Table of Contents
Nepal provides multiple legal frameworks for establishing non-profit organizations, each suited to different operational needs and objectives. Whether you're looking to establish a foundation, professional association, charitable organization, or social welfare entity, understanding the registration options is essential for choosing the right structure. This guide covers the registration of Company Not Distributing Profits under the Companies Act 2063 (2006), NGOs under the Association Registration Act 2034 (1977), and INGOs under the Social Welfare Act 2049 (1992).
Types of Non-Profit Organizations in Nepal
Nepal recognizes three primary types of non-profit organizations, each governed by different laws and registered with different authorities:
| Type | Governing Law | Registering Authority | Best Suited For |
|---|---|---|---|
| Company Not Distributing Profits | Companies Act 2063 (2006) | Office of Company Registrar (OCR) | Foundations, research institutes, professional associations, modern social enterprises |
| NGO (Sanstha) | Association Registration Act 2034 (1977) | District Administration Office (DAO) | Local community clubs, Tole Sudhar committees, traditional charitable organizations |
| INGO | Social Welfare Act 2049 (1992) | Social Welfare Council (SWC) | International organizations operating in Nepal with foreign funding |
Company Not Distributing Profits
Definition and Legal Basis
Under Section 2(h) of the Companies Act 2063 (2006), a Company Not Distributing Profits (also known as Profit Not Distributing Company or PND Company) is a company incorporated on the condition that it shall not be entitled to distribute or pay to its members any dividends or other moneys out of the profits earned or savings made for the attainment of any objectives. Such companies are established for public welfare rather than profit motive, and any surplus income must be reinvested to further the organization's objectives.
Objectives for Establishment
According to the Companies Directives, a Company Not Distributing Profits may be incorporated for the following objectives:
- Professional Development: Development and promotion of any profession or occupation
- Collective Rights Protection: Protection of collective rights and interests of persons engaged in a specific profession or occupation
- Public Welfare: Attainment of any scientific, academic, social, benevolent, or public utility/welfare objective on the condition of not distributing dividends
Types of Organizations Suitable for PND Registration
The following types of organizations typically register as Company Not Distributing Profits:
- Foundations and charitable trusts
- Educational institutions and academies
- Research institutes
- Professional and trade associations
- Healthcare organizations
- Environmental conservation groups
- Cultural institutions
- Community development organizations
- Scientific research organizations
Registration Requirements
Promoter Requirements
- Minimum Promoters: At least 5 promoters required for registration
- Maximum Limit: No upper limit on number of promoters or members
- Eligible Promoters: Any person (natural person), trustee of a public trust, or corporate body can incorporate a Company Not Distributing Profits
- Age Requirement: Promoters must be at least 16 years of age
- Disqualifications: Promoters cannot be insolvent or of unsound mind
Membership Provisions
- Membership is not transferable in any manner
- Membership terminates only upon death, cancellation of registration, dissolution, voluntary resignation, or merger with another company
- After incorporation, the company may have any number of members with a minimum of five
Registration Process
The registration process for a Company Not Distributing Profits involves the following steps:
Step 1: Online Name Reservation at OCR
Reserve the proposed company name through the OCR online portal. The name typically ends with terms like "Foundation," "Academy," "Center," "Institute," or "Nepal." The name reservation fee is NPR 100, and approval usually takes 1-3 days.
Step 2: Drafting and Submission of Documents
Prepare and submit the Memorandum of Association (MOA) and Articles of Association (AOA) to OCR. These documents must specifically include non-profit clauses and clearly state the prohibition on dividend distribution.
Step 3: Company Registration at OCR
Submit all required documents with prescribed fees to OCR. Upon verification, OCR issues a Certificate of Incorporation establishing the company as a separate legal entity.
Step 4: Business Registration at Local Ward Office
Register the business activities with the local ward office where the registered office is located to obtain a business registration certificate.
Step 5: PAN Registration at Inland Revenue Office
Obtain a Permanent Account Number (PAN) from the Inland Revenue Department for tax compliance purposes.
Step 6: Social Welfare Council Affiliation (If Required)
If the company plans to receive grants or funding from foreign countries or entities, affiliation with the Social Welfare Council is mandatory.
Documents Required for Registration
Documents for OCR Registration
- Application for registration
- Memorandum of Association (MOA) - 2 copies
- Articles of Association (AOA) - 2 copies
- Notarized citizenship certificates of all promoters and witnesses
- Copy of certificate of registration, MOA, AOA, and board resolution if promoter is a company
- Power of Attorney for registration
- Agreement between members, if any
Documents for Ward Office Registration
- Company Registration Certificate from OCR
- Office rent agreement
- Copy of land ownership certificate
- Copy of citizenship of landlord
Documents for Inland Revenue Office
- Application form
- Copy of registration document from OCR
- Copy of registration document from Ward Office
Documents for Social Welfare Council (If Required)
- Application form
- Copy of registration document from OCR
- Copy of registration document from Ward Office
- Copy of registration document from Inland Revenue Office
Government Fees
| Office | Fee | Remarks |
|---|---|---|
| OCR Registration | NPR 15,000 | One-time registration fee |
| Ward Office Registration | NPR 5,000 - 15,000 per year | Annual business registration fee (varies by local level) |
| House Rent Tax | 10% of monthly rent | Rate varies by local level; typically 4-6 months advance collected during registration |
| PAN Registration | Free | No government fee |
Timeline for Registration
| Process | Duration |
|---|---|
| Name Reservation | 1-3 days |
| Document Preparation | 1-2 weeks |
| OCR Registration | 3-7 working days |
| Ward Office Registration | 1-3 days |
| PAN Registration | 1-3 days |
| Total Duration | 10-15 days (if documents in order) |
Share Capital and Liability Provisions
Share Capital
- No mandatory share capital required for incorporating a Company Not Distributing Profits
- The company may receive membership fees from its members
- Can receive donations and gifts pursuant to law for accomplishment of objectives
- All surplus income must be reinvested into company objectives
Member Liability
- Limited liability protection for members
- Members are not liable for the debts and liabilities of the company
- Liability limited to the extent specified in written agreements voluntarily accepted by members
- Company is liable for its own debts and obligations as a separate legal entity
Non-Distribution Constraint
- No Dividends: Members and directors strictly cannot receive dividends, bonuses, or profit shares
- Asset Locking: Upon dissolution, assets cannot be shared among members; must be transferred to Government of Nepal or another similar non-profit organization
- Profit Utilization: All profits must be used to increase company capital or for attainment of stated objectives
Tax Provisions
A Company Not Distributing Profits can receive income tax exemption for its operational income if it obtains a "Tax Exempted Entity" certificate as per the Income Tax Act 2058 (2002). However, tax exemption is not automatic; the company must apply separately at the Inland Revenue Department by proving that funds are used strictly for social welfare purposes.
Donations made to approved Company Not Distributing Profits may be tax-deductible for donors, subject to Income Tax Act provisions.
Compliance Requirements
A Company Not Distributing Profits must adhere to all corporate compliance requirements under the Companies Act 2063 applicable to public companies, except those relating to share capital:
- 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 stated objectives and activities
- Avoid distribution of profits to members
- Obtain OCR approval for any changes to company structure
Branch Expansion
Prior approval from the Office of Company Registrar is required for expanding branches of a Company Not Distributing Profits.
Change of Objectives
To change the objectives of the company, prior approval must be obtained from the Office of Company Registrar through amendment of the Memorandum of Association.
Merger Restrictions
A Company Not Distributing Profits cannot be merged with a company distributing profits. It can only merge with another Company Not Distributing Profits with similar objectives.
NGO Registration Under Association Registration Act
Legal Framework
Non-Governmental Organizations (NGOs) in Nepal can be registered as associations (Sanstha) under the Association Registration Act 2034 (1977). The Social Welfare Act 2049 (1992) also governs NGO operations, particularly regarding foreign funding and Social Welfare Council affiliation.
Registration Authority
NGOs are registered at the District Administration Office (DAO) under the Chief District Officer (CDO) of the district where the organization's head office is located.
Registration Requirements
Member Requirements
- Minimum Members: At least 7 Nepali citizens required as board members
- Gender Representation: Executive Committee must have at least 33% female members
- Citizenship: All founding members must be Nepali citizens
Documents Required
- Minutes of meeting to establish the NGO
- Police report of all board members
- Certified copies of citizenship of all board members
- Passport-size photographs of board members
- Memorandum of Association (MOA)
- Articles of Association (AOA)
- Office rent agreement
- Ward recommendation letter
Registration Process
- Preparation: Conduct founding meeting, prepare minutes, draft MOA and AOA
- Police Report: Obtain police reports for all board members from local police station
- Ward Recommendation: Get recommendation letter from local ward office
- DAO Submission: Submit all documents to District Administration Office
- Verification: DAO verifies documents and conducts necessary inquiries
- Registration Certificate: DAO issues registration certificate upon approval
- SWC Affiliation: Register with Social Welfare Council if required
- PAN Registration: Obtain PAN from Inland Revenue Office
Timeline
NGO registration typically takes 1 to 2 months for the overall process, significantly longer than Company Not Distributing Profits registration.
Renewal Requirements
NGOs registered under the Association Registration Act must undergo annual renewal at the District Administration Office. This process requires:
- Annual audit report
- Progress report of activities
- Updated board member details
- Police reports (in some cases)
- Ward recommendation
- Renewal fee payment
INGO Registration in Nepal
Legal Framework
International Non-Governmental Organizations (INGOs) are governed by the Social Welfare Act 2049 (1992) and its Regulations. The Social Welfare Council (SWC) is the regulatory authority for INGO registration and operations in Nepal.
Agreements Required
General Agreement
A basic agreement between the INGO and Social Welfare Council for its operation, including detailed description of working sectors, projects, and financial plan.
Project Agreement
Agreement between INGO, Social Welfare Council, and local partner for implementation of specific projects, prepared with detailed budget planning, project methods, and operational plans with local stakeholders.
Requirements for INGO Registration
- Approval from Social Welfare Council
- Project Agreement and General Agreement
- Must donate minimum USD 200,000 annually from outside Nepal
- Must have local NGO or Company Not Distributing Profits as partner for project implementation
- Must have legal personality under foreign jurisdiction with local office in Nepal
- Local office must register with tax office and obtain PAN
- Local partner must get SWC approval for receiving foreign funds
- Copies of citizenship, passport with valid visa, and biodata of head office directors
- Covering letter
- Evidence of reliable funding source
Timeline
INGO registration typically takes 3 to 4 months for completion of all processes.
Comparison: Company Not Distributing Profits vs. NGO
| Aspect | Company Not Distributing Profits | NGO (Association) |
|---|---|---|
| Registering Authority | Office of Company Registrar (OCR) | District Administration Office (DAO) |
| Governing Law | Companies Act 2063 (2006) | Association Registration Act 2034 (1977) |
| Minimum Members | 5 promoters | 7 members |
| Gender Requirement | No mandatory requirement | At least 33% female in Executive Committee |
| Registration Fee | NPR 15,000 | Varies by district |
| Registration Timeline | 10-15 days | 1-2 months |
| Renewal Process | Annual compliance at OCR (online filing) | Annual renewal at DAO (complex process) |
| Foreign Funding | Requires SWC approval | Requires SWC approval |
| Legal Entity Status | Distinct legal person with full corporate rights | Registered association with limited corporate features |
| Best Suited For | Foundations, research institutes, professional associations | Local community clubs, traditional charitable organizations |
Why Company Not Distributing Profits is Often Preferred
Modern social entrepreneurs and professional organizations often prefer registering as a Company Not Distributing Profits due to several advantages:
- Simpler Registration: Faster registration process (10-15 days vs. 1-2 months)
- Easier Compliance: Streamlined annual compliance through OCR online system
- Fewer Members Required: Only 5 promoters needed vs. 7 for NGO
- No Gender Quota: Flexibility in board composition
- Clear Legal Status: Full corporate legal personality with right to own property, sue and be sued
- Limited Liability: Clear liability protection for members
- Professional Image: Better suited for foundations and research institutes
Social Welfare Council Affiliation
When SWC Affiliation is Required
Both NGOs and Companies Not Distributing Profits must affiliate with the Social Welfare Council if they plan to:
- Receive grants from foreign countries or international organizations
- Receive donations from foreign entities
- Partner with INGOs for project implementation
- Receive any form of foreign funding
SWC Affiliation Process
- Complete registration at respective authority (OCR for PND, DAO for NGO)
- Obtain PAN from Inland Revenue Office
- Prepare project proposal and budget for foreign-funded activities
- Submit application to Social Welfare Council
- SWC reviews and approves affiliation
- Annual renewal required with progress reports and audited accounts
Salary and Remuneration Provisions
For both NGOs and Companies Not Distributing Profits:
- Employee Salaries: Employees can receive reasonable salaries for their work
- Board Members: Generally work on voluntary basis; should not receive salary for being director
- Meeting Allowances: Board members may be reimbursed for meeting allowances and travel expenses
- Prohibition: No dividends, bonuses, or profit distribution to members or directors
Need Legal Assistance?
If you need assistance with registration of a Company Not Distributing Profits, NGO, foundation, or any non-profit organization in Nepal, our experienced lawyers can guide you through the entire process from documentation to compliance. We also assist with SWC affiliation, tax exemption applications, and annual compliance requirements. Contact us for professional legal services.
Frequently Asked Questions
A Company Not Distributing Profits is a company incorporated under Section 166 of the Companies Act 2063 (2006) on the condition that it shall not distribute or pay any dividends or other moneys to its members out of earned profits or savings. Such companies are established for public welfare, professional development, or scientific/academic/social objectives rather than profit motive. Any surplus income must be reinvested to further the organization's objectives. These entities function like NGOs but with corporate legal structure, making them popular for foundations, research institutes, and professional associations.
According to Companies Directives, such companies may be incorporated for:
- Development and promotion of any profession or occupation
- Protection of collective rights and interests of persons engaged in specific profession or occupation
- Attainment of any scientific, academic, social, benevolent, or public utility/welfare objective on condition of not distributing dividends These objectives must be clearly stated in the Memorandum of Association, and the company must operate within these stated objectives throughout its existence.
Registration requirements include:
- Minimum Promoters: At least 5 promoters required
- Maximum Limit: No upper limit on number of promoters or members
- Eligible Promoters: Any person (natural person), trustee of a public trust, or corporate body
- Age Requirement: Promoters must be at least 16 years old
- Disqualifications: Cannot be insolvent or of unsound mind After incorporation, the company may have any number of members with minimum of five, and membership is not transferable.
The registration process involves six steps:
- Name Reservation: Reserve company name online through OCR website (1-3 days)
- Document Preparation: Draft Memorandum and Articles of Association with non-profit clauses
- OCR Registration: Submit documents with fees to Office of Company Registrar (3-7 days)
- Ward Registration: Register business at local ward office where head office is located
- PAN Registration: Obtain Permanent Account Number from Inland Revenue Office
- SWC Affiliation: Register with Social Welfare Council if receiving foreign funding Total timeline is approximately 10-15 days if all documents are in order.
Documents required for OCR registration include:
- Application for registration
- Memorandum of Association (2 copies)
- Articles of Association (2 copies)
- Notarized citizenship certificates of all promoters and witnesses
- Copy of registration certificate, MOA, AOA, and board resolution if promoter is a company
- Power of Attorney for registration
- Agreement between members, if any Additional documents needed for ward office include rent agreement, land ownership certificate, and landlord's citizenship copy.
Government fees include:
- OCR Registration: NPR 15,000 (one-time)
- Ward Office Registration: NPR 5,000 - 15,000 per year (varies by local level)
- House Rent Tax: 10% of monthly rent amount (rate varies by local level; 4-6 months advance typically collected)
- PAN Registration: Free
- Name Reservation: NPR 100 Total estimated government costs are approximately NPR 20,000-30,000 excluding professional fees and rent tax.
No mandatory share capital is required for incorporating a Company Not Distributing Profits. The company may:
- Receive membership fees from members
- Accept donations and gifts pursuant to law
- Receive grants from domestic and foreign sources (SWC approval required for foreign funding)
- Generate income through activities aligned with objectives All surplus income must be reinvested into company objectives and cannot be distributed as dividends, bonuses, or profits to members or employees.
Member liability provisions include:
- Limited Liability: Members enjoy limited liability protection
- Debt Protection: Members are not liable for debts and liabilities of the company
- Written Acceptance: Liability is limited only to extent specified in written agreements voluntarily accepted
- Separate Entity: Company is a distinct legal person liable for its own debts and obligations
- Right to Sue: Company can own property, sue and be sued in its own name This provides significant protection compared to unincorporated associations.
Key differences include:
- Registering Authority: NGO at District Administration Office; PND at Office of Company Registrar
- Governing Law: NGO under Association Registration Act 2034; PND under Companies Act 2063
- Minimum Members: NGO requires 7; PND requires 5
- Gender Quota: NGO requires 33% female in Executive Committee; PND has no such requirement
- Registration Timeline: NGO takes 1-2 months; PND takes 10-15 days
- Renewal: NGO requires complex annual renewal at DAO; PND has streamlined online compliance at OCR Company Not Distributing Profits is often preferred for simpler registration and compliance processes.
Tax exemption provisions include:
- Not Automatic: Tax exemption is not automatic upon registration
- Certificate Required: Must obtain "Tax Exempted Entity" certificate from Inland Revenue Department
- Application Process: Separate rigorous application process proving funds are used strictly for social welfare
- Income Tax Act: Governed by Income Tax Act 2058 (2002) provisions
- Donor Benefits: Donations to approved organizations may be tax-deductible for donors Organizations remain tax-paying entities until tax exemption certificate is obtained.
SWC affiliation is mandatory when:
- Receiving grants from foreign countries or international organizations
- Receiving donations from foreign entities
- Partnering with INGOs for project implementation
- Receiving any form of foreign funding SWC affiliation is not required for organizations operating purely on domestic funding. Annual renewal at SWC requires progress reports and audited accounts. Both NGOs and Companies Not Distributing Profits follow same SWC affiliation requirements for foreign funding.
Annual compliance includes:
- 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
- Renew business registration at ward office annually
- Comply with labor laws for employees
- Adhere to stated objectives and avoid profit distribution
- Renew SWC affiliation if receiving foreign funding All corporate compliances applicable to public companies under Companies Act (except share capital provisions) apply to PND companies.
Salary and remuneration provisions include:
- Employees: Can receive reasonable salaries for their work
- Board Members: Generally work on voluntary basis without salary for being director
- Meeting Allowances: Board members may be reimbursed for meeting allowances and travel expenses
- Prohibition: No dividends, bonuses, or profit distribution to members or directors under any circumstances The key distinction is between legitimate compensation for work performed versus profit distribution, which is strictly prohibited.
No, a Company Not Distributing Profits cannot be merged with a company distributing profits. The merger restrictions ensure that:
- Non-profit assets remain dedicated to public welfare purposes
- Assets cannot be converted for private gain through merger
- Merger is only permitted with another Company Not Distributing Profits with similar objectives Upon dissolution, assets cannot be shared among members and must be transferred to Government of Nepal or another similar non-profit organization, preventing asset stripping.
INGO registration process includes:
- Governing Law: Social Welfare Act 2049 (1992)
- Regulatory Authority: Social Welfare Council (SWC)
- Agreements Required: General Agreement (overall operations) and Project Agreement (specific projects with local partner)
- Funding Requirement: Must donate minimum USD 200,000 annually from outside Nepal
- Local Partner: Must have NGO or Company Not Distributing Profits as local partner for project implementation
- Documents: Passport copies, visa copies, biodata of head office directors, funding source evidence
- Timeline: Typically 3-4 months for registration INGOs must work through local partners and cannot directly implement projects without SWC approval and local partnership.
