A revised Companies Act soon to be tabled in Parliament includes a provision which will make it easier for private companies to permanently terminate their operation.

Companies which have been inoperational for years can shut down after paying a fee equivalent to 1 percent of their paid-up capital to the government, according to the amended law.

Other liabilities the companies may have towards the government have been waived. However, they need to clear all their liabilities towards their employees, creditors and other stakeholders and settle all applicable taxes before closing down.

The provision is being brought to give respite to the promoters of companies that have been defunct for years due to various reasons, Industry Minister Nabindra Raj Joshi said. The provision is being introduced as a scheme and it will last for a year from the day the act is endorsed by Parliament. 

According to the Office of the Company Registrar (OCR), around two-thirds of the companies registered with it are inoperative. “Only 50,000 of the around 150,000 companies registered with the OCR are in operation,” said Prem Kumar Shrestha, company registrar at the OCR. “So we are providing the exit option for around 100,000 companies that are not in operation.”   

Minister Joshi said the provision would be a milestone in the improvement of the business environment in the country. “We have been trying to foster an entrepreneurship culture in the country and urging youths to start their own ventures,” said Joshi.

“As we have been urging them to open new companies, it is the duty of the government to simplify paperwork regarding entry and exit. The entry process is already simplified, and this provision in the act will simplify the exit process too.” The Bill Committee of the Cabinet on Friday approved the proposed amendment to the Companies Act allowing it to be tabled in Parliament for its endorsement. “We will table the revised act in the House within this week,” said Joshi.

Meanwhile, the Industry Ministry has introduced a provision requiring companies to publish a notice of their intended termination in a national newspaper twice in order to get its approval to shut down permanently. Earlier, such notices needed to be published thrice.

Likewise, the revised act permits promoters to register a new company by submitting the required documents electronically. Moreover, board members will not be required to be physically present at the company’s annual general meeting, as per the amended act. If they are not able to attend the meeting in person, they can cast their vote using video conferencing.

The revised act has also limited the number of board members of any private company to 11.