COMPANY INCORPORATION: PROCEDURE AND CHALLENGES IN NEPAL A RESEARCH STUDY

Partial Fulfillment of MBA Program First Trimester

Legal Environment for Business Studies in Nepal

Submitted to: Kathmandu University School of Management

Balkumari, Lalitpur (Hem Raj Pokhrel Upadhyaya)

May 2014

Submitted by: Akshaya Agrawal

Chanda Kiran Adhikari Minakshi Agrawal

Nikita Agrawal Pravesh Adhikari

Acknowledgement

We would like to thank Kathmandu University School of Management for including this research based study in our course and express our special gratitude to our instructor of Legal Business environment in Nepal, Mr. Hem Raj Pokhrel Upadhaya, for providing us opportunity to put our theoretical knowledge into practice and to know the real implication of law , particularly in the process of company incorporation.

We are thankful to Office of Company Registrar for providing us related information and especially to Mr. Tek Prasad Pulami, Assistant Company Registrar for his valuable time and cooperation during our survey.

In addition, we would like to thank Kathmandu University School of Management library for providing resources for our study.

Finally we would like to acknowledge all the faculties and staffs of Kathmandu University

School of Management for helping us directly or indirectly for the success of this research.

Thank You

Akshaya Agrawal

Chanda Kiran Adhikari

Minakshi Agrawal

Nikita Agrawal

Pravesh Adhikari

Contents

EXECUTIVE SUMMARY ..................................................................................................................... 4

CHAPTER 1 ........................................................................................................................................... 6

GENERAL INTRODUCTION ............................................................................................................ 6

1.1 BACKGROUND: ......................................................................................................................... 6

1.2 RESEARCH PROBLEM .............................................................................................................. 7

1.3 OBJECTIVE OF THE STUDY ..................................................................................................... 7

1.4 RATIONALE OF THE STUDY ................................................................................................... 7

1.5 LIMITATION OF THE STUDY ................................................................................................... 8

CHAPTER 2 ........................................................................................................................................... 9

LITERATURE REVIEW .................................................................................................................... 9

2.1 ACCORDING TO INVESTOPEDIA ............................................................................................. 9

2.2 ACCORDING TO BUSINESS DICTIONARY ............................................................................. 9

2.4 FROM THE ARTICLE PUBLISHED IN HIMALAYAN TIMES IN 2013-02-07 ........................ 10

2.5 FACILITATING SIMPLER AND FASTER COMPANY REGISTRATION ............................... 11

2.6 NEW e- SERVICES FACILITATE BUSINESS REGISTRATION FOR ENTREPRENEURS IN NEPAL ............................................................................................................................................. 12

2.7 REGISTRATION THAT BRINGS THE COMPANY INTO EXISTENCE .................................. 12

2.8 INCORPORATION AND REGISTRATION OF THE COMPANY ACCORDING TO COMPANY ACT, 2063 .................................................................................................................... 13

CHAPTER 3 ......................................................................................................................................... 16

METHODOLOGY ............................................................................................................................ 16

3.1 RESEARCH DESIGN ................................................................................................................ 16

3.2 SOURCE OF DATA .................................................................................................................. 16

3.3 POPULATION ........................................................................................................................... 17

3.4 SAMPLING ............................................................................................................................... 17

3.5 TECHNIQUES OF DATA COLLECTIONS ............................................................................... 17

CHAPTER 4 ......................................................................................................................................... 19

ANALYSIS AND INTERPRETATION OF DATA ........................................................................... 19

4.1 DATA COLLECTION ............................................................................................................... 19

4.2 PRESENTATION OF DATA ..................................................................................................... 19

4.3 RESPONDENTS CLASS WISE PRESENTATION AND INTERPRETATION OF DATA ....... 20

CHAPTER 5 ......................................................................................................................................... 24

FINDINGS, RECOMMENDATION AND CONCLUSION .............................................................. 24

5.1 FINDINGS ................................................................................................................................. 24

5.2 CONCLUSION .......................................................................................................................... 26

5.3 RECOMMENDATION .............................................................................................................. 27

ANNEX 1 ............................................................................................................................................. 28

QUESTIONAIRE .............................................................................................................................. 28

BIBLIOGRAPHY ............................................................................................................................. 30

VISITED WEBSITES ....................................................................................................................... 30

EXECUTIVE SUMMARY

A company is an artificial person, incorporated in the paper by registering in the concerned

authority to carry out the specified works. Incorporation means the process of legally declaring a

corporate entity as separate from its owners. In Nepal, companies are registered under Company

Act 2063, in Office of company Registrar.

This dissertation study has been carried out altogether in five chapters. The first chapter deals

the introductory part of the study. It incorporates the background of the study, objectives,

rational, and limitations of the studies. In chapter two we have included literature review from

various sources like newspaper articles and thesis on registration of company. Chapter three

focuses on the methodological aspects of the study. Chapter four includes analysis and

presentation of data which was collected through direct interview and interaction with employees

of Office of Company Registration (O.C.R.) and general public. Fifth chapter includes findings

of our research, conclusion and recommendations.

CHAPTER 1

GENERAL INTRODUCTION

1.1 BACKGROUND

Law regulates the rights and obligation of persons and divides them into two classes:

i. Natural person ii. Artificial or judicial person.

Artificial persons are created by natural persons under the law. Thus company is an artificial person created by the law.

A company is a voluntary association of a number of persons both natural and judicial) for a common purpose (joint objectives) and for carrying on of a business with a view of earning profit but then this is just a tradition approach of a company. When the concept of single shareholder company has been emerged the definition of a company has been changed accordingly. Therefore a company may be defines as a business organization for profit with the capital divisible into shares and a common seal.

The company company has no strictly technical or legal meaning. In common sense a company is a business enterprise or a common forum for carrying on of any business. In legal sense, it is a legal entity having legal personality. In business terms it is an instrument of cooperation among the shareholders in the conduct of an enterprise.

While talking about a company we always talk about a registered company or a company duly incorporated. A registered company or a company incorporated by registration under the law of the country is regulated by the law as a person, just as a human being, Mr Mahat or Mrs Dangol, is a person. This artificial but legally created person can own a land and other property enter into contracts, sue and be sued, have a bank account in its own name, owe money to others and be a creditor of other people and companies. The property owned by the company belongs to the company only and not to the shareholder. So is the same with the debts. The company shall be liable for their acts or torts, crimes committed by its workers and agents within the scope of their employment. Thus a company is a person separate and distinct from the other persons who are its members and directors. This is the fundamental principle of company Law. Researcher has tried to address the process and challenges of company incorporation process in Nepal.

1.2 RESEARCH PROBLEM

The study has been designed to address the following research problems.

How effective the incorporation process of a company is?

What the role of office of company registrar is in the process?

What are the major challenges faced by public while incorporating a company?

What are the problems faced by employees of Office of Company Registrar because of

the public?

1.3 OBJECTIVE OF THE STUDY

The main objectives to carry out this research work are:

To know the basic meaning of company.

To identify the general procedures for establishing a company in Nepal

To identify the major challenges and issues that one face while incorporation of a

company in Nepal.

To know the initiatives taken by Office of Company Registrar to make company

incorporation process easy and efficient.

1.4 RATIONALE OF THE STUDY

This report poses general information about the company establishment process and Rules and Regulation for companies in Nepal. Due to the lack of good information sources and easy access to them, the depths of subject matters are limited to a general level. The report covers the objectives of the research. Some of the views and ideas are generated during the course of preparation. Many of the practical procedures and structures of prevailing rules and regulation have been understood during the course of study. These all has helped us to understand the importance of rules and regulations for the proper incorporation of companies in Nepal.

1.5 LIMITATION OF THE STUDY

The research has been conducted in short span of time. Though care was taken to make the survey inclusive, certain factors like absence of employees, busy schedule of employees, uncooperative public etc have lead us to choose few number of sample from the large universe of the research population. The questionnaire had to be open- ended because it was difficult to include every options and respondents also preferred to have free talk and interaction rather than filling the questionnaire form.

CHAPTER 2

LITERATURE REVIEW

The process of company incorporation is clearly given in the Company Act 2063. Submission of application to the Office of Company Registrar enclosing prescribed fees and documents to establish a company is necessary. If an application is received for the registration of company with necessary documents and fees the Office must provide a Company Registration Certificate to the applicant in prescribed format after necessary examination within 15 days of application received. There are certain clauses given in the Act for refusing to register the company. In the existence of any such situations, the Office may refuse to register a Company.

There is certain definition of the Registration of the company from the various experts & official website. Some of the definitions are mentioned below with the source.

2.1 ACCORDING TO INVESTOPEDIA

The process by which a company files required documents with the Securities and Exchange Commission detailing the particulars of a proposed public offering. A company issuing shares must reveal essential facts and detailed information about its business during the registration process, including a business and asset description, a description of the security being offered and the details of that offering, a description and names of the company's management, and the company's financial statements, which have been certified by an accountant working independently of the company.

2.2 ACCORDING TO BUSINESS DICTIONARY

Under the UK corporate law, the registrar responsible for recording and maintaining certain details of the new and existing firms within his or her jurisdiction. He or she also controls the formation of new firms, and renewal of or changes in the existing ones.

2.3 ACCORDING TO REGISTRATION OF COMPANY WEBSITE

There are different types of companies in Nepal. Any incorporated business which has a legal identity and a personality in the market of its own is called a company. A company can be an independent and is credited by law. Companies are fully run by considering the laws and hence, can be terminated if against the law by the operation of such laws. There are some features an institution must have to be recognized as a company.

Many articles have been viewed in the different newspapers & website about the registration & incorporation of the company. Few articles are briefed below:

2.4 FROM THE ARTICLE PUBLISHED IN HIMALAYAN TIMES IN 2013-02-07

The government has simplified and automated the business registration process that will help companies apply and file for registration online, curtailing the uncertainty and processing time. A faster, streamlined and automated business registration process will help companies apply and file for registration online. On an average, almost 10,000 new companies are registered annually in the country. According to the Doing Business Report 2013, the process now takes 21 days, instead of 29 days that it used to take earlier, thanks to a seven-step internal procedure in place of the 15 steps earlier. The automated system offers a host of e-services including the option to update documents. Facilitating private sector growth through a supportive business environment has been a key focus of IFC programs in the country. To create a supportive environment for robust private sector growth in Nepal, IFC has helped introduce an electronic portal of license, establish a formal platform for greater public-private cooperation for reforms, reduce cost of tax compliance for businesses, and form an investment board.

Therefore, The aim of this initiative was to minimize the time and cost of starting a business in Nepal and to enhance transparency and accountability in service delivery of the OCR to enhance economic governance leading to increase in private sector investments.

2.5 FACILITATING SIMPLER AND FASTER COMPANY REGISTRATION : Legal Basis for Business Process Reengineering and Automation at the Office of Company Registrar.

Source: International Finance Corporation (IFC), World Bank Group, January 2013

Over the last few years, more and more government agencies in Nepal have embraced Information and Communication Technology (ICT) led solutions to speed up service delivery. As part of that effort, the Office of Company Registrar under the Ministry of Industry, with support from the South Asia Enterprise Development Facility, managed by IFC in partnership with the UK Government and the Norwegian Agency for Development Cooperation, also started working towards processes reengineering, enabling legal provisions and implementing end-to-end ICT led modernization. The aim of this initiative was to minimize the time and cost of starting a business in Nepal and to enhance transparency and accountability in service delivery of the OCR to enhance economic governance leading to increase in private sector investments. The new online registration system at OCR expected to go live in February 2013.

OCR was established in 1992 under the Ministry of Industry to register and monitor the administration of companies in Nepal. The OCR registers about 10,000 companies annually, covering Public Limited Companies; Private Limited Companies; Non-Profit making Companies and Foreign Companies (including Branch and Liaison Offices). The functions of the OCR are primarily guided by the Companies Act, 2006. In order to implement the Companies Act and to carry out works relating to the company administration more effectively and efficiently, the OCR, exercising the powers conferred by Section 16 of the Companies Act 2006, issued the Company Directives in 2008. As the OCR transitions towards automation, this calls for solid legal basis provided by additional directives to guide the newly streamlined process, mitigate any anticipated risk of legal challenge of the new automated system and manage change accordingly.

The highlights of Section 16 of the Companies Act includes the functions and duties of Registrar is to implement the Companies Act and carry out company administration, to frame and issue necessary directives for implementation of this Act and carrying out of company administration and the Registrar may, as per necessity, delegate any of the powers conferred to him/ her under this Act to an officer subordinate to him/ her.

The highlights of the company (e-filling of documents) directives, 2013 are filling in the electronic form, maintain electronic registry, proper delivery of documents, registration of new company, establishment of Service center, maintain defaulters List and provision to provide reserved PAN (Personal Account Number).

Legal basis is a prime tool to run the automated system smoothly and the Ministry of Industry appreciates the initiation taken by the officials of the Office of the Company Registrar for fulfilling the legal lacuna in the Companies Law. The Ministry is fully supportive of the process

reengineering and automation at the Office. (Mr Krishna Gyawali, Secretary, Ministry of Industry)

2.6 NEW e- SERVICES FACILITATE BUSINESS REGISTRATION FOR ENTREPRENEURS IN NEPAL

Source: Open Development Technology Alliance (odta.net)

Promoting female entrepreneurs:

Gender inclusion is one of the important aspects of the new online registration system. With the collection and disaggregation of gender data now possible, OCR will be able to analyze the data and explore opportunities to encourage female entrepreneurs to register.

Chhaya Sharma, President of the Federation of Women Entrepreneur Association of Nepal, viewed this development favorably: "Offering online services is indeed a commendable step taken by the Office of the Company Registrar. She added: We look forward to the benefits generated by this initiative particularly towards women entrepreneurship development."

2.7 REGISTRATION THAT BRINGS THE COMPANY INTO EXISTENCE

Source: (http://www.thnuernberg.de/fileadmin/Studienbuero/FormularePDF/Anmeldung_Bachelor-Diplom-Masterarbeit-englisch.pdf)

It is the registration that brings a company into existence. A company is legally constituted on being duly registered under the Act and after the issue of Certificate of Incorporation by the Registrar of Companies. For the incorporation of a company the promoters take the following preparatory steps are to find out form the Registrar of companies whether the name by which the new company is to be started is available or not. To take approval of the name, an application has to be made in the prescribed form along with requisite fee. Subsequently, get a letter of Intent under Industries (Development and Regulation) Act, 1951, if the companys business comes within the purview of the Act, then get necessary documents i.e. Memorandum and Articles of Association prepared and printed. It also requires preparing preliminary contracts and a prospectus or statement in lieu of a prospectus.

Registration of a company is obtained by filing an application with the Registrar of Companies of the State in which the registered office of the company is to be situated. The application

should be accompanied by the following documents: Memorandum of association properly stamped, duly signed by the signatories of the memorandum and witnessed, Articles of Association, if necessary, A copy of the agreement, if any, which the company proposes to enter into with any individual for his appointment as managing or whole-time director or manager, A written consent of the directors to act in that capacity, if necessary, A statutory declaration stating that all the legal requirements of the Act prior to incorporation have been complied with.

The Registrar will scrutinize these documents. If the Registrar finds the document to be satisfactory, he registers them and enters the name of the company in the Register of Companies and issues a certificate called the certificate of incorporation. The certificate of incorporation is the birth certificate of a company. The company comes into existence from the date mentioned in the certificate of incorporation and the date appearing in it is conclusive, even if wrong. Further, the seven certificates are conclusive evidence that all the requirements of this Act in respect of registration and matters precedent and related thereto have been fulfilled and that the association is a company authorized to be registered and duly registered under this Act. Once the company is created it cannot be got rid of except by resorting to provisions of the Act which provide for the winding up of company. The certificate of incorporation, even if it contains irregularities, cannot be cancelled (Mr Simon George, September 7th, 2013)

2.8 INCORPORATION AND REGISTRATION OF THE COMPANY ACCORDING TO COMPANY ACT, 2063

Incorporation of Company: (1) Any person desirous of undertaking any enterprise with profit motive may, either singly or jointly with others, incorporate a company for the attainment of one or more objectives set forth in the memorandum of association.

(2) There shall be a minimum of seven promoters for the incorporation of a public company. Provided, however, that seven promoters shall not be required for the incorporation of another public company by any public company.

(3) Notwithstanding anything contained elsewhere in this Section, a company not distributing profits may, subject to the provisions contained in Chapter-19, be incorporated for the attainment of one or more objectives.

Application to be made for incorporation of company:

(1) Any person desirous of incorporating a company pursuant to Section 3 shall make an application to the Office, in such format and accompanied by such fees as prescribed, and along with the following documents, as well:

(a) The memorandum of association of the proposed company,

(b) The articles of association of the proposed company,

(c) In the case of a public company, a copy of the agreement, if any, entered into between the promoters prior to the incorporation of the company,

(d) In the case of a private company, a copy of the consensus agreement, if any, entered into ,

(e) Where prior approval or license has to be obtained from anybody under the prevailing law prior to the registration of a company carrying on any particular type of business or transaction pursuant to the prevailing law, such approval or license,

(f) Where the promoter is a Nepalese citizen, a certified copy of the citizenship certificate and where a corporate body is a promoter, a certificate of registration of incorporation, decision of the Board of directors, regulating the incorporation of the company and major documents regarding incorporation.

(g) Where the promoter is a foreign person or company or body, permission obtained under the prevailing law to make investment or carry on business or transaction in Nepal,

(h) Where the promoters is a foreign person, a document proving the country of his/her citizenship,

(i) Where the promoter is a foreign company or body, a certified copy of the incorporation of such company or body and major documents relating to such incorporation.

(2) Notwithstanding anything contained in Sub- section (1), if the promoter agrees to accept the articles of association in the format prescribed for the incorporation of a company with a single promoter of single shareholder, it shall not be required to submit the articles of association of the proposed company.

Registration of company:

(1)Where an application is made for the incorporation of a company pursuant to Section 4, the Office shall, after making necessary inquiries, register such company within 15 days after the date of making of the application and grant the company registration certificate to the applicant, in the format as prescribed.

(2) After a company has been registered pursuant to Sub-section (1), the company shall be deemed incorporated.

(3) The office shall maintain company register in the format as prescribed, for purpose of Sub-section (1).

(4) After the incorporation of a company under this Section, subject to this Act, the matters contained in the memorandum of association and the articles of association shall be binding on the company and its shareholders as if these where the provisions contained in separate agreements between the company and every shareholder and amongst its shareholders.

(5) Without registering a company under this Act, no person shall use the name company and carry on any kind of transaction by the name of any firm or institution. (Companies Act, 2063, 3 November, 2006)

CHAPTER 3

METHODOLOGY

Research methodology refers to the tools and techniques used to find out the conclusion from the research. It is a systematic and scientific way of collecting data and analyzing it to reach a conclusion. This mini research has included research design, sources of data, population, sample and technique of data collection in research methodology.

3.1 RESEARCH DESIGN

The research design is a plan, structure and strategy used to obtain answers to research questions

and analyze the problem under consideration. The research we conducted falls under both

descriptive criteria. Research design is considered as blue-print for research that covers topic

from stating the problem to analyzing the collected data.

3.2 SOURCE OF DATA

We have gathered data basically from two sources which are primary and secondary.

Primary sources:

The sources having the authentic and valid data are considered as the primary sources. The

primary data was collected for the problem at hand. The sources of primary data include:

Interview

Questionnaire

Field visit

Secondary sources:

The secondary data are already collected and readily available. Its internal sources are the firm

where research is conducted and external sources are books or periodicals, published reports,

data services, and websites. The secondary data that we used for our research are:

Office of company registrar official website.www.ocr.gov.np

Company Act 2063

Articles and thesis related to our research.

3.3 POPULATION

For our research the population that we have selected is:

Employees of Office of Company Registrar

General public

3.4 SAMPLING

Out of the population we have considered the following sample for our study. Sampling has been

done on the basis of simple random sampling.

Employees of company registrar. 3

General public..10

3.5 TECHNIQUES OF DATA COLLECTIONS

The techniques of data collections that we have used are based on the nature and objective of our

research. We kept a special care that these tools were strong enough to support the findings of

the research. The tools that we used are explained below

Questionnaire:

We have prepared two sets of questionnaire; one for employees if Office of company Registrar

and next for General public who were present at O.C.R.

Interview:

We also had direct interaction and interview session with the respondents.

CHAPTER 4

ANALYSIS AND INTERPRETATION OF DATA

4.1 DATA COLLECTION

The most important part of research is data. Data is any information available from the survey of

sample population. It can be in the form of numbers, observations, measurements or

description.It is Information in raw or unorganized form (such as alphabets, numbers, or

symbols) that refer to, or represent, conditions, ideas, or objects. Data can be collected and

interpreted through various tools and techniques like questionnaire, interview, survey, group

discussion etc. For the purpose of this study we have designed questionnaire and surveyed 3

respondents from employees of Office of Company Registrar and 10 respondents from the public

who visited OCR. Respondents were selected on random basis. Questionnaire for the employees

contained 4 subjective questions and questionnaire for the public contained 6 subjective

questions. We have not included objective questions because respondents preferred to have

informal talk on subjective matters rather than filling up the questionnaire in objective format.

4.2 PRESENTATION OF DATA

Next step of the research is data presentation. It refers to the technique adopted for the

presentation of analyzed data. Data presentation is a critical portion of making proposals, reports

and other essential demonstrations. It is normally done in the form of charts, graph, diagrams,

central tendencies etc. For this research, presentation of data is done with the help of pie chart.

4.3 RESPONDENTS CLASS WISE PRESENTATION AND INTERPRETATION OF DATA

For the purpose of the study researcher has sampled 3 respondents from the population of

employees of OCR and 10 respondents from the population of public visiting OCR for the issue

related to the company incorporation.

Employee of Office of Company Registrar

Fig : 1

There were 4 questions asked to employees of OCR. 3 employees responded to the questions.

We aimed to get information about how the process of company incorporation is actually applied

in real life practice and what are the major challenges faced by the employees working in OCR.

We asked about the major problems for the smooth processing of company incorporation for

which our 3 respondents replied almost in similar manner. All of the 3 respondents were saying

that people upload incomplete documents in the website of OCR. This will increase the time

required for incorporation process. All of our sample respondents were also saying that people

are very careless while choosing name for their company which in the future may create situation

of conflict and stress. Similarly, 2 employees also focused on hurried nature of public. People are

always anxious to finish their own work. Other problems faced by employees were work

Incomplete Document Careless while choosing name

Hurried nature of public Others

overload. As there is specified time period given in company act 2063, employees have pressure

to finish work on time. Also 1 of the respondents said that adoption of online system has created

ambiguity in public. So public come time and again to ask how to work online. This is also a

problem for the employees because employees are continuously disturbed. The above fig:1

shows the gravity of major problems faced by employees of OCR.

We discussed about the process of company incorporation with the employees. All have responded almost in same manner. According to the respondents, the application of online registration process has made the incorporation process easier (visit: http://ocr.gov.np/index.php/np/ ). On an average, almost 10,000 new companies are registered annually in the country. According to the Doing Business Report 2013, the process now takes 21 days, instead of 29 days that it used to take earlier, thanks to a seven-step internal procedure in place of the 15 stes earlier (http:// www.thehimalayantimes.com/ fullNews.php?headline= Business+registration+process+simplified&NewsID=365097#sthash.r8hnUZWJ.dpuf). People have to choose a unique name and registrar officers will check whether the name in ready for approval or not. After the name is approved, all the documents required for the incorporation should be scanned and uploaded in OCR website. For this OCR will provide a separate user id and password to the incorporating company. The companies which are already established before the application of online system are also required to submit their documents in online system

because OCR is planning to bring all companies into online platform. The process of incorporation is changed from manual to online system strictly following the incorporation and registration process defined in Companies Act, 2063. When name is approved by OCR, the company which is being incorporated has to pay the prescribed fee in the specified bank account. Following documents should be uploaded by any company after the name of company is approved.

a. Memorandum of association of the proposed company

b. Articles of association of the proposed company

c. A copy of agreement concluded among promoters, if any in case of public company

d. A copy of consensus agreement, if any, in case of private company (which provides among other

things, management, business of a company, restriction on transfer of shares, method for

liquidation of the company, division of voting rights and their use, distribution of dividends, etc)

e. Permission or license for operating specific business.

f. Certified copy of citizenship/passport.

OCR takes 15 days for the approval of the documents and for providing the certificate of incorporation.

Generally in Nepal, OCR does not refuse to register a company. However registrar may refuse to register

a company on the following grounds.

a. If the name of the proposed company is similar to a company that is already registered.

b. If it seems that the name of the proposed company is not appropriate by the view of public good,

public order, etc.

c. If objectives are contrary to prevailing laws.

d. If the name is identical to the name of a deregistered company.

e. If necessary conditions required for registration under the act are not fulfilled.

f. Permission of regulatory body is not given to operate certain types of business ( finance, banking,

insurance, civil aviation, telecommunication, etc )

The registrar shall give a notice to that effect within 15 days from the date of application, specifying

the reason thereof, which shall be subject to appeal.

Public

Fig:2

We had designed questionnaire containing 6 open-ended questions to be asked to general public who were at OCR for their respective work. In compare to employees, public were more interested to interact with us, though some people were very uncooperative. We aimed to gain information about the level of awareness in people regarding the process of incorporation. Also we asked wanted to know the feedback regarding the introduction of online system of company incorporation by the OCR.

In the above pie-chart, it is clearly showing the level of problems faced by public while the process of company incorporation is going on. Altogether 10 people responded to our questions. The major problems faced by public are the slow processing of OCR. People also seem offended by the rude behavior of the employees in OCR. 6 of our respondents also complained about the mal practice of bribery. Some people were facing problems because of new online system because they were not technically literate people. Other problems included lack of proper information flow from the OCR and unavailability of E-payment system. The above fig:2 shows the gravity of problems faced by the general public in OCR while incorporating a company.

We also discussed about the applicability of Company Act 2063 with our respondents and asked whether the same process of incorporation is applied in real practice or not. Almost everyone said that the same process is implemented but 2 respondents said that the 15 days time specified by the act for providing incorporation certificate is not followed strictly. In their cases more than 15 days elapsed to get the certificate.

Slow work by OCR Rude employees Bribe Online system Others

CHAPTER 5

FINDINGS, RECOMMENDATION AND CONCLUSION

5.1 FINDINGS

After all the theoretical and statutory study, research and discussions we have listed following as

our findings:

1. Office of company registrar is always in the path of improving the system of

incorporation and other related services.

2. The introduction of online registration process has increased the efficiency level.

3. Although the task of analysis and inquiry is divided among the registrar, the amount of

work to be done by one registrar is huge. This eventually gives consequences like delay

in incorporation process, error in incorporation certificate, conflict between public and

employees of OCR etc.

4. There exists problem of bribery, rude behavior of employees, difficulty to get proper

information.

5. People frequently visit OCR to check the progress of their respective company

incorporation which creates unnecessary crowd in working area of registrars.

6. Some people want to have their company incorporated faster than the prescribed time.

For that they come and visit OCR every day, keep on disturbing registrars and even start

to give gifts and bribe.

7. For some people online system has created burden because they are not familiar with the

system.

8. People are not careful while choosing the name for their company.

9. Although all process can be done through internet, the payment of fees has to be done

manually by visiting the bank as prescribed by OCR.

The Process of company incorporation can be clearly explained from following table: (source: Maksudur Rahman, INDEPENDENT UNIVERSITY, BANGLADESH April, 2012)

No.

Procedure

Time to complete(days)

Cost to complete

1 Verify the uniqueness of the proposed company name To check whether the proposed company name is available and acceptable, the company must submit an application to the Office of the Registrar of Companies.

1 NPR 5

2 A professional verifies and certifies the memorandum and articles of association

5 NPR 10,000 depending on the professionals charges

3 Buy a stamp to be attached to registration form

1 NPR 5

4 Make a company rubber stamp

1 NPR 275

5 Register for VAT and income Tax with the Inland Revenue Office, the Ministry of Finance The company must disclose the office address and withhold 15% tax of the rent for at least 3 months and deposit it to the tax office. If the companys objectives include goods or services subject to VAT, both registrations (VAT and income tax) should be obtained simultaneously.

5 No charge

6 Enroll the employees in the Provident Fund From the basic salary of each employee, 10 percent is deducted each month, and a matching contribution is made by employer. The contribution is made to the provident fund and released on employee retirement. The employer also has to pay gratuity on retirement of an employee at the rate prescribed by labor regulation. Both of these rules are applicable only if the company appoints 10 or more employees.

1 No charge

5.2 CONCLUSION

Company incorporation is the process of registering a company under the authorized body. In

Nepal companies are incorporated by registering in Office of Company Registrar. The process of

incorporation is prescribed by Company Act 2063. From our research we have found that Office

of Company Registrar is strictly following the prescribed rule of company incorporation. After

the launch of online registration, the process has become more efficient and time saving. From

our interaction with public, we found that people are satisfied about online registration process

but they recommended that application of E- payment system would be more helpful to them.

There are still some problems faced by both employees as well as general public. These

problems could be minimized by the cooperation between both parties. O.C.R. is continuously

taking steps for improving their service to minimize the problems faced by public in the process

of incorporation of company. Hence overall system of company registration in Nepal is

satisfactory but improvements can be made to have easy and efficient process of incorporation.

5.3 RECOMMENDATION

E-payment system should be adopted as soon as possible.

Proper information should be provided to general public about the new online

system.

Increase in number of employees to minimize task overload.

Skill training regarding the behavior while dealing with public should be provided

to employees.

ANNEX 1

QUESTIONAIRE

We have prepared a set of questionnaires to collect the first hand information from the targeted

sampled respondents:

This questionnaire has been designed for survey of the Company Incorporation: Procedure

and Challenges in Nepal the purpose of the fulfillment of report paper of Masters Degree in

Business Administration (MBA)

The researcher will keep this document confidential and the answer and the opinion given for

this questionnaire shall not be used against the respondent and his/her interest.

Respondents name

Profession

Designation

Organization

Questionnaire for the employees of OCR

1. Is the process of company incorporation prescribed by Company Act 2063 is actually followed while incorporating any company? To what extent?

2. What are the major problems faced by you/ OCR during the incorporation of new company?

3. Is the process of incorporation easy to understand by public?

4. Do you have any recommendation for the betterment of company incorporation procedure?

Questionnaire for public

1. Is the process of company incorporation prescribed by Company Act 2063 is actually followed while incorporating any company? To what extent?

2. What are the major problems faced by you/ OCR during the incorporation of new company?

3. Is the process of incorporation easy to understand by public?

4. Do the employees of OCR provide proper information regarding the incorporation process of the company?

5. Do you think that the online system adopted by OCR have made incorporation process easy and efficient?

6. Do you have any recommendation for the betterment of company incorporation procedure?

BIBLIOGRAPHY

1. Company Act, 2063

2. International Finance Corporation (IFC), World Bank Group

3. Open Development Technology Alliance (odta.net)

4. Investopedia

5. Business Dictionary

VISITED WEBSITES

1 https://www.ocr.gov.np/

2 www.lawcommission.gov.np/

3 http://www.investopedia.com

4 http://legal-dictionary.com

5 http://en.wikipedia.org

6 http://dictionary.reference.com