Not-for-Profit Company Registration in Nepal

What is a not-for-profit company?

A not-for-profit company, often referred to as a nonprofit organization, is an entity formed for purposes other than making a profit for its owners or shareholders.

Instead, its primary objectives typically involve serving the community, advancing a particular cause, or promoting a charitable mission.

Not-for-profit companies can engage in various activities, including charitable, educational, religious, scientific, or literary endeavors.

They are governed by a board of directors or trustees and must adhere to specific regulations and reporting requirements to maintain their tax-exempt status.

• Mission-Driven: Their primary focus is on achieving a social, charitable, educational, or other beneficial purpose, rather than maximizing financial gains.
• Non-Distributable Profits: Any surplus funds generated through activities or donations are reinvested back into achieving their mission, not distributed to members or owners.
• Tax-Exempt Status: NPOs often qualify for tax exemptions on income or donations, allowing them to dedicate more resources to their cause.
• Governance Structure: They are typically governed by a board of directors who volunteer their time and expertise to oversee operations and ensure adherence to the organization’s mission.

Private Company Registration in Nepal

How to register a not-for-profit company in Nepal?

Registering a non-profit company (NPC) in Nepal differs slightly from registering a private company. Here’s a breakdown of the process:

Governing Law:

• The Companies Act governs private companies, but NPCs are registered under the Associations Registration Act 1977 (2034).

Registration Authority:

• You’ll register with the District Administration Office (DAO) in the district where your NPC will be headquartered.

Basic Steps:

1. Recommendation Letter: Obtain a recommendation letter from the local level ward office, endorsing your organization’s objectives and activities.
2. Application Submission: Submit a formal application to the DAO, including your organization’s name, objectives, proposed activities, and details of founding members.
3. Police Reports: Provide police reports for all executive committee members for background verification.
4. Registration Number: Obtain a registration number from the DAO to proceed further.
5. Social Welfare Council Affiliation: Apply for affiliation with the Social Welfare Council (SWC) if your NPC intends to receive foreign grants or engage in specific activities requiring SWC approval.
6. Tax Registration: Register with the Inland Revenue Office (IRO) to obtain a Permanent Account Number (PAN) for tax purposes.

What are the benefits of forming a not-for-profit company?

Forming a not-for-profit company offers several benefits:

1. Tax Exemption: Not-for-profits often enjoy exemption from federal, state, and local taxes on income related to their charitable activities.
2. Access to Grants and Donations: Eligibility for grants, donations, and other funding from government agencies, foundations, and individuals interested in supporting charitable causes.
3. Limited Liability: Directors and members typically have limited personal liability for the organization’s debts and obligations.
4. Mission Focus: Ability to focus on fulfilling a specific charitable or social mission without the pressure of generating profits for shareholders.
5. Public Trust: Enhanced credibility and trust among donors, volunteers, and the community due to the organization’s commitment to a public benefit purpose.

Can a not-for-profit company generate profits?

 Yes, a not-for-profit company (also known as a non-profit organization) can generate profits. Here’s how non-profits can generate income:

• Donations and Grants: Fundraising is a major source of income for many non-profits.
• Earned Income: Non-profits can sell products or services related to their mission, such as educational materials or event tickets.
• Fees for Services: Some non-profits might charge fees for services that support their mission, like a museum charging admission fees.

Are there tax benefits for not-for-profit companies?

Yes, Not-For-Profit Companies (NFPĆs) in Nepal can enjoy tax benefits that incentivize their social missions. Here’s a simplified explanation:

• Income Tax Exemption: Operational income directly linked to their social objectives is often exempt from income tax.
• Donations: Donations received by NFPĆs might be tax-deductible for the donor, encouraging financial support.

However, claiming these benefits requires:

• Proper Registration: Being a registered NFPĆ with the government is essential.
• Transparent Operations: Maintaining clear records and demonstrating adherence to social goals is crucial.

How to ensure compliance for a not-for-profit company?

 Here are some key practices to ensure compliance for a not-for-profit company in Nepal:

• Accurate Records: Maintain accurate financial records of all income, expenses, and assets to demonstrate responsible financial management.
• Tax Filings: File tax returns on time, even if exempt, to maintain good standing with tax authorities.
• Regular Audits: Conduct internal audits or financial reviews to ensure proper use of funds for your mission.
• Governing Documents: Abide by your organization’s bylaws, articles of incorporation, and donor agreements.
• Transparent Use of Funds: Ensure all funds are used exclusively for your charitable purposes and mission.
• Conflict of Interest: Implement policies to prevent conflicts of interest between board members, staff, and beneficiaries.
• Transparency; Reporting: Publish annual reports and disclose financial information to stakeholders to build trust.
• Legal & Tax Guidance: Seek professional guidance from lawyers and accountants to navigate regulations.

What are the reporting requirements for not-for-profit companies?

Not-for-profit companies are typically required to submit various reports to regulatory authorities and stakeholders to maintain transparency and accountability. These reporting requirements may include filing annual financial statements, disclosing information about governance structure and activities, and submitting tax returns to relevant government agencies. not-for-profit organizations may need to provide regular updates to donors, members, and the public about their impact and use of funds. Compliance with reporting requirements is essential for maintaining tax-exempt status.

Not-for-profit companies have specific reporting requirements to maintain transparency and accountability:

1. Annual Reports: Typically required to submit annual financial reports detailing income, expenses, and assets.
2. IRS Form 990: Nonprofits in the U.S. must file Form 990 with the IRS, providing financial information and operational details.
3. State Filings: Depending on the state, additional reports may be necessary, such as annual filings with the state attorney general’s office or charitable solicitation registration.
4. Donor Reporting: Disclosure of large donations or gifts received from individuals or entities, ensuring compliance with regulations and donor expectations.
5. Board Oversight: Oversight and approval of financial statements by the nonprofit’s board of directors to ensure accuracy and adherence to legal requirements.

Public Company Registration in Nepal

How to dissolve a not-for-profit company?

Dissolving a non-profit company in Nepal involves following a specific procedure:

1. Board Decision: The NGO’s board of directors must formally vote to dissolve the organization and outline a plan for using remaining assets.
2. Member Approval: For some NGOs, approval from a majority of its members might be required to ratify the dissolution decision.
3. Creditor Settlement: All outstanding debts and liabilities of the NGO must be settled before dissolving.
4. Asset Distribution: Remaining assets should be distributed to another non-profit with a similar mission, following regulations and donor restrictions.
5. Registration Cancellation: File an application with the Social Welfare Council (SWC) to cancel the NGO’s registration.

Are there any restrictions on the activities of not-for-profit companies?

Yes, not-for-profit companies are subject to certain restrictions on their activities to maintain their tax-exempt status and fulfill their charitable mission. These restrictions vary depending on the legal framework governing nonprofit organizations in a particular jurisdiction. Common restrictions may include prohibitions on engaging in political lobbying or partisan activities, excessive private benefit for individuals or insiders, and prohibited transactions with interested parties, such as board members or major donors. not-for-profit companies must use their resources and funds primarily for charitable, educational, religious, scientific, or literary purposes, as outlined in their governing documents and applicable laws.

Can a not-for-profit company pay salaries to employees?

Yes, not-for-profit companies can pay salaries to employees for their services, just like for-profit organizations. the compensation must be reasonable and commensurate with the duties performed and prevailing market rates for similar positions. Excessive compensation could raise concerns about private benefit or inurement, which may jeopardize the organization’s tax-exempt status. Therefore, not-for-profit companies typically establish compensation policies and procedures to ensure that salaries are determined fairly and in compliance with legal and ethical standards. compensation for key personnel, such as executive directors or officers, may be subject to review and approval by the organization’s board of directors or an independent compensation committee to mitigate conflicts of interest and ensure transparency.

Can a not-for-profit company operate internationally?

Yes, a not-for-profit company can operate internationally. Many not-for-profit organizations expand their activities beyond their home country to reach broader audiences, serve global causes, or collaborate with international partners. They may establish branches or partnerships abroad, comply with local regulations, and navigate cultural differences while adhering to their mission. International operations can involve fundraising, program implementation, advocacy, and partnerships, allowing not-for-profits to address global issues and extend their impact beyond national borders.

How to maintain transparency in a not-for-profit company?

Maintaining transparency is crucial for building trust and credibility for any non-profit company (NGO) in Nepal. Some key strategies to ensure transparency:

• Financial Reporting:
  • Regularly publish audited financial statements that clearly show income sources, expenses, and how funds are used. Make them accessible online and in hard copy.
  • Use clear and understandable language in financial reports, avoiding overly technical jargon.
• Donor Communication:
  • Provide clear information on how donations are used. Showcase the impact of donor contributions through success stories, reports, and pictures.
  • Maintain open communication channels with donors. Respond promptly to inquiries and address any concerns.
• Governance Transparency:
  • Publicly disclose the organization’s board of directors and their qualifications.
  • Clearly outline decision-making processes and conflict of interest policies to avoid potential misuse of funds.
• Regular Reporting:
  • Publish annual reports summarizing the NGO’s activities and achievements.
  • Hold regular meetings or events to update stakeholders (donors, beneficiaries, public) on progress.
• Independent Audits:
  • Regularly undergo independent audits to ensure financial accountability. Make audit reports publicly available.
• Website Transparency:
  • Maintain a user-friendly website that clearly explains the NGO’s mission, programs, and leadership.
  • Include contact information and details on how people can get involved or donate.

Can a not-for-profit company distribute dividends?

No, a not-for-profit company cannot distribute dividends. Profits (or surplus) must be reinvested back into the organization’s mission, not distributed to owners or members.

Are there any registration fees for not-for-profit companies?

 There are generally no registration fees for not-for-profit companies, also known as Social Organizations (SOs). The government has waived registration fees for these organizations in recent years.

• Previous Fees: Before Fiscal Year 2079/80 (which began mid-July 2019), there was a government fee of around NPR 15,000 (around USD 120) for registering a non-profit company.
• Current Status: Since then, the government has waived registration fees for SOs. This means one shouldn’t have to pay any government fees directly to the Office of Company Registrar (OCR) for the registration process itself.

Not-for-Profit Company Registration in Nepal

What is a not-for-profit company in Nepal?

A not-for-profit company is established for charitable, social, or educational purposes without profit motive.

How many promoters are required for a not-for-profit company?

At least 7 promoters are required to establish a not-for-profit company in Nepal.

What is the capital requirement for a not-for-profit company?

There is no minimum capital requirement for not-for-profit companies in Nepal.

Can a not-for-profit company distribute profits?

No, not-for-profit companies cannot distribute profits to their members or promoters.

What documents are needed for not-for-profit company registration?

Required documents include MOA, AOA, promoters’ details, and objectives of the company.