Nepal’s government has made a significant change to its business laws through a new ordinance, marking a turning point for startup companies in the country. The new law allows companies to give up to 40% of their shares to people who contribute ideas, expertise, or help build the company’s reputation – a concept known as ‘sweat equity.’
Before this important change, Nepal’s Companies Act only recognized monetary investments or physical assets like land when issuing company shares. This created a major problem for many startups, especially in the technology sector, where innovative ideas and technical expertise are often more valuable than money. Many talented entrepreneurs and workers couldn’t become part-owners of the companies they helped build simply because they contributed knowledge instead of cash.
The new ordinance brings several key changes:
First, companies can now issue shares based on various non-monetary contributions including:
- Innovative ideas and intellectual property
- Technical knowledge and expertise
- Services provided to the company
- Help in building the company’s reputation (goodwill)
- Special skills and know-how
- Value addition to the company
Second, the law creates two different levels of sweat equity sharing:
- Regular companies can issue up to 20% of their shares as sweat equity
- Startup companies can issue up to 40% of their shares
Third, the law now allows companies to pay their employees with shares instead of regular wages. This is a common practice in other countries, especially in the technology sector, where it helps new companies save money while giving employees the opportunity to become company owners.
The government has also simplified several business procedures. Companies no longer need special approval to issue shares at premium prices if their assets exceed their debts. Private companies converting to public companies face fewer regulatory hurdles. Additionally, the law now allows a person to be a director in multiple public companies with similar business goals, except in banking, finance, and insurance sectors.
To help inactive companies, the government is offering a 90% discount on fines for companies that haven’t submitted their required information. These companies now have two years to update their records. The law also makes it easier to close down companies that are no longer operating through a simplified deregistration process.
Government officials say these changes were necessary because Nepal’s startup environment was falling behind other countries. Many talented entrepreneurs were either losing control of their companies or having to shut down because they couldn’t give shares to key contributors. The new law aims to create a more supportive environment for startups and bring Nepal’s business practices closer to international standards.
These changes are particularly important for Nepal’s growing information technology sector, where many startups rely on technical expertise and innovative ideas more than traditional assets. The government hopes these reforms will encourage more entrepreneurs to start businesses and help existing startups grow more successfully.
Let’s learn 5 important business words from the article:
- Sweat Equity
- Meaning: Ownership in a company given in exchange for work or expertise instead of money
- Usage: Used when discussing non-monetary contributions to a business
- Example: “The programmer received sweat equity in the startup instead of a high salary.”
- Intellectual Property
- Meaning: Creations of the mind like inventions, designs, and ideas that can be legally owned
- Usage: Used when discussing valuable ideas or innovations
- Example: “The company’s main intellectual property was its unique software algorithm.”
- Goodwill
- Meaning: The reputation and good name of a business
- Usage: Used when discussing a company’s reputation value
- Example: “The restaurant’s excellent goodwill helped it survive during tough times.”
- Regulatory
- Meaning: Related to official rules and regulations
- Usage: Used when discussing government rules and business laws
- Example: “The bank had to follow strict regulatory requirements.”
- Premium Price
- Meaning: A price higher than the standard or normal price
- Usage: Used when something is sold above its usual market value
- Example: “The company’s shares sold at a premium price because investors believed in its future growth.”
