Nepal proposes company law overhaul: 17 sectors to become public, Startups get 40% sweat equity

KATHMANDU: Nepal has proposed sweeping reforms to its corporate legal framework, requiring businesses operating in 17 strategic sectors to register as public companies while introducing startup-friendly provisions that would allow founders, innovators, and technical contributors to receive up to 40 percent of company ownership through sweat equity.

The provisions are included in a draft bill prepared to replace and modernize the country’s existing company law framework, marking one of the most significant corporate governance reforms in recent years.

The proposed legislation is expected to reshape Nepal’s investment landscape, strengthen corporate transparency, improve governance standards, and encourage innovation-driven entrepreneurship.

Public Company Structure Expanded to 17 Sectors

Under the existing Companies Act, 2006 (2063 BS), only seven categories of businesses are classified as “special businesses” and are therefore required to operate as public companies.

The proposed bill expands this requirement to 17 categories, adding ten new sectors that regulators consider strategically important to the economy and public interest.

The government argues that businesses operating in sectors involving large-scale public investment, financial risk, natural resources, infrastructure, or public services should maintain higher levels of disclosure, governance, and regulatory oversight.

Sectors Proposed for Mandatory Public Company Registration

The proposed mandatory public company structure would apply to:

• Banking and financial institutions
• Insurance businesses
• Securities trading companies
• Securities market operators
• Pension and retirement funds
• Mutual funds
• Telecommunications services
• Mining and mineral extraction businesses
• Portfolio and investment management companies
• Remittance service providers
• Commodity exchange operators
• Electricity generation, transmission, and distribution projects above 5 MW
• Businesses with foreign investment exceeding NPR 500 million
• Ropeway, cable car, and podway transportation operators
• Government-owned companies
• Credit rating agencies
• Other sectors designated by the Government of Nepal through future gazette notifications

Business analysts say the move could improve investor protection and corporate accountability, particularly in sectors with significant economic and public impact.

Startup Ecosystem Receives Major Boost

One of the most notable provisions in the draft legislation relates to startups and innovation-driven enterprises.

The bill introduces a formal framework for sweat equity shares, allowing companies to issue shares in exchange for services, expertise, intellectual property, technology, know-how, goodwill, and value-added contributions rather than cash investments.

For ordinary companies, sweat equity issuance would be limited to 20 percent of paid-up capital.

However, startups and innovation-based ventures would be permitted to allocate up to 40 percent of paid-up capital through sweat equity arrangements.

The provision is expected to benefit entrepreneurs who possess technical expertise and innovative ideas but lack access to significant capital.

Industry observers say the measure could strengthen Nepal’s startup ecosystem by helping founders attract skilled professionals, engineers, developers, researchers, and strategic partners through ownership incentives.

Government Companies Face New Market Discipline

The draft legislation also proposes significant changes to the governance of government-owned enterprises.

Federal, provincial, and local governments would receive explicit authority to establish government companies under the new framework.

The bill requires such companies to clearly define:

• Capital structures
• Founding shareholders
• Articles of association
• Responsible government officials

A major reform provision would require government-owned companies to issue shares to the public within two years of registration, introducing greater market discipline and public participation.

Corporate governance experts believe this provision could improve transparency and accountability within state-owned enterprises.

Public Conversion Required for Government-Linked Companies

The proposed legislation also targets companies with significant government participation.

Private companies in which federal, provincial, or local governments hold 25 percent or more ownership stakes would be required to convert into public companies.

Similarly, public enterprises and development committees could be transformed into companies through government decisions, with all assets, liabilities, rights, and obligations automatically transferred to the newly formed entities.

The measure is intended to standardize governance structures and create a more uniform regulatory framework across public-sector commercial entities.

Higher Paid-Up Capital Requirements

The draft bill also introduces stricter capital requirements for public companies.

Under the proposal:

• Listed companies must maintain a minimum paid-up capital of NPR 250 million
• Other public companies must maintain at least NPR 50 million

Companies currently operating below these thresholds would be given a two-year transition period to meet the new capital requirements.

Supporters argue that stronger capitalization requirements could enhance financial stability and investor confidence.

New Rules for Voluntary Liquidation

The proposed legislation would also tighten rules governing voluntary company closures.

Only companies that remain solvent and capable of meeting all debt obligations and liabilities would be permitted to enter voluntary liquidation proceedings.

The measure aims to strengthen creditor protection and prevent misuse of liquidation processes.

Implications for Nepal’s Business Environment

The proposed reforms reflect the government’s broader effort to modernize Nepal’s corporate sector, improve ease of doing business, strengthen investor protection, and encourage private-sector-led economic growth.

The startup provisions, particularly the expanded sweat equity framework, are expected to be welcomed by entrepreneurs and innovation-driven companies seeking alternative methods of attracting talent and investment.

At the same time, the expansion of mandatory public company requirements signals a push toward greater transparency, governance, and accountability in sectors considered critical to Nepal’s economic development.

If enacted, the legislation could have far-reaching implications for banks, financial institutions, infrastructure developers, foreign investors, startups, state-owned enterprises, and capital market participants.