Closing a company, also known as liquidation or dissolution, is a legal process that ends the existence of a business entity. In Nepal, this process is regulated by the Companies Act, 2006, and involves several steps to ensure compliance with the law. Whether the company is closing due to financial difficulties, completion of its purpose, or other reasons, it is important to follow the correct procedures to avoid legal or financial issues in the future.
2081/82 Update: Nepal Government to provide waiver to all fines of OCR on company closure. Now, shareholders can close a company by paying 0.05% of the paidup capital. (deadline: Asar end 2082)
We will provide a clear and simple guide to closing a company in Nepal in this article. It is divided into the following sections:
- Understanding the Types of Company Closure
- Step-by-Step Process to Close a Company
- Key Documents Required
- Common Challenges and Tips
- Conclusion
Understanding the Types of Company Closure
In Nepal, there are two main ways to close a company:
- Voluntary Closure: This happens when the owners or shareholders decide to close the company. It could be because the business is no longer profitable, the owners want to retire, or the company has achieved its goals. Voluntary closure requires approval from the shareholders and follows a formal process.
- Compulsory Closure: This occurs when the government or a court orders the company to close. It usually happens if the company fails to comply with laws, does not pay taxes, or is involved in illegal activities. Compulsory closure is not initiated by the company but by external authorities.
This guide focuses on voluntary closure, which is the most common type.
Step-by-Step Process to Close a Company
Closing a company in Nepal involves several steps. Below is a detailed explanation of each step:
Step 1: Hold a Board Meeting
The first step is to call a meeting of the company’s board of directors. During this meeting, the directors discuss and decide to close the company. They must prepare a resolution (a formal decision) stating the reasons for closure and the plan for liquidation.
Step 2: Shareholders’ Approval
After the board meeting, a general meeting of the shareholders is called. The shareholders must vote on the decision to close the company. For the resolution to pass, at least 75% of the shareholders must agree. Once approved, the resolution is documented.
Step 3: Appoint a Liquidator
A liquidator is a person or firm responsible for managing the closure process. The liquidator’s job is to sell the company’s assets, pay off debts, and distribute any remaining funds to shareholders. The liquidator must be appointed by the shareholders and approved by the Office of the Company Registrar (OCR).
Step 4: Notify the Office of the Company Registrar (OCR)
The company must inform the OCR about the decision to close. This is done by submitting a formal application along with the required documents (listed in the next section). The OCR will review the application and, if everything is in order, issue a notice of dissolution.
Step 5: Settle Debts and Liabilities
Before the company can be officially closed, all debts and liabilities must be settled. The liquidator will use the company’s assets to pay off creditors (people or organizations the company owes money to). If the assets are not enough to cover the debts, the company may need to negotiate with creditors or declare bankruptcy.
Step 6: Distribute Remaining Assets
After paying off debts, any remaining assets or funds are distributed to the shareholders according to their shareholding percentage.
Step 7: File Final Tax Returns
The company must file its final tax returns with the Inland Revenue Department (IRD). This ensures that all taxes are paid up to the date of closure. The company will also need to cancel its Permanent Account Number (PAN).
Step 8: Publish a Public Notice
A notice of the company’s closure must be published in a national newspaper and the Nepal Gazette. This informs the public and any potential creditors that the company is being dissolved.
Step 9: Submit Final Documents to OCR
Once all the above steps are completed, the liquidator must submit a final report to the OCR. This report includes details of the liquidation process, such as how debts were settled and assets were distributed.
Step 10: Receive Certificate of Dissolution
If the OCR is satisfied with the final report, it will issue a Certificate of Dissolution. This certificate officially marks the end of the company’s existence.
Key Documents Required For Closing A Company
To close a company in Nepal, the following documents are typically required:
- Resolution of the Board of Directors: A formal decision to close the company.
- Shareholders’ Resolution: Proof that at least 75% of shareholders approved the closure.
- Appointment Letter for Liquidator: A document appointing the liquidator.
- Audited Financial Statements: The company’s financial records up to the date of closure.
- Tax Clearance Certificate: Proof that all taxes have been paid.
- Public Notice: Evidence that the closure was announced in a newspaper and the Nepal Gazette.
- Final Report of the Liquidator: A detailed report on the liquidation process.
Common Challenges and Tips
Closing a company can be a complex and time-consuming process. Here are some common challenges and tips to make the process smoother:
Challenge 1: Unpaid Debts
If the company has unpaid debts, it can delay the closure process. To avoid this, ensure that all financial records are accurate and up-to-date. Negotiate with creditors early to settle debts.
Challenge 2: Legal Compliance
Failing to comply with legal requirements can result in penalties or delays. Work with a legal expert or consultant to ensure all steps are followed correctly.
Challenge 3: Time-Consuming Process
The closure process can take several months, especially if there are disputes or complications. Start the process early and be patient.
Tips:
- Plan Ahead: If you know the company will close, start preparing early.
- Hire Professionals: Consider hiring a lawyer, accountant, or liquidator to help with the process.
- Keep Records: Maintain accurate records of all transactions, meetings, and communications.
Final Words
Closing a company in Nepal is a detailed process that requires careful planning and compliance with legal requirements. By following the steps outlined in this guide, you can ensure a smooth and hassle-free closure. Remember to seek professional advice if needed, and always keep accurate records throughout the process. Whether your company is closing due to financial difficulties or because it has achieved its goals, proper closure ensures that you avoid future legal or financial issues.
If you are unsure about any part of the process, consult the Office of the Company Registrar (OCR) or a legal expert for guidance. Closing a company may be the end of one chapter, but it also opens the door to new opportunities.