3.B political & Legal Envt.

Course contents 5LHS

Political structure in Nepal; Political structure of

Nepal and Business Government relations in
different levels of Government;

Political Risks involved with Nepalese political

environment ; Legal provisions on business start-ups,
market regulations, and competitive environment;

legislations relating to labour, finance, investment,

intellectual property, e-business, and consumer
protection.
Key things the business firm should know before operating business

 How stable is the government?

 Is it a democracy or a dictatorship?

 If a new party comes into power, will the rules of business change dramatically?

 Is power concentrated in the hands of a few, or is it clearly outlined in a constitution

or similar national legal document?

 How involved is the government in the private sector?

 Is there a well-established legal environment both to enforce policies and rules as

well as to challenge them?

 How transparent is the government’s political, legal, and economic decision-making

process?
 Political Environment
 The political climate in a country in which a business firm
operates is political environment.

 Political
environment is the state, government and its institutions
and legislations and the public and private stakeholders who
operate and interact with or influence that system.

 Itincludes all laws, government agencies and lobbying groups

that influence or restrict individuals or organizations in the
society.
 Political environment in a economy is influenced by:

 Philosophy of political parties.

 Ideology of the party in power

 Nature of bureaucracy

 The political stability

 Foreign policy
Political Environment
 This includes the political system, the government policies
and attitude towards the business community and the
unionism.
 All these aspects have a bearing on the strategies adopted by
the business firms. The stability of the government also
influences business and related activities to a great extent.
 It sends a signal of strength, confidence to various interest
groups and investors. Further, ideology of the political party
also influences the business organization and its operations.
 The political environment is the government actions which
affect the operations of a company or business. These
actions can be present on several different levels including
the local, state, regional, national and international level.
 Political System
A political system is basically the system of politics and
government in a country. It governs a complete set of rules,
regulations, institutions, and attitudes.

A main differentiator of political systems is each system’s

philosophy on the rights of the individual and the group as well
as the role of government is different from others.

 Each political system’s philosophy impacts the policies that

govern the local economy and business environment.
 Political structure in Nepal: Political
Ideology
A political ideology is largely concerned with allocation of power and resources.
Different types of political ideology exist in the world.
Democratic – A democratic system is always governed by the elected
representatives of the people. Human right is always at the center of
democratic ideology multiparty system exists. Fundamental rights such as right
to freedom, right to equality, right to justice, right to property, right to
religious freedom, right to privacy, and right against exploitation are ensured.
The private sector is regarded as the indispensable part of development of the
country.
.
Totalitarian – The power is centralized to the govt that does not
tolerate parties of differing opinion. It exercises dictatorial control
over many aspects of life. Under this the govt attempts to control
the whole economy. The private sector does not flourish under
this ideology.
Nepal has federal democratic republican system. It ensures the use
of democratic rights by operating relationships among federal
units based on cooperative federalism, local autonomy,
decentralization and proportional principles in governance. It also
aims to establish a welfare state by maintaining justifiable system
in all sectors of national life by making sovereignty, independence
and integrity at the highest level and preserving the life, property,
equality and liberty Of the citizens by means of rule of law,
fundamental rights and principles of human right gender equality,
proportional inclusion, participation and social justices
 Significance of Political Environment for
Business
 Political environment affect on development of economic framework
of the country. Open market economy, state control economy, tax
system, government spending etc which ultimately affect the overall
economy of the country. Therefore, business organizations need to
maintain close observation over the political system for development of
business strategies and policies. The following are the some influence
of political system for business:
 1. Economic Policy: In autocratic political system private sector can not
participate in all the business activities of the country. It is found that
most of the countries have accepted liberal economic policy where
emphasis have been given for private sector to participate in business
activities.
 2. Political Stability: A stable, visionary and efficient govt is necessary
for economic, social and overall development of the country. Domestic
and foreign investor for establishment and operation of various forms of
3. Government Rules and Regulations: It enacts various rules and
regulations for peace, security and fair economic activities in the
country. Clear vision of govt authorities improve economic
performance, it can provide direct impact over the business
activities.
4. Government Expenditure: Govt spending on acquisition of goods
and provision of services such as education, healthcare, social
protection, defense etc can provide great impact on business
communities to promote their business.
5. Tax Provision: Tax is an important source of govt revenue. Govt
charge different types of tax as income tax, VAT, goods and service
tax, custom duty, clearing charge, rent tax etc from citizens and
business houses based on their business turnover and profitability
position. High tax rate can provide negative impact over the business
activities in the country. It is the reason that most of the democratic
6. Foreign Investment Policies: Foreign
investment in industry, commerce, and service
sectors is essential for rapid economic
development of the country. Huge investment of
foreign capital only can provide negative impact
on economy in the long run because it can create
the problem of outflow of capital in terms of
dividend or share of profit. Therefore, govt
needs to take necessary measures to maintain
balance between domestic and foreign
investment in business activities of the country.
 Political Institutions/Govt & Its
Branches
Political institutions are arranging and carrying all the tasks of the country
There are three important political institution in Nepal

Parliament /Legislation

Executive

Judiciary
 Parliament & Legislature
 Parliament: In all democracies, an assembly of elected representatives
exercise supreme political authority on behalf of people. In Nepal such
as national assembly called Parliament.

 Legislature: The body of elected representatives at the state level is called

Legislature or Legislative assembly.
 According to the Constituent of Nepal 2015 legislature of Nepal divided into 3
levels.
 a) Federal legislature- Central level , 2 houses, House of Representative 275
member(165+110) and National Assembly 59.
 b) State/Provincial legislature – State assembly 560.
 c) Local legislature – Rural municipal assembly and Municipal assembly.
 Role of Parliament
 The parliament exercises political authority on behalf of he people in
many ways:

1. Parliament is the final authority for making law in any country. It can also
change existing laws or abolish existing laws and make new ones in their
place.

2. Parliament exercise control over those who run the government No

decision can be taken without the support of the parliament.

3. Parliament also control the money matters.

4. Parliament is the highest forum of discussion and debate on public issues

and national policy in any country. It can seek information about any
 Executives
 The different levels of government, the functionaries takes the
day to day decision but do not exercise supreme power on behalf
of the people. These functionaries are called executive, because
they are in charge of he execution of the policies of the
government.

 In democratic country, executive that is elected by the people for

a specific period is called Political Executive. E.g.. Political Leaders

 People who are appointed on a long term basis are called the
Permanent Executive or Civil servants. E.g.. Government Officers
The executive of Nepal, according to the constitution
of Nepal 2015, consist of the following:-
Federal government – (central govt) The form of
governance is multiparty competitive federal
democratic republican parliamentary system based
on pluralism. Executive power –Prime Minister. It is
responsible for issuing directives, controlling, and
regulating the administration.
State govt – executive power- Chief of State.
Local govt – The executive powers of the local level
are vested in the Rural Municipality or the Municipal
Executive.
 Judiciary
 Allthe courts at different levels in the country are collectively called
the Judiciary.

 Itis independent and powerful institution and is considered essential

for democracies.

 The supreme court and the High court have the power to interpret the
constitution of the country.

 They can declare invalid any law of the legislature or the actions of
the executive, if they find such a law or action is against the
constitution. Thus they can determine the constitutional validity of
any legislation or action of the executive in the country is challenged
 Judiciary
 If the court finds that a law or an order of the executive disobeys the
provisions of the constitution, it declares such law or order null and void.

 The powers and the independence of the judiciary allow it to act as the
guardian of the fundamental rights. That is why, the judiciary enjoys a high
level of confidence among the people.

 Any one can approach the courts if public interest is hurt by the actions of
the government.

 The courts intervene to prevent the misuse of the government’s power to

make decisions. They check malpractices on the part of the public officials.
 The judges of the supreme court is appointed by the president on the advice
of the Prime Minister and in consultation with the Chief Justice of the
Supreme court.
According to the constitution of Nepal 2015, the
following courts will remain in Nepal:
Supreme Court – It has a final authority to
interpret the constitution and laws.
High Court – There shall be one high court in each
state.
District Court – There shall be one district court in
each district. It has jurisdiction over local level
cases.
Specialized Courts – They are established for the
purpose of hearing special types of cases. They
 Political Structure : Constitution
 What is a Constitution ?
- A constitution is a legal document, a blue print for the governance of the state.
- It lays down the fundamental principles, policies, institutions, powers and sets
limits on the exercise of such power by a particular body politics.
- It outlines not only the basic structural framework of government of a given
nation but it also lists down the basic guarantee provided for it citizens that
must be up-held at all times.
-A constitution is thus the highest law or authority of a nation.

 Funk & Wagnall’s Standard College Dictionary-”the fundamental laws &

principles that normally govern the operation of a state or association”

The American Political Dictionary-”a fundamental or ‘organic’ law that

establishes the framework of government of a state, assigns the powers &
duties of governmental agencies & establishes the relationship between the
 Why we need a constitution?

 A constitution normally consists of general provisions of laws that given

nation considered important.

 It is safe to say that it covers just about everything conceivable at the time of
framing the constitution.

 However, what were not covered then could be easily added through various
amendments that may be made later.

 What is general provisions of laws?

The Constitution of any given nation would cover the main areas such as:
1. Fundamental guarantee of individual’s rights to liberty
2. Power and the organization of power relations between the individuals
and his/her government
3. The ideology that would spell out how the government will be led
 Constitutions -
It is the fundamental law of the country. It is the duty of every
citizen to follow the constitutions. It affects the development
of business in the country directly.
Nepal has been ruled through the interim constitution since
2007. It was formulated and promulgated on the basis of the
common minimum program signed by the 8 political parties.
The Constitution of Nepal 2015, was endorsed on September
16, 2015 by the second constituent assembly meeting by more
than two- third majority. It states Nepal as a federal
democratic republican nation. It has 35 parts and 308 articles.
The main goal of this constitution is to gain sustainable peace,
good governance, development and prosperity through the
federal democratic republican system.
Political Risk
 Meaning of Political Risk
 Any changes in the political environment
 Risk of losing money due to changes that occur in a country’s
government or regulatory environment
 Arises from government actions such as new laws, imposition of high
tax or may arise due to non government actions such as vandalism,
terrorism and so on
 Can be analyzed from the country-specific perspective (macro
approach) or firm specific perspective (micro approach)

 Three major types of political risk:

 1)Ownership Risk –Risk on the property ownership and life
 2)Operating Risk –Hinders or slow down the ongoing operation
 3)Transfer Risk –Temporary or permanently block the shifting of
fund between the countries
Political Risk Factors
Political instability
 Probability that an irregular political event will occur
 Major reason for political instability is frequent change in
government
 The firms expected return fluctuates with an irregular political
event
 With political instability new opportunities and threats may be
created and the strategy which was designed earlier assuming
certain government policies may not work later
Traditional Hostilities and Terrorism
 •Threat of industrial security and personal security, Nepal
Bandh, ChakkaaJam. General strike, and other types of
agitation.
 •Kidnapping & killing are the weapons used by criminal gangs
Labor conditions and Unions
•Labor availability, status of labor unions
influences the business
•In Nepal, there are 1125 enterprise level, 32
association, 4 federations
•Labor unions are affiliated to political parties
and thus their demands, voices are considered.
Subjective Factors
Attitude towards private and foreign
enterprises.
 Management of Political Risk
1. Environmental analysis: PESTLEG analysis. It may
include rise of new political parties, upcoming elections,
formation of new govt, any new trade agreement, new
govt policies, labour conditions, changes in other general
and task environmental variables.
2. Negotiations: Negotiating with local govt, society and
other related persons and parties. It is done mainly to
create a favourable environment to the business.
3. Insurance: Businesses operating internationally can
purchase political risk insurance to mitigate certain
political risks. It covers risk caused due to war and
terrorism.
4. Maintain diversified portfolio: It includes
investment in different sectors so that the overall
political effects are harmonized.
5. Collaboration with local firms: Another way of
managing political risk is to collaborate with the
local firms actively vertical and horizontal
integration with them.
6. Minimization of fixed investments: A business can
invest as low as possible by leasing facilities instead
of buying them or relying more on outside suppliers.
 Nepalese Political Environment: Emerging
Issues
 Nepalese political environment has shown tremendous changes over
the years. With the end of Maoist armed rebellion and monarch,
Nepal is declared as the federal democratic republican nation. The
new political system has brought both opportunities and challenges.
It has also raised a number of issues.
 Political environment have direct or indirect impact on the growth
and development of business in Nepal. Some of the major issues and
problems are as follows:
 1. Belonging to the new constitution – The Constitution of Nepal
2015 has been promulgated and enacted. It has declared Nepal as
Federal Republican State with provision of 7 States. It has been
expected that the constitution would be milestone in bringing peace
and prosperity in the country. However, some political parties mainly
based on madhes are protesting against some provision of this
constitution, and they wants its amendment. The political crisis is
deepening. The government as well as the other political parties
should be serious to solve this crisis.
2. Good Governance – It is best possible process for making and
implementing decisions. Participatory, consensus oriented,
accountable, transparent, responsible, effective and efficient,
equitable and inclusive and rule of law are the major characteristics
of good governance. But poor governance has been a traditional
problem in Nepal. According to Transparency International Nepal
(2017) is ranked 122 out of 180 countries in corruption perception
Index. It shows the low level of governance in Nepal.
3. Political Instability – It creates policy instability which adversely
affects the development of business sectors. Over the last 26 years 3
general and 2 constituent elections were held and 24 governments are
formed. The political instability has been a major reason to poor law
and order conditions in the country. Anarchism is pervasive, forced
donation, kidnapping, threatening are common due to poor
implementation of law. Business sector is targeted by different
political groups.
 4. Lack of broader vision on political parties – Even the
main stream of political parties are suffering from lack of
broader vision, policy and programs which are essential for
good governance, political stability and economic
development. Erosion of ideology, exclusion of people’s
interest and internal functionalism remain the dominant
trend among the major political parties in Nepal.
 5. Lack of democratic thought – Political thought or political
philosophies are concerned with political principles such as
power, justice, rights, laws and other issues pertaining to
good governance. However Nepalese political parties and
their leaders are guided by the democratic political thought.
They are doing whatever they want. They are found very
weak in developing democratic norms, values, and thought
within them.
 6. Labor as a political force – The working class in Nepal, is a vital
political force bearing upon business. Workers of different sectors are
organized under their own trade unions. The labor unions are
ideologically oriented. Hence they are extremely active politically. The
unions lobby for or against laws, as they are perceived to be for or
against labor’s interest.
 7. Employer’s Associations – Employer’s associations are the organized
body of the business sector. They are organized in order to increase their
bargaining power. These associations promotes and protest the interest of
employers and pressure on the trade unions and the government. NCC,
FNCCI, CNI are the examples of employers association of Nepal. They
influence the govt rules, policies and decisions through lobbing. They
represent the private sector and provide constructive information and
advice to the govt bodies.
 8. Political culture – It is a set of attitudes, beliefs and sentiments. It
gives the meaning to a political process and provides underlying
assumptions and rules. But political parties lack political culture in
Nepal. It has adversely affected the business sector in Nepal.
Influence of Business on Government
Business can also influence the government
a. Payment of taxes:
–Business organizations pay various taxes (tax on income, wealth,
consumption, services and movement of products) to national and
local governments, which constitute major part of government
revenue.
–Expansion of business activities in a country also contributes to the
government revenue, increases the employment.

b. Execution of government contract:

–Business organization bid for government contracts and successfully
complete them within the constraints of time, cost and quality.
–Also helps the regular activities of the government in executing
contracts for supplier of goods and services
c. Rendering of service
•Business organizations provide advice to government through their
associations that helps to formulate policies and solve problems.
•Also participate in delegations to foreign countries to promote trade
and industry.

d. Others:
•Business donations are critical for running political parties.
Business participation in politics is a way of influencing the politics
to serve the interest of business
•Government needs support of business to attain its objectives of
employment, stability in price, economic growth.
*. Sources of information- They provide information to the policy
maker and assist in effective implementation of govt decision.
Government Relations with Business
Promoter Role of Government
•Public Enterprises: establish industries under state
ownership.
•Procurement: Government is large purchaser of
goods and services so they create new industries
and increase business volume.
•Incentives and subsidies: Provide incentive for
promotion of exports; Tax incentives for
establishment of industries in backward areas;
subsidies for food and fertilizer, transportation.
•Provision of Finance: government financial
institutions provide low cost financing to industries.
Regulator Role of Government
•Rules and regulations, standard procedures,
and orders.
•It is used to exercise administrative control
and inspection over business.
•Business must comply with such regulations
such as: industrial policy, export and import
policy, foreign investment, protection of
consumer rights, labor relations, monetary
and fiscal policy, environmental protection,
and so forth.
Caretaker Role of Government
Protection of domestic industries: in terms of
tariff protection
Security: provides protection to business
properties
Assistance: implements packages programs to
revive and rehabilitate sick industries; and
give assistance to cottage and small industries.
Patents and copyrights: government policies
protects the intellectual property rights of
business.
 Legal Environment
Every business is concerned with the laws and
regulations that are applicable to the business.

Business organization need to comply with sets of

rule and regulations of the country.

The extent of the regulation and the legal

framework within which businesses operate all
increases costs both direct and indirect
(administration, monitoring, etc.)
 Business Legislation
 Business legislation refers to law made to protect consumers, workers,
shareholders environment from business activity.

 It refers to the enacting laws that govern the activities of business

organizations.

 The way in which a business can operate is controlled by legislation.

 Legislative framework creates both opportunities and threat in business.

 The main areas of legislation that affect the businesses are: consumer
protection, employment law, competition law, environmental act ,
health and safety act.
 Why Business Legislation ?
1 To create fair business environment .

2 To regulate business environment on the basis of legal provision.

3 To Protect interest and rights of consumer, distributors and producers,

investors, creditors and suppliers .

2. To punish and charge to those who violates the law.

3. To regulate the rights and duties of people carrying out business in

order to ensure fairness.

4. To protect people dealing with business from harm caused by

defective services.
 Legal Provisions on Business start-
 up
The start-ups in Nepal should understand the legal system composed of traditional
practices, modern law, and institutions.
 Register with Department of Industry or Office of Company Registrar.
 Summiting necessary document such as Permanent Account Number (PAN), register
local ward office or municipality, lease agreement, required rental tax, registration fee
and other local charges.
 Companies with foreign investment approval from DOI or Investment Board of Nepal.
 Company providing payment related services needs a letter of intend from the Nepal
Rastra Bank.
 Tourism, manufacturing, export-import businesses must comply with sector-specific
laws and may require additional licenses.
 After completing the business registration process, PAN and VAT also be necessary
depending on the nature of business and amount of turnover..
 Understanding IP laws helps in safeguarding brand and products.
 It is important to be aware of Nepal’s labor laws, including wages, working hours,
employee benefits, termination procedure etc. These law ensures fair and legal
treatment of employees.
 Nepal’s legal framework provides mechanism for contract enforcement and dispute
Legal Provisions on Market Regulation and
competitive Environment
 The Competition Promotion and Market Protection Act, 2063 (2007)
provides legal provisions on market regulation and competitive
environment in Nepal. Its main objectives are to promote fair
competition, protect markets and enhance national productivity. Its
major provisions are:
 1. Prohibition on anti-competitive agreements: No person or enterprise
can make any agreement with the intension to limit or control
competition.
 2. Prohibition on abuse of dominant position: No enterprise holding
dominant position can act to control competition in the production and
distribution of any goods by that enterprise or through its affiliation.
 3. Prohibition on merger or amalgamation with intent to control
competition: Monopoly or restrictive trade practices in the market,
merge or amalgamate with another enterprise that produces or
4. Prohibition on bid rigging: No bidder submitting tender
in response to an invitation to tender made by an entity
publicly shall not commit bid rigging.
5. Prohibition on exclusive dealing: A persons or
enterprise that produces or distributes any goods or
services shall not make , or cause to be made, an
exclusive dealing of such goods or services.
6. Prohibition on market restriction: No person or
enterprise restrict the market of the production or
distribution of goods or services.
7. Prohibition on tied selling: No persons or enterprise
that sells any goods or services shall engage in tied
8. Prohibition on misleading advertisement: No
person or enterprise any misleading advertisement
with intend to control or limit competition.
9. Constitution of Board: A Competitive Promotion
and Market Protection Board is hereby constituted
in order to enhance fair competition in market by
protecting the market.
10. Provision of punishment: This act has the
provision of punishment for unfair business
practices.
 Business Legislation in Nepal
- Nepal doesn't have a long history of business legislation.

- The Company Act 1936 was the first law to regulate the
management and other affairs of joint-stock companies in
Nepal.

- The Muluki Ain, which was adopted in 1963,also has

relevance for business firms.

- The laws relating to business or economic activities in

Nepal can be broadly classified as follows:
Legislation relating to Labour, Finance,
Investment, Intellectual Property, E-
Business and Consumer Protection
 The business legislation in Nepal are mentioned below:
A. General Business Legislations:
 Private Firm Registration Act 1958.
 Partnership Act 1964.
 Company Act 2006.
 Industrial Enterprises Act 2020
B. Labor Related Legislations:
Bonus Act 1974. Labor Act 2017. Trade Union Act 1993.
Foreign Employment Act 1992. Child Labor Act 2000. Industrial Training Act 1982.
C. Finance and Investment Related Legislations:
Foreign Investment and Technology Transfer Act 2019.
Foreign Exchange Regulation Act 1961 Income Tax Act 2002.
Value added Tax Act 1997.
D. Consumer Protection Legislations:
Black Market and Other Social Crime Punishment Act 1977.
E. Intellectual Property Legislation:
Patent, Design and Trademark Act, 1965.
Copyright Act, 2002.
F. E-Business Legislation
Electronic Transaction Act, 2010.
Private Firm Registration Act, 1958 (2014)

 This act is concerned with registration of Sole proprietorship. It

is owned, managed and controlled by and individual.
 This act has laid down procedures for registration. Only
Nepalese citizens are allowed to register private firm.
 An application needs to be submitted in the prescribed form to
the concerned department along with the fees. Concerned
department issue “certificate of registration” after necessary
enquiries.
 All private firms must renew registration within 35 days of each
new fiscal year. Non renewal within 90 days automatically
cancels the registration of the firm.
 Partnership Act , 1964
 Iftwo or more person want to establish a firm to initiate business,
partnership firm can be registered.

 Partnership Deed ( an agreement among the Partners mentioning

the each and every things ) is required to registered the firm.

 The partnership deed should include following things: Equity ratio,

profit sharing ratio, entrants of new partner and exit of the existing
partner, settlement the disputes, dissolution of firm, etc.

 Firm can be registered under department of Commerce (in

Kathmandu valley) and Office of the Cottage and small Industries
( in outside the valley) with the recommendation letter of
 Partnership Act , 1964 (2021)
 Any time the firm can be dissolve as per the partners’ agreement.

 Tax law is applicable and the firm should be renewed each five
years where the firm has been registered.

 It is easy to establish and dissolve comparing to the establishing of

the company under Company Act.

 Every partner liable jointly personally with all the other partners for
all the acts of the firm done while he/she was a partner.
 Company Act, 2063 (2006)
 Company act 2063 of Nepal contains 21 chapters and
188 Sections.
 Promulgated on Kartik 24, 2063.

 Company Act was formulated with an objective of

bringing about dynamism in the economic
development of the country by promoting investment
in the industry, trade and business sectors through
economic liberalization and make the incorporation,
operation and administration of companies much
easier, simpler and more transparent.
 Incorporation of Company

1. Private Ltd. Company . : No. of shareholders

minimum 1 to maximum 50.

2. Public Ltd. Company : No. of shareholders

minimum 7 and no limit to maximum no.

3. Memorandum of Association (MOA) and Articles

of Association (AOA) is required to register the co.
4. Registration of Co. – In the Office of the Company
Register, Department of Commerce.
 Incorporation of Company
 Office of Company Registrar (CRO) has sole authority of
registration, administration, supervision, recording and regulating
the companies.

 Pvt. Company can be converted into Ltd. Co. and vice versa.
 Company Secretary is compulsory for Public Ltd. Company, with
the paid –up capital of ten million rupees or more.

 Financial Statements and other decision made of General

Assembly should be submit to the CRO by the company each year.

 Liabilities is Limited to the shareholders up to their amount of

shares.
Documents Required to establish Co.
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.
 Memorandum of Association ( MOA)

The memorandum of Association of a company

shall state the following matters:

(a) The name of company.

(b) The address of the registered office of the
company.
(c) The objectives of the company.
(d) The acts to be carried out to accomplish
the objectives of the company.
 Memorandum of Association ( MOA)

g) The figure of the authorized capital of the Company

and the figure of the share capital to be issued by
the company for time being and the figure of
undertaken to be paid by the promoter of the
company.

(f) Types of shares of the company, the rights and

powers inherent in such shares, value of each
share number of shares of different types.
 Memorandum of Association ( MOA)

(g) Restrictions, if any, in the purchase or transfer of

shares.
(h) Number of shares which the promoters have
undertaken to subscribe for the time being.
(i) Terms of payments of share amounts.
(j) Statements that the liability of shareholders shall be
limited.
(k) The maximum number of shareholders in case of a
private company.
 Memorandum of Association ( MOA)

(l) Other necessary matters.

Number of directors, provision of alternate director, if any, and

tenure of directors.

Provisions relating to the minutes of decisions of the general

meeting and the board of directors, and duplicate copies and
inspection thereof.

If a person has to subscribe shares to become a director of a

company, minimum number of shares.

In the case of a public company, qualifications and number of

independent director.
 Article of Association ( AOA)

• Where any professional persons, other than shareholders, are to

be appointed as directors, provisions relating to the number,
tenure, qualifications and procedures of appointment of such
persons,
• Powers and duties of the board of directors and the managing
director,
• Authority of directors and delegation of authority,
• Quorum for a meeting of the board of directors, notice of
meeting and proceedings of meeting,
• Different classes of shares and the rights, powers and restrictions
attached to such shares,
• Provisions relating to calls on shares and forfeiture of shares,
• Provisions relating to the transfer of shares.

• Matters on alteration in share capital.

• Matters on buying back of shares by the company, if the

company is to buy back its shares.

• Appointment of a company secretary.

• Provisions relating to remuneration, allowances and

facilities of directors.

• Use of the company’s seal in its transactions, if it is to be so

used.
 Industrial Enterprises Act, 2020
The industrial enterprise act, 2020 deals with the registration,
operation, facilities and dissolution of industries in Nepal. Its notable
features are as follows:-
1. Industry registration: This act restricts establishment or
operation of industry with out registering through the procedure as
provided.
2. Classification of industry: This act has classified industries on the
basis of size of investment on the fixed assets, and nature/sector of
business.
3. Regulating authorities: Federal, Provincial and Local
government.
4. Government only industries: Industries based on atomic energy,
industries producing radioactive material, atomic energy and
uranium related industries which only be established and operated
5. Environment compliance: According to this act, industry
should commence actively only after completion of application
environment studies such as Initial Environmental
Examination (IEE) and Environmental Impact Assessment
(EIA).
6. Incentives and facilities to the industries: Removal of
exemption of the VAT on production cost of the exported
goods on the basis of export quantity, 100% income tax
exemption to the micro industries and 50% income tax
exemption to the cottage and small scale industries with at
least 10 million NPR.
7. Corporate Social Responsibility (CSR): Provision to allocate
at least 1% of the annual net profit to be utilized towards CSR.
It is applicable to all medium, large, cottage, small industries
having annual turnover more than Rs 0.15 billion.
 Labor Act, 2017
 Tomake provision of the rights, interests, facilities and safety of
workers and employees working in establishments belonging to
different fields.

 The Act emphasizes on job security, rights of remuneration

after work, prohibition of child labor, freedom to be a member
of trade union, minimum wages, health, safety and welfares,
code of conduct, workers' participation in management and
dispute settlement.

 Ministry of Labor is responsible to implement and monitor

the act.
 Labor Act, 2017
Provisions.
1. No work no pay: Employees will not be paid when no work is done.
2. Allows strike: Strikes for demands, conducting bilateral talks.
3. Payment during strike: Workers who hold protests with in a legal
frame work will be paid half a day’s wages.
4. Formation of tribunal: The govt can form a tribunal to find a
solution.
5. Categorization of employees : regular employment, task based
employment, causal worker and time-bound workers.
6. Performance evaluation: A worker can be fired if performance does
not appear satisfactory during three successive assessments.
7. Firing: can not fire with out valid reason and without fulfilling
lawful obligations.
8. No discretionary termination: Employers can no
longer terminate the worker at their own discretion.
9. Compulsory retirement: The age of compulsory
retirement has been increased to 58 from the previous
55.
10. Probation Period: has been shortened to 6 months
from the previous 1 year.
11. Working hour: 8 hours a day and 48 hours a week.
Overtime 24 hrs per week.
12. Head count threshold: The new labor act is
applicable to all entities regardless of number of
employees.
 Bonus Act, 1974
The bonus shall not exceed ten percent of
net profit.
The amount of bonus to an individual will
depend on the amount of monthly salaries
and wage paid.
It should also not be more than the total
salary of six months.
Child Labour Act, 2000
According to this act, children below 14
years of age are defined to be child
laborers. It prohibits children in hazardous
works. If the children are made to work
for more than 6 hours a day and 36 hour
in a week, it is regarded as illegal.
 Industrial Training Act, 1982
It deals with the provisions regarding the training of the
workers for the enhancement of industrial skills. It has
made the provision of Training Council.
Trade Union Act, 1982.
It deals with various aspects relating to establishment and
operations of trade union of Nepal. The following are the
some of the notable features to this act.
1.Registration of trade union:
Enterprise level at least 10 member.
Trade union association: At least 50 enterprise level
Trade union federation: At least 10 trade union association.
2. Autonomous and corporate body:
3.Objectives: To engage in economic and social
development of the workers by improving their working
conditions.
Good relationship between workers and management.
Development of enterprise by increasing the productivity
of enterprise.
Try to make the workers dutiful and disciplined.
4. Recognition of the authorized trade union: collective
bargaining with the management on behalf of the workers
of authorized enterprise level trade union.
5. Fund: Trade union shall have its own separate fund.
 Foreign Employment Act, 2007
Its main objectives are to make the foreign
employment safe, manage and descent and protect
the rights of the workers as well as foreign
employment entrepreneurs.
License required, approval for passports, labor
permission sticker, orientation training from the
prescribed institution, foreign employment welfare
fund,
Intellectual Property Law in Nepal
 In Nepalese context, intellectual property is also one form
of property. Right over the IP is new phenomenon in
Nepalese context, though IP is also protected by law.
 There are four different types of IP rights such as: Patent,
design, Trademark & Copyright.
 Patent, Design & Trade-Mark is protected under the one
single legislation “Patent, Design & Trademark Act, 1965”

 Copyright is also protected by the “Copyright Act, 2002”.

 The legal as well as the technological development is
happening but still the Nepalese IP right is protected by the
old and outdated “Patent, Design & Trade-Mark
Act,1965”.
Copyright law
In Nepal Copyright Act, 2002 has
repealed by the Copyright Act, 1965.
Though, it’s after a two years of the
enactment of the Copyright Act, after the
great consultation with the policy makers
and the stakeholders’ government enacted
the Copyright Regulation in 2004.
Duration of Protection
As regard to duration of protection, the
Copyright law makes no distinction between
moral and economic rights. Protection is
generally available for life plus a post
mortem period of 50 years.
However, this period of protection varies
with the nature of the respective works like
joint works, works made for hire, works of
anonymous, the photographic works and the
work published after the death of the authors.
The Patent, Design and Trade Mark Act, (1965)

Patent
 It is new invention of product or service or formula or
structure, method or theory that is useful for human life.

 Itshould be registered by a person or entity in Department of

Industry with details of all documents to be prove that the
patent is belongs to him.

 Itcan be registered after due investigation and prove that it is

new one and not registered yet by another person or entity.

 It is registered for 7 years and can be renewed.

The Patent, Design and Trade Mark Act, (1965)

Patent
 Can be transfer with permission of patentee.
 Content of Application:
 Name, address and occupation of inventor
 Manner and nature of right acquired, if applicant is not
the inventor.
 Manner of producing, using or conducting the patent,
 Principle or formula on which patent is based.
 Non registration of Patent
 Already registered in another person’s name.

 Notinvented by the applicant or the right to patent not

received.

 Causes adverse effects on health, good conduct or

morality or is harmful to national interest.

 Disobey existing laws of Nepal.

The Patent, Design and Trade Mark Act, 1965

Design
 Design means any feature, pattern or shape of a matter
prepared and produced in any manner.
 One can register his unique design for five years and can
be renewed for the same time again.
 No one can use the Foreign patent, design and
trademark without register in Nepal
 It can be used by jointly if owner of the TM, P and D is
agreed.
The Patent, Design and Trade Mark Act, (1965)

Design
 No allow to register TM, P and D of Nepalese product or
services in foreign countries without registering in Nepal.

Non Registration:
 Already registered in another person’s name
 Likely to cause damage to the reputation of an individual
or an institution.

Breaching of law is not excused.

The Patent, Design and Trade Mark Act, (1965)

 Trade mark is a any symbol, sign, picture, word or the

combination of all of that which makes differ and
significant from others product, services and goods.

 A registered brand is trade mark.

 If not use until a year after registration by the

organization, it may be cancelled.
 Consumerism
 Action or practice of consuming. Economic policies placing
emphasis on consumption.
 Organized movement of consumer.
 It focuses on protect consumers from unfair practice of producer
and marketers and enhance right of consumers in relation to
producer and marketers.
 In Nepal, some of the law regarding consumer protection are:

1. Food Act 1966,

2. Consumer Protection Act 2018
3. Nepal Standardization Act 1980
4. Black Marketing and other Social crime Punishment
Act 1979
 Consumer Protection Act, 2018
The Consumer Protection Act, 2018(2075) has made provision
for amendment and consolidation of laws relating to consumer
protection. This act is implemented in order to protect and
promote constitutional rights of the consumers to obtain quality
goods and services. It provides judicial remedy for the
enforcement of the rights obtained by the consumers.
The notable provisions are right of the consumers, regulation of
goods or services, liability of producers, not to conduct unfair
trade and business activities, not to cause advertise impact on
demand supply or price, to keep pricelist and registration
certificate, formation of consumers protection council, central,
provincial and local market monitoring committee, provisions
relating to offences and punishment, constitution of consumer
coart.
 Black Market and Other Social Crime
Punishment Act 1977
It aims to protect the consumers from illegal hiking
of price. This act has provision of regulating and
monitoring the market to ensure the reasonable
price of goods and services.
◦ Food Act, 1966
◦ It deals with protection of health of the people from non-
qualitative foods. It has provisions of mechanism to
ensure the right quality of the food products.
 Electronic Transactions Act (ETA)2006
The ETA 2006 was first enacted in July 1998 to
provide a legal foundation for electronic signatures,
and to give predictability and certainty to contracts
formed electronically. The ETA attempts to provide
security and use of electronic transactions.
Commercial code for e-commerce transactions:-
The ETA was enacted to create a predictable legal
environment for e-commerce. It clearly defines the
right and obligations of the transacting parties. It also
addresses the legal aspects of electronic contracts, use
of specified security procedures (including digital
signatures) and concerns for authentication and non-
repudiation.
 Finance and Investment Legislation

1. Foreign Investment and Technology Transfer

Act,2019.
2. Income Tax Act,2002
3. Value Added Tax Act,1996
Foreign Investment and Technology Transfer Act
(FITTA)2019
 FITTA 2019 was effective from 27 March 2019. It
repealed the FITTA 1992 and aims to bring reform in the
regime of foreign investment in Nepal. Its main
provisions are:-
1. Applicability: The reading of the FITTA needs to be done
together with Public-Private Partnership and Investment
Act, Industrial Enterprises Act 2016 as well as Foreign
Exchange Regulation Act 1962.
2. Forms of foreign investment: This act considers the
following as foreign investment:
--Investment in shares of an industry;
--Investment through purchase of shares or asset;
 --Investment through lease of airlines, ships, machineries and
equipment;
 --Technology transfer i.e. licensing of foreign intellectual property,
franchising, management, advisory and market services;
 --Investment in capital investment funds;
 --Investment in secondary stock market;
 --Investment by issue of securities in foreign stock market; and
 --Re-investment of profits.
 3. Approvals requirement: This act requires that foreign investment
and technology transfer should be approved by the approving authority
(Department of Industry and Investment Board of Nepal). It also
provides for “automatic approval” and “single point service center.”
Automatic approval provision is not effective yet until further
notifications from the government.
 4. Minimum investment amount: The minimum investment has been
5. Repatriation of earnings: The FITTA allows investors to
repatriate dividends, profits, earnings, proceeds of sale of
shares and also, proceeds of liquidation and amounts
recovered from legal proceedings.
6. Obligations of investors: Investors have the obligations to:
-- Notify changes in ownership of holding company’s
shareholders and pay taxes applicable on change in
ownership;
-- Bring investment amount in the prescribed time period;
and
--Comply with the act, regulations, other laws, or any
conditions imposed when providing approval.
 7. Provision of visa: Business visa is available to the investor
and his/her family member, or one authorized representative of
the investor and his/her family member. Maximum of two
person and their family members can obtain business visas if the
investor is a company.
 Non-business visa, i.e. granted upon obtaining work permit, are
only available for high skilled and technical workers after
evidencing that equivalent workers are not available in Nepal
after undergoing a vacancy procedure.
 8. Sectors of investment: Investment is only allowed in sectors
classes as industries by the Industrial Enterprises Act 2016. The
sectors restricted for investment are:-
-Primary agriculture sectors such as fish farming, animal
husbandry, horticulture, milk business and others;
- Small and cottage enterprises;
 -- Personal service business such as tailoring, driving, barber
shop;
 -- Arms and ammunition industry;
 -- Buying and selling of land and houses( other than construction
industry);
 --Retail business;
 -- Remittance service;
 -- Local catering, travel agency, trekking agency, home stay, and
rural tourism;
 -- Mass-media business such as newspapers, radio, TV, and online
news;
 --Movies of national language;
 --Management, accounts, engineering and legal consulting
services, language training, music training, computer training, and
 --Other consulting services over 51% shareholding.
 Income Tax Act,2002
This act deals with the legal provisions of income tax
administration in the country. This act has abolished all tax
related provisions given in other acts and has broadened the
tax base. This acts seems to be more liberal than previous
income tax act of Nepal in respect of expenses deductions.
Special provisions are made for some specific expenses
( pollution control cost, research and development cost,
interest paid to the controlling entity) incurred by the tax
payer. It has provision of block base depreciation and set-off
and carry forward of losses. It has followed the both cash
and accrual basis of accounting. This act has followed a
full-fledged self-tax assessment system in practice with a
view to establish a tax payer friendly environment.
 Value Add Tax, 1995 (2052)
Objectives:

 To increase revenue mobilization by making effective

the process of collecting revenues.

 To collect value added tax (VAT) on all transactions

including the sale, distribution, delivery, importation,
exportation of goods or services.
 Value Added Tax Act
 Introduced VAT system in 1997, (2054) from November
16, 1997.
 The VAT Act replaced the existing Sales Tax, the
Contract Tax, the Hotel Tax and the Entertainment Tax.
 It is indirect tax since tax payer indirectly pays tax to
government.
 Provision
 Compulsory to all entities having annual transaction
exceeds Rs. 2 million.

 Optional for the entities having the annual transaction

less than Rs. 2 million.

 Should get Registration Number before starting the

business.

 Have
to pay the collected tax 25th day of the transacted
month.
 Value Added Tax Act
Other Provisions
 The single rate system of VAT is imposed. Previously the rate was 10%,but
later on it was raised to 13%.

 A taxpayer has to keep an up to date account of the transactions of the tax

period.

 VAT is collected by custom office. Each registered person or business firm

has to collect tax on the selling price.

 VAT is not charged on goods and services of basic needs, agriculture

products, social welfare service, medical services, live animal products,
public travelling services and transportation, vocational and professional
services, goods made for disabled persons, educational and cultural
 Responsibility of VAT Registered Entity
Have to maintain Purchase Book.

Have to maintain Sales Book.

Have to submit report every month.

Have to apply for the VAT return in the stipulated

time period if any.
Have to use only VAT bill.