercial profit. This article provides a comprehensive overview of PND companies in Nepal, including their definition, objectives, registration process, legal requirements, and compliance obligations.

What is a company not distributing profits?

A profit not distributing company in Nepal is a legal entity registered under the Companies Act 2063 (2006) that prohibits the distribution of profits or dividends to its members. The primary purpose of such companies is to undertake social, charitable, or non-profit activities rather than generate financial returns for shareholders. Any surplus income generated by PND companies must be reinvested to further the organization’s objectives instead of being distributed as profits.

What are the objectives of company not distributing profits?

The main objectives of profit not distributing companies in Nepal include:

Promoting social welfare and development
Undertaking charitable activities
Advancing education, health, or other public benefit causes
Environmental protection and conservation
Poverty alleviation and community development
Cultural preservation and promotion
Scientific research and technological advancement
Any other non-profit purpose permitted by law

What are the requirements to Register Profit Not Distributing Company?

To register a profit not distributing company in Nepal, the following key requirements must be fulfilled:

Minimum of 7 founding members/promoters
Memorandum and Articles of Association detailing company objectives
Company name approval from the Office of Company Registrar
Registered office address in Nepal
Appointed directors and company secretary
Initial paid-up capital as prescribed
Prohibition on profit distribution in company documents
Compliance with Companies Act and other relevant laws

The company must clearly state its non-profit nature and social objectives in its constitutional documents. Commercial activities are permitted only if they support the primary social mission.

Membership Requirements for Registration

The Companies Act stipulates the following membership requirements for registering a PND company in Nepal:

Minimum 7 founding members/shareholders
No upper limit on maximum number of members
Members can be Nepali citizens or foreigners
Corporate bodies can also be members
Members must be at least 16 years of age
Members cannot be insolvent or of unsound mind
Each member must subscribe to at least one share

The founding members are responsible for drafting the company constitution and completing the registration process. They become the initial shareholders upon incorporation.

What types of Companies fall under Companies not distributing Profits?

The following types of organizations typically register as profit not distributing companies in Nepal:

Non-governmental organizations (NGOs)
Charitable trusts and foundations
Educational institutions
Healthcare organizations
Research institutes
Professional and trade associations
Religious organizations
Cultural institutions
Environmental conservation groups
Community development organizations

Any entity with primarily social objectives that does not aim to distribute profits can potentially register as a PND company, subject to regulatory approval.

Process of Registering a Profit Not Distributing Company in Nepal

Step 1: Company Registration at the Office of Company Registrar
Step 2: Business Registration at Local Ward Office
Step 3: Tax Registration at Inland Revenue Office
Step 4: Verification at SWC, DDC or DAO Office (only if required)

The registration process for a profit not distributing company in Nepal involves the following:

Step 1: Company Registration at the Office of Company Registrar

The first step is to register the company with the Office of Company Registrar (OCR). This involves submitting the required documents, including the memorandum and articles of association, along with the prescribed forms and fees. The OCR reviews the application and issues a certificate of incorporation if all requirements are met. This step establishes the company as a separate legal entity.

Step 2: Business Registration at Local Ward Office

After incorporation, the company must register its business activities with the local ward office where its registered office is located. This involves submitting the company registration certificate and other supporting documents to obtain a business registration certificate from the ward office. This step is necessary to legally operate the business at the local level.

Step 3: Tax Registration at Inland Revenue Office

The company must then register for tax purposes with the Inland Revenue Office. This involves obtaining a Permanent Account Number (PAN) and registering for Value Added Tax (VAT) if applicable. The company needs to submit its registration documents and complete the necessary tax registration forms. This step ensures compliance with tax regulations.

Step 4: Verification at SWC, DDC or DAO Office (only if required)

Depending on the nature of activities, some PND companies may need to obtain additional verification or approval from entities like the Social Welfare Council (SWC), District Development Committee (DDC), or District Administration Office (DAO). This step is typically required for organizations engaged in social welfare or development activities to ensure regulatory compliance in those sectors.

Documents Required for Profit Not Distributing Company Registration

Application form for company registration
Proposed company name and alternatives
Memorandum of Association
Articles of Association
List of promoters/founding members with details
Citizenship certificates of Nepali promoters
Passport copies of foreign promoters (if any)
Consent letters from proposed directors
Registered office address proof
Bank deposit slip for paid-up capital
Power of attorney (if applicable)
Other supporting documents as required

All documents must be in Nepali or accompanied by certified Nepali translations. The memorandum and articles should clearly state the non-profit nature and objectives of the company.

What are the costs & fees applicable for registering such company?

The costs and fees for registering a profit not distributing company in Nepal typically include:

Name reservation fee: NPR 100
Registration fee: NPR 1,000 to 10,000 (based on authorized capital)
Application fee: NPR 5,000
Memorandum/Articles stamp duty: 0.5% of authorized capital
PAN registration fee: NPR 200
Business registration fee: Varies by local authority
Lawyer/consultant fees (if used): Varies

Additional costs may apply for notarization, translations, and other services. The exact fees can change, so it’s advisable to check the latest fee schedule with the Office of Company Registrar.

What is the timeline for registration of PND Company?

The typical timeline for registering a profit not distributing company in Nepal is:

Name approval: 1-3 days
Document preparation: 1-2 weeks
OCR registration: 1-2 weeks
PAN registration: 1-3 days
Business registration: 1-3 days
Additional approvals (if needed): 1-4 weeks

The entire process usually takes 3-6 weeks, assuming all documents are in order. Complex cases or additional regulatory requirements may extend this timeline. Efficient preparation and prompt responses to any queries can help expedite the process.

What are the Share, Liability & Other requirements for its Registration?

Key requirements for profit not distributing companies in Nepal include:

Minimum paid-up capital as prescribed by OCR
Shares must have a par value of NPR 100 each
All shares must be registered (no bearer shares)
Restrictions on share transfers may apply

Liability:

Limited liability of members to the extent of their shareholding
Company liable for its own debts and obligations

Other requirements:

Minimum 3 directors
Qualified company secretary
Registered office in Nepal
Proper books of accounts
Annual returns and audits
Prohibition on dividend distribution

The company must maintain these requirements throughout its existence to remain compliant.

How to renew a PND Company?

Profit not distributing companies in Nepal must undergo various renewal processes to maintain their legal status and compliance.

Annual Ward Renewal:
The company must renew its business registration annually with the local ward office. This typically involves submitting updated company information and paying the prescribed renewal fee.

Annual Tax Renewal:
The company must file annual tax returns and renew its tax clearance certificate with the Inland Revenue Office. This ensures ongoing tax compliance.

Annual OCR Renewal:
The company must file annual returns with the Office of Company Registrar, including updated financial statements and other prescribed information.

Annual SWC Renewal (if a member):
Organizations registered with the Social Welfare Council must renew their affiliation annually by submitting progress reports and audited accounts.

Timely completion of these renewal processes is crucial to avoid penalties and maintain good standing.

How to maintain compliance of PND Company?

To maintain compliance, profit not distributing companies in Nepal must:

Hold regular board meetings and annual general meetings
Maintain proper books of accounts and financial records
Conduct annual audits by registered auditors
File annual returns and financial statements with OCR
Pay applicable taxes and renew tax clearances
Comply with labor laws for employees
Adhere to the company’s stated objectives and activities
Avoid distribution of profits to members
Obtain necessary approvals for any changes to company structure
Comply with sector-specific regulations (if applicable)

Regular internal reviews and professional assistance can help ensure ongoing compliance with all legal and regulatory requirements.

What are the legal & tax provisions for PND Company in Nepal?

Legal provisions:

Governed primarily by the Companies Act 2063 (2006)
Limited liability protection for members
Perpetual succession and separate legal entity status
Restrictions on profit distribution and asset transfers
Mandatory compliance with stated social objectives

Tax provisions:

Subject to corporate income tax (but may qualify for exemptions)
Required to withhold taxes on applicable payments
May be exempt from certain taxes based on activities
Donations to approved PND companies may be tax-deductible for donors
Strict regulations on foreign funding and currency transactions

The specific legal and tax implications can vary based on the company’s activities and structure, necessitating professional guidance for full compliance.

What laws & authorities govern the registration of companies not distributing profits?

The key laws and regulatory authorities governing PND companies in Nepal are:

Laws:

Companies Act 2063 (2006)
Income Tax Act 2058 (2002)
Social Welfare Act 2049 (1992)

Authorities:

Office of Company Registrar (OCR)
Inland Revenue Department
Social Welfare Council (if applicable)
Local government bodies

The Companies Act provides the primary legal framework, while the OCR oversees the registration and regulation of PND companies. Tax and social welfare laws also apply depending on the company’s activities.

Conclusion

Registering a profit not distributing company in Nepal provides a formal structure for organizations pursuing social objectives without profit motives.

FAQs

What are profit not distributing company?

A profit not distributing company in Nepal is a legal entity registered under the Companies Act that prohibits the distribution of profits to its members. It operates primarily for social or charitable purposes rather than commercial gain.

What is the difference between PND Company and Normal Company?

The main difference is that PND companies cannot distribute profits to members, while normal companies can. PND companies focus on social objectives, whereas normal companies typically aim for financial returns for shareholders.

What are the benefits of registering a Profit not distributing company?

Benefits include legal recognition, limited liability for members, ability to enter into contracts, eligibility for certain tax exemptions, and a structured framework for non-profit activities.

How much does it take to register a PND Company?

The total cost typically ranges from NPR 20,000 to 50,000, depending on the company’s capital and specific circumstances. This includes government fees and related expenses.

What laws govern profit not distributing company in Nepal?

The primary laws governing PND companies in Nepal are the Companies Act 2063 (2006), Income Tax Act 2058 (2002), and Social Welfare Act 2049 (1992), along with related regulations and directives.