Closing company in Nepal !!!. Running a business is a journey filled with ups and downs. While registering a company in Nepal is relatively simple, closing one involves more complex procedures. Whether due to financial challenges, a shift in business strategy, or personal reasons, many company owners in Nepal eventually face the decision to shut down operations.
Why Need to Close Company?
Before diving into the legal process, it’s important to understand why companies choose to close. Common reasons include:
- Sustained losses that make operations unsustainable.
- Owner retirement or major life changes.
- Legal disputes or insolvency that hinder further business activity.
- Change in business focus or industry.
- Failure to operate (dormant companies that never started business activities).
Recognizing the right time to wind down operations can help minimize future legal liabilities and avoid penalties from regulatory authorities.
Two Main Ways For Closing Company in Nepal
There are two primary pathways for closing a company under Nepalese law:
- Closing Company With Liquidation
- Closing Company Without Liquidation (Voluntary Deregistration)
1. Closing Company Through Liquidation in Nepal
Liquidation involves legally winding up a company by selling its assets, settling debts, and distributing remaining funds to shareholders. Liquidation is governed primarily by the Company Act, 2063 (2006) and the Insolvency Act, 2063 (2007).
There are two types of liquidation in Nepal:
a. Voluntary Liquidation
Initiated by the company itself, voluntary liquidation occurs when directors or shareholders decide to shut down operations while the company is still solvent or wishes to exit the business.
Steps for Voluntary Liquidation:
- Board Resolution: The board of directors must pass a resolution recommending the liquidation.
- Shareholder Approval: A special resolution (at least 75% approval) from shareholders is required.
- Appointment of a Liquidator: The company must appoint a liquidator, who cannot have any conflict of interest.
- Notification to OCR: The Office of the Company Registrar (OCR) must be formally notified of the liquidation decision and the liquidator’s appointment.
- Public Notice: The company must publish notices in two daily newspapers (one English and one Nepali) announcing the liquidation and inviting creditors to submit their claims.
- Creditors’ Meeting: The liquidator must convene a creditors’ meeting within 30 days to disclose the company’s financial status and allow creditors to file claims.
- Asset Liquidation: The liquidator sells the company’s assets and settles liabilities based on creditor priority.
- Final Report: A final liquidation report is submitted to the OCR and shareholders detailing assets, payments, and distributions.
- Dissolution: Once approved, the company is officially dissolved and its name removed from the register.
This method is most suitable when a company is solvent and wants to close operations in a legally clean and transparent manner.
b. Compulsory Liquidation
Compulsory or involuntary liquidation occurs when a creditor or government authority petitions the court to shut down an insolvent company.
Key Steps in Compulsory Liquidation:
- Court Petition: A creditor files a petition in court due to non-payment of debts.
- Appointment of Inquiry Officer: The court appoints an officer to investigate the company’s financial affairs.
- Court Decision: If insolvency is confirmed, the court orders the company’s liquidation.
- Appointment of Liquidator: A liquidator is appointed to manage the liquidation process.
- Liquidator’s Report: Within 3 months, a progress report is submitted to the court and the OCR.
- Asset Sale and Settlements: Assets are liquidated and debts paid in legal order of priority.
- Final Audit and Report: The liquidator must submit a final audit-backed report to the OCR.
- Official Closure: The OCR removes the company from the register and publishes a public notice confirming the closure.
This route is mandatory for companies that are legally insolvent or under court directives.
2. Closing Company Without Liquidation (Darta Khareji)
In certain cases, a company in Nepal can be closed without going through the full liquidation process. This is known as voluntary de-registration or Darta Khareji, and is applicable mainly for companies that have not commenced business activities and have no liabilities or assets.
Eligibility:
- The company has not submitted any annual returns or financial reports to the OCR.
- No liabilities or assets exist under the company name.
- No ongoing legal disputes or contracts.
Steps for Closing Without Liquidation:
- Board Meeting: The directors must hold a board meeting and pass a resolution for voluntary closure.
- Public Notice: A closure notice must be published in at least two newspapers (one being a national daily).
- Shareholders’ Meeting: A general meeting must formally approve the closure resolution.
- Application to OCR: An application along with the required documents and board/shareholder resolutions is filed with the OCR.
- Final Publication: Upon OCR’s approval, a final closure notice is again published in newspapers confirming de-registration.
This process is simpler and faster than liquidation, and suitable for companies that were registered but never operational.
What Happens If You Ignore an Inactive Company?
Many entrepreneurs in Nepal mistakenly assume that simply stopping operations is enough. However, failing to formally close a company can lead to significant legal and financial consequences:
- Accrual of government penalties for non-filing of returns or non-compliance with the Company Act.
- Personal liability in case of unresolved debts or third-party claims.
- Blacklisting or restrictions on starting new companies or opening bank accounts.
- Legal action from regulatory authorities.
Hence, it is essential to legally conclude a company’s affairs either through liquidation or deregistration.
Conclusion
Closing a company in Nepal requires careful planning and strict adherence to the legal procedures outlined in the Company Act and Insolvency Act. Whether you choose voluntary liquidation, compulsory liquidation, or voluntary de-registration, following the proper legal path ensures that your business is closed cleanly, without lingering liabilities.
At Onesphere Law Associates, we specialize in corporate legal services, including company registration, restructuring, and closure. Our team of legal experts can guide you through every step of the closure process to ensure compliance and peace of mind.
Need help closing your company in Nepal?
Contact Onesphere Law Associates today for a confidential consultation.