Tuesday, March 14, 2017

House approves amendment to Company Act

The Company Act Amendment Bill has finally been endorsed by the parliament.
The bill, which couldn’t get through the parliament on Friday due to lack of a quorum, was endorsed today. The new law is expected to simplify entry, operation and exit of companies in Nepal.
One of the key laws that could encourage prospective investors – both domestic and foreign – in Nepal, the amendment to the Company Act (2063 BS) has made things easier for companies, which are defunct for long and are looking to wind up their operations legally, according to industry minister Nabindra Raj Joshi.
The amendment has also relieved individuals and firms of liability to pay fees and fines piled up for several years. Such individuals and firms will have to pay only one per cent of their paid-up capital, according to a provision in the new law. Companies, which failed to report their operation details and pay liabilities for several years, can enjoy this facility for one time only.
“Around 50,000 defunct companies can benefit from this exit scheme,” according to the ministry.
According to the Act that has given exit chance to domestic and foreign firms in Nepal that are registered but are no longer in operation, any defunct firm can exist by paying 0.5 per cent of its paid-up capital or 0.5 per cent of due taxes that such companies owe to the government – whichever is less – in the next two years.
According to Joshi, the amendment, which started five years ago, has a number of provisions aimed at easing doing business and creating more jobs in the country.
“Apart from easy exit, the amendment has also made entry of a company easy,” Joshi said, adding that the amendments in the Company Act are expected to improve doing business environment and also attract private sector investments including foreign direct investments. "The Act has also given validity to online registration of companies and use of digital signatures."
With the introduction of online company registration three years ago, Nepal’s doing business indicator had progressed by five points.
The new law has also raised the threshold of paid-up capital of firms requiring compulsory formation of three-member auditors committee for auditing of their financial operations to Rs 100 million from existing Rs 30 million. Likewise, a firm can donate up to Rs 100,000 in a fiscal year up from Rs 50,000 in the existing law.
The legislature has also capped administrative cost of firms not distributing profit in the past year at 25 per cent of their annual expenditure. This measure is also believed to tighten screws on unscrupulous firms reporting loss by showing bloated meeting allowance and other unnecessary costs.
Similarly, the new Company Act has also increased the upper limit of number of promoters in a company from 50 to 101. The government has also introduced a provision whereby promoters of any company can participate in their annual general meeting (AGM) through video conference.

Telecommunication service providers must go public
Likewise, the new amendment has also made it mandatory for telecom companies having paid-up capital of Rs 50 million or above to float their shares to general public within the next two years. With such provision in the new law, private telecom operators will have to issue shares to the public in near future.
Except Nepal Telecom (NT), other five telecom service providers in Nepal are owned by the private sector. Among the private sector-owned telecom operators in the country, paid-up capital of United Telecom Ltd (UTL), Nepal Satellite Telecom and Ncell exceeds Rs 50 million. According to the Company Registrar Prem Kumar Shrestha, the provision is introduced for private telecom operators as they have comparatively higher direct every day linkage with the public.


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