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Date of Notification: 13 January 2025

Issuing Authority: Ministry of Law, Justice and Parliamentary Affairs

The Government of Nepal has issued the Ordinance Amending Various Acts Related to Improvement of Economic and Business Environment, and Enhancement of Investment, dated 13 January 2025 (“Ordinance”), introducing significant amendments to the Companies Act, 2006. One of the key changes brought by this Ordinance is the formal inclusion of sweat equity provisions under Section 18 of the Companies Act.

Sweat equity enables companies to allot shares to individuals in return for their services, expertise, or intellectual contributions instead of monetary investment. For example, a software developer may receive equity for creating a proprietary system, or a consultant may be rewarded with shares for strategic input.

Previously, Section 18(3) allowed only for non-cash share acquisition by promoters or others, but solely under valuation by certified engineers or accountants in case of public companies. The new provisions broaden the possibilities for issuing shares based on non-cash contributions.

Key Changes Under the New Provisions:

I. Rights to Issue Shares After Incorporation

The amendment empowers companies to issue, allot, or allow the acquisition of shares through non-cash consideration even after the company has been established (Section 18(3A)).

II. Requirement of Special Resolution

To issue shares for non-cash consideration, a special resolution must be passed in the company’s general meeting. This resolution can also authorize share issuance at a discounted price (Section 18(3B)).

III. Broadened Categories of Non-Cash Consideration

The amendment officially recognizes the following forms of non-cash consideration for share issuance:

• Intellectual property;

• Value addition or enhancement;

• Services rendered;

• Goodwill or business reputation;

• Technical know-how;

• Specialized technical knowledge.

The valuation of such contributions must be done by certified engineers or professional accountants using a fair and reasonable assessment method (Section 18(3C)).

IV. Shares for Employees

Companies can now allocate shares to employees in exchange for salary, benefits, or allowances as long as a written agreement exists between the company and the employee (Section 18(3D)). This provision also gives formal recognition to Employee Stock Option Plans (ESOPs).

For further information on ESOPs, see: “Nepal Recognizes Employee Stock Option Plan (ESOP) under Companies Act.”

V. Limits on Sweat Equity Issuance

The amendment sets issuance caps for sweat equity as follows:

• General companies may issue sweat equity up to 20% of their paid-up capital;

Start-up enterprises, however, can issue up to 40% of their paid-up capital (Section 18(3E)).