Nepal’s new ordinance aims to attract investments and streamline business processes

KATHMANDU: The government has introduced measures to facilitate private companies in issuing shares at a premium price, exceeding their face value. This provision has been included in an ordinance amending 26 laws aimed at public service reform, improving the economic and business environment, and boosting investment.

President Ram Chandra Paudel issued four ordinances on Monday, following the Cabinet’s recommendation last Friday to revise these laws. The government claims these ordinances will enhance public services and attract more investment.

Through the ordinance, the Companies Act 2006 has been amended. “For private companies with assets exceeding liabilities, a special resolution passed by the general meeting will now suffice to issue shares at a premium price, removing the need for additional approval from the Office of the Company Registrar and audited financial statements for the past three years,” the ordinance states.

The ordinance also allows companies to issue or sell shares to founders or individuals through non-cash means. “If a company issues or sells shares or grants rights through non-cash methods, a special resolution passed by the general meeting is mandatory. Shares can also be issued or sold at a discount following this resolution,” the directive highlights.

To address delays in resolving disputes related to government contracts, the government has introduced a provision for expedited arbitration. The ordinance states that arbitration decisions will only be unenforceable if suspended by a court, ensuring smoother implementation of such decisions. Merely filing a petition to annul an arbitration decision will not suffice to halt its enforcement.

The ordinance also regulates sweat equity shares, enabling the issuance of such shares based on business goodwill and know-how. Start-ups can allocate up to 40% of their paid-up capital as sweat equity, while other companies can allocate up to 20%. Additionally, the rules governing the sale of employee shares have been clarified.

The registration and closure processes for companies have been simplified, with penalties for non-compliance reduced by up to 90%. Moreover, the procedure for company deregistration has been made more efficient.

The ordinance further extends benefits to service-oriented industries operating within Special Economic Zones (SEZs). Previously, only manufacturing industries could avail of export-like facilities when selling products to industries within SEZs. Now, service industries are also eligible for these benefits. Industries relocating to SEZs from outside areas will also receive tax concessions.

To maintain the balance in the Federal Consolidated Fund, the government has introduced provisions allowing surplus funds from other government funds established under existing laws to be partially or fully transferred to the Federal Consolidated Fund. These funds will be managed by the Office of the Auditor General.

“The details of these funds will be updated by the Auditor General’s Office. If deemed unnecessary, the government can dissolve such funds at any time,” the ordinance mentions. “For medium-term expenditure frameworks and budget formulation for the upcoming fiscal year, the Planning Commission must estimate the available resources and expenditure limits for the next three years by the end of January of the current fiscal year.”

A report on resource estimates and expenditure ceilings prepared by the Resource Estimation Committee must be submitted to the Finance Minister by mid-February each year. Based on this report, the government will prepare budget guidelines, incorporating budget ceilings, medium-term expenditure frameworks, and necessary allocations for multi-year projects of national pride.

The ordinance empowers the government to adjust, modify, or finalize the proposed budget and programs based on resource availability, expenditure requirements, and spending capacity. If significant changes are made to the budget or programs, the concerned account officer must be notified.

Furthermore, if a program cannot be implemented or if funds allocated to one activity need to be redirected to another within the approved program, the government has introduced provisions for program modifications based on the recommendations of the concerned ministry.

For ongoing projects receiving foreign grants or loans midway through the fiscal year, additional funds can be included without exceeding the total allocation for foreign assistance under the Appropriation Act. The ordinance emphasizes that project classification must consider total project costs, minimum annual allocation limits, and technical aspects. These parameters must be determined before the budget formulation calendar begins each fiscal year.