When registering a Private Limited Company in Nepal (or any other jurisdiction), determining the appropriate Authorized Capital, Issued Capital, and Paid-up Capital is a crucial step. These figures influence legal compliance, financial credibility, and future fundraising capabilities. This guide explains:
- How much capital to declare in official documents?
- How to decide the right capital structure for your company?
1. How Much Capital to Show in Company Papers?
The capital structure of a company is reflected in its Memorandum of Association (MOA), Articles of Association (AOA), and financial statements. Here’s how to determine each component:
A. Authorized Capital (Maximum Potential Capital)
- This is the highest amount of capital a company can issue to shareholders.
- It does not need to be fully issued at the start but should account for future expansion.
- Higher Authorized Capital may increase registration fees in some jurisdictions (including Nepal).
How to Decide Authorized Capital?
- For small businesses: NPR 10–50 lakh (if no immediate expansion plans).
- For growth-oriented companies: NPR 1–5 crore (to avoid frequent legal amendments).
- For regulated industries (banking, insurance, hydropower): Follow legal minimums (e.g., NPR 500 crore for commercial banks in Nepal).
Example:
- A small retail store may set NPR 20 lakh as Authorized Capital.
- A tech startup expecting investor funding may set NPR 1 crore.
Documentation:
- Mentioned in the Memorandum of Association (MOA) during company registration.
B. Issued Capital (Shares Actually Allotted to Shareholders)
- This is the portion of Authorized Capital issued to shareholders.
- It should match the company’s immediate funding needs.
How to Decide Issued Capital?
- Calculate startup costs (equipment, salaries, rent, inventory).
- Ensure shareholders can subscribe to the shares.
Example:
- If a manufacturing firm needs NPR 50 lakh for machinery, it may issue NPR 50 lakh in shares.
Documentation:
- Recorded in share certificates and financial statements.
- Filed with the Office of the Company Registrar (OCR) in Nepal.
C. Paid-up Capital (Amount Actually Paid by Shareholders)
- This is the real money or assets shareholders have contributed.
- In Nepal, a minimum Paid-up Capital must be deposited in a bank before registration (though no strict legal minimum for Pvt. Ltd. companies).
How to Decide Paid-up Capital?
- Startups: NPR 1–10 lakh (if bootstrapped).
- Investor-backed firms: NPR 10–50 lakh (to show credibility).
- Banks & financial institutions: Follow regulatory minimums.
Example:
- A consultancy firm may have NPR 5 lakh Paid-up Capital.
- A construction company may require NPR 50 lakh.
Documentation:
- Verified via bank statements submitted to the OCR.
2. How to Decide the Right Capital for Your Company?
Choosing the right capital structure depends on:
A. Business Needs & Industry Standards
- Service-based businesses (IT, consultancy): Lower capital (NPR 5–20 lakh).
- Manufacturing/trading: Higher capital (NPR 50 lakh–5 crore).
- Regulated sectors (finance, healthcare): Follow legal minimums.
B. Future Expansion Plans
- If you plan to raise funds later, keep Authorized Capital higher.
- Example: A startup may keep NPR 1 crore Authorized Capital but issue only NPR 10 lakh initially.
C. Shareholders’ Financial Capacity
- Avoid issuing more shares than shareholders can pay.
- Example: If 4 founders can only invest NPR 5 lakh each, Issued Capital should not exceed NPR 20 lakh.
D. Legal & Tax Considerations
- Higher Authorized Capital = Higher registration fees in Nepal.
- Paid-up Capital affects loan eligibility (banks prefer companies with higher capital).
E. Investor & Banking Requirements
- Investors look for sufficient Paid-up Capital (NPR 10 lakh+ for credibility).
- Banks may require minimum capital for business loans.
Practical Example: IT Company in Nepal
- Business Type: Software development.
- Initial Costs: NPR 30 lakh (laptops, office rent, salaries).
- Future Plans: Expansion in 2 years.
Capital Structure Decision:
- Authorized Capital: NPR 1 crore (for future fundraising).
- Issued Capital: NPR 30 lakh (to cover initial costs).
- Paid-up Capital: NPR 20 lakh (deposited in bank, remaining callable later).
Key Takeaways
✔ Authorized Capital = Future growth buffer (set higher if expecting investors).
✔ Issued Capital = Matches immediate funding needs.
✔ Paid-up Capital = Actual money available (meet legal/bank requirements).
✔ Industry norms & shareholder capacity matter in decision-making.
✔ Consult a CA/lawyer for compliance and tax optimization.
By carefully structuring your company’s capital, you ensure legal compliance, financial flexibility, and investor confidence. Always align capital decisions with business needs and growth plans.
