Introduction to Company Capital Increment in Nepal
Company capital increment represents a crucial corporate restructuring mechanism that enables businesses to expand their financial capacity and operational scope in Nepal. The process involves increasing the authorized or paid-up capital of a company through various legal methods recognized under Nepalese corporate law.
The Company Act 2063 (2006) governs the capital increment procedures for companies operating in Nepal. This legislation provides comprehensive guidelines for businesses seeking to enhance their capital structure, whether through fresh equity infusion, retained earnings capitalization, or foreign direct investment (FDI) in Nepal.
Capital increment serves multiple strategic purposes for companies in Nepal. It strengthens the company’s financial position, enables expansion into new markets, facilitates manufacturing investment Nepal opportunities, and enhances credibility with financial institutions and business partners. The process also supports Nepal’s economic growth by encouraging domestic and international investment flows.
Understanding the legal framework surrounding capital increment becomes essential for companies planning expansion or restructuring. The Nepal Investment Board Act 2019 and Foreign Investment and Technology Transfer Act 2019 provide additional regulatory guidance, particularly for companies involving foreign investment components.
Legal Requirements for Capital Increment
Statutory Compliance Framework
Companies must comply with specific statutory requirements before initiating capital increment procedures. The Company Act 2063 mandates that companies maintain proper books of accounts, conduct regular audits, and ensure compliance with existing regulatory obligations before seeking capital enhancement.
The company must have filed all required annual returns with the Office of Company Registrar (OCR) and maintained good standing status. Any pending legal disputes or regulatory violations must be resolved before proceeding with capital increment applications.
Shareholder Approval Requirements
Capital increment requires formal shareholder approval through extraordinary general meetings. The Company Act 2063, Section 78 specifies that decisions affecting share capital structure require special resolutions passed by at least 75% of voting shareholders present at the meeting.
Companies must provide adequate notice to shareholders, typically 21 days before the meeting, detailing the proposed capital increment, its purpose, and potential impact on existing shareholding patterns. The meeting minutes must accurately record the resolution and voting results.
Regulatory Authorization Criteria
Different types of companies face varying regulatory requirements for capital increment. Public companies must obtain approval from the Securities Board of Nepal (SEBON) for capital increases involving public offerings. Private companies primarily deal with the Office of Company Registrar for approval processes.
Foreign investment components in capital increment require additional approvals from the Department of Industry or Nepal Investment Board, depending on the investment amount and sector involved. Manufacturing investment Nepal projects often receive preferential treatment under government incentive schemes.
Detailed Capital Increment Process
Step 1: Board Resolution and Planning
The capital increment process begins with a comprehensive board resolution authorizing the proposed capital increase. Directors must evaluate the company’s financial position, future capital requirements, and strategic objectives before recommending capital increment to shareholders.
The board resolution should specify the increment amount, method of capital increase (fresh equity, bonus shares, or retained earnings capitalization), timeline for implementation, and designated responsibilities for managing the process. Legal counsel consultation ensures compliance with Nepal investment laws and regulatory requirements.
Companies must prepare detailed financial projections demonstrating the necessity and viability of capital increment. This includes cash flow analysis, business expansion plans, and expected returns on additional capital investment.
Step 2: Shareholder Meeting and Approval
Following board approval, companies must convene an extraordinary general meeting to obtain shareholder consent for capital increment. The meeting notice must include detailed information about the proposed capital increase, including financial implications and voting procedures.
During the meeting, management presents the capital increment proposal, explaining the rationale, expected benefits, and potential risks. Shareholders have the opportunity to ask questions and express concerns before voting on the special resolution.
The special resolution requires approval from at least 75% of voting shareholders present at the meeting. Companies must maintain detailed meeting minutes documenting the discussion, voting process, and final resolution outcome.
Step 3: Documentation Preparation and Submission
After obtaining shareholder approval, companies must prepare comprehensive documentation for regulatory submission. This includes amended memorandum and articles of association reflecting the new capital structure, audited financial statements, and board resolutions.
The application package must include Form 7 (for capital increment) as prescribed by the Office of Company Registrar, along with supporting documents demonstrating compliance with legal requirements. Companies involving FDI in Nepal must include additional foreign investment documentation.
Legal verification of all documents ensures accuracy and completeness before submission. Any discrepancies or missing information can cause significant delays in the approval process.
Step 4: Regulatory Review and Approval
The Office of Company Registrar conducts a thorough review of submitted documentation, verifying compliance with statutory requirements and examining the proposed capital structure changes. The review process typically involves document verification, financial analysis, and legal compliance assessment.
Regulatory authorities may request additional information or clarification during the review process. Companies must respond promptly to such requests to avoid processing delays. The approval decision depends on meeting all legal requirements and demonstrating legitimate business purposes for capital increment.
Upon satisfactory review, the Office of Company Registrar issues formal approval for capital increment, authorizing the company to proceed with implementation of the approved capital structure changes.
Step 5: Implementation and Registration
Following regulatory approval, companies must implement the capital increment within the specified timeframe, typically 90 days from approval date. This involves issuing new shares, collecting subscription amounts, and updating company records accordingly.
The final step requires filing updated company information with the Office of Company Registrar, including new share certificates, updated shareholder registers, and amended constitutional documents. Companies must also update their registration with relevant tax authorities and other regulatory bodies.
Upon successful completion of all requirements, the Office of Company Registrar issues an updated company registration certificate reflecting the new capital structure, officially completing the capital increment process.
Required Documents for Capital Increment
Primary Documentation Requirements
Companies must submit several essential documents for capital increment approval. The Form 7 application represents the primary document, containing detailed information about the proposed capital increase, company background, and financial position.
Key documents include:
- Certified copies of board resolutions authorizing capital increment
- Minutes of extraordinary general meeting approving the capital increase
- Amended memorandum and articles of association
- Audited financial statements for the last three years
- Current company registration certificate
- Tax clearance certificate from Inland Revenue Department
Financial Documentation
Comprehensive financial documentation supports the capital increment application. Companies must provide audited balance sheets, profit and loss statements, and cash flow statements demonstrating financial stability and growth potential.
Additional financial documents include:
- Bank statements confirming available funds for capital subscription
- Valuation reports for non-cash capital contributions
- Financial projections showing expected utilization of additional capital
- Debt-equity ratio analysis and working capital requirements
Legal and Compliance Documents
Legal documentation ensures compliance with Nepal investment laws and regulatory requirements. Companies must provide evidence of good standing status and compliance with existing legal obligations.
Required legal documents include:
- Certificate of good standing from Office of Company Registrar
- Compliance certificates from relevant regulatory authorities
- Legal opinion on the proposed capital increment structure
- Power of attorney for authorized representatives handling the process
Time Frame and Associated Costs
Processing Timeline
The capital increment process typically requires 45-90 days for completion, depending on application complexity and regulatory workload. Simple capital increments for private companies generally process faster than complex public company applications involving securities regulations.
Timeline breakdown includes:
- Document preparation and board approval: 7-14 days
- Shareholder meeting and resolution: 21-30 days
- Regulatory review and approval: 30-45 days
- Implementation and final registration: 7-15 days
Government Fees Structure
The Office of Company Registrar charges specific fees for capital increment processing based on the increment amount and company type. The fee structure follows the Company Regulation 2064 guidelines, with rates varying according to capital increase levels.
Standard government fees include:
- Application processing fee: NPR 1,000-5,000
- Registration fee: 0.1% of capital increment amount
- Certificate issuance fee: NPR 500-1,000
- Additional fees for expedited processing: 50% premium
Professional Service Costs
Companies typically engage legal and financial professionals to manage the capital increment process. Professional service costs vary based on application complexity, company size, and service provider expertise.
Estimated professional costs include:
- Legal consultation and documentation: NPR 25,000-100,000
- Accounting and audit services: NPR 15,000-50,000
- Government liaison and processing: NPR 10,000-25,000
- Total estimated cost: NPR 50,000-200,000 (excluding government fees)
Post-Registration Compliance Obligations
Ongoing Reporting Requirements
Following successful capital increment, companies must maintain enhanced compliance with reporting obligations. The Company Act 2063 requires regular filing of annual returns, financial statements, and other statutory documents reflecting the new capital structure.
Companies must update their books of accounts to reflect the capital increment and ensure proper recording of new share issuances. Regular board meetings should monitor the utilization of additional capital and report progress to shareholders through annual general meetings.
Tax Compliance Updates
Capital increment triggers specific tax compliance requirements under the Income Tax Act 2058. Companies must inform the Inland Revenue Department about capital structure changes and ensure proper tax treatment of capital-related transactions.
Key tax compliance obligations include:
- Updating tax registration information with new capital details
- Proper treatment of capital gains or losses from the increment process
- Compliance with withholding tax requirements on dividend distributions
- Maintaining detailed records for tax audit purposes
Regulatory Monitoring
Regulatory authorities maintain ongoing monitoring of companies that have completed capital increment processes. Companies must demonstrate proper utilization of additional capital and compliance with stated business objectives outlined in their increment applications.
Regular compliance includes:
- Quarterly progress reports on capital utilization (for large increments)
- Annual compliance certificates from relevant regulatory bodies
- Prompt notification of any material changes in business operations
- Maintenance of minimum capital adequacy ratios as required by law
Frequently Asked Questions
What is company capital increment in Nepal?
Company capital increment is the legal process of increasing a company’s authorized or paid-up capital through shareholder approval and regulatory authorization under the Company Act 2063, enabling business expansion and enhanced financial capacity.
How long does the capital increment process take in Nepal?
The complete capital increment process typically takes 45-90 days, including document preparation, shareholder approval, regulatory review, and final registration, depending on application complexity and regulatory processing efficiency.
Where should companies apply for capital increment approval?
Companies must apply to the Office of Company Registrar for capital increment approval, with additional approvals required from Securities Board of Nepal for public companies and relevant authorities for foreign investment components.
What are the basic requirements for capital increment?
Basic requirements include shareholder approval through special resolution, compliance with existing legal obligations, submission of required documentation, payment of prescribed fees, and demonstration of legitimate business purposes for capital increase.
How much does company capital increment cost in Nepal?
Total costs typically range from NPR 75,000-400,000, including government fees (0.1% of increment plus fixed charges), professional service fees (NPR 50,000-200,000), and additional expenses for documentation and compliance requirements.
