Legal Compliance of Public Companies in Nepal

1.1. What is legal compliance according to Nepalese law? 

Legal compliance, also known as corporate compliance or regulatory compliance, is a legal requirement to oversee adherence to the laws, regulations, directives, and additional mechanisms established by the government of Nepal. 

1.2. What laws govern the legal compliance of public companies in Nepal? 

Legal compliance, particularly for public companies, has broad aspects, which include the following: 
1. Corporate Compliance 
2. Financial Compliance 
3. Employment compliance 
4. Sector-Specific Compliance 

1.3. What is the procedure for the legal compliance of public companies in Nepal? 


A defining compliance law or directive hasn’t been developed in Nepal, and consequently, sector-specific compliance must be conducted for public companies. Nonetheless, the Companies Act 2063 has developed a fundamental framework for adopting and developing such regulatory requirements.

Step 1: Adherence to the Companies Act, 2063, and Concerned Laws


The Company Act, 2063, is the foundation for the conversion of a private company into a public company and the operation of the public company. The Act outlines the rights and responsibilities of shareholders, directors, and other stakeholders. The Act, along with regulations and directives, outlines taxation, corporate governance, and accounting practices. 

Step 2: Conducting the Annual General Meeting 


The annual general meeting is a yearly event organized by public companies in Nepal, providing shareholders with the opportunity to review the performance of the company and approve statements and decisions. The meeting must be conducted within a few months after the end of the fiscal year in Nepal. Companies are penalized by the Nepal Stock Exchange along with regulatory bodies for failing to conduct the meeting. 

Step 3: Publishing Financial Reports 


Public companies in Nepal are required to prepare and publish financial reports annually. The reports must delineate the profits and losses incurred by the company along with the financial performance of the company, such as the balance sheet, income statement, cash flow statement, and more. 

Step 4: Submitting Financial Reports to Relevant Authorities 


In addition to publishing financial reports, public companies in Nepal must submit them to the relevant regulatory authorities. The authorities, which are sector-specific or investigative, such as national agencies, monitor the compliance of the company with accounting standards, taxation laws, and other regulatory requirements. 

Step 5: Regular Tax Filing with the Inland Revenue Department 


Public companies in Nepal are required to file their tax returns regularly with the Inland Revenue Department. Taxes must be paid at the end of the fiscal year after calculating the profits of the company along with their income, expenses, and relevant financial information. Tax filing deadlines and requirements are prescribed by the Income Tax Act and additional laws. 

Step 6: Adherence to the Labor Act, 2074 


The Labor Act, 2074, is the definitive labor law of Nepal, applicable to companies, organizations, institutions, and small businesses in Nepal. The Act has governed the types of employment, wages, working hours, minimum wage requirement, leave entitlement, and more. The Labor Act is applicable for termination of employment, treatment of employees, and contractual agreements between the company and the employee.

Step 7: Adherence to Sector-Specific and Industry-Specific Requirements, Directives, and More. 

 

Public companies in Nepal must also adhere to sector-specific and industry-specific regulations, directives, and standards. The Guidelines are issued by regulatory bodies, industry associations, or government agencies relevant to the company’s sector or industry.

1.4. What are the requirements for public companies to conduct legal compliance? 


A public company requires the minimum paid-up capital to be ten million rupees, unless otherwise stated. A private company with the above-stated paid-up capital can be converted into a publicly traded company. 

1.5. When should legal compliance be undertaken by public companies? 


A public company is suggested to undertake legal compliance before applying for sector-specific approvals or requirements, conducting annual report submissions, expanding businesses, or if additional laws and regulations have been introduced surrounding the industry. 


Conclusion 


Legal compliance for public companies in Nepal spans various aspects, such as corporate, financial, employment, and sector-specific compliance. The major acts of compliance are: conducting annual general meetings, publishing financial reports, submitting reports to authorities, tax filing, compliance with the Labor Act 2074, and sector-specific regulations. Public companies must also adhere to sector-specific regulations issued by relevant bodies. To qualify, a public company needs a minimum paid-up capital of ten million rupees. Compliance should be undertaken before seeking approvals, conducting annual report submissions, or expanding operations.

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