Increase of Share Capital in Nepal — Authorised, Issued & Paid-up Capital

Special Resolution of the General Meeting

and amendment of the relevant MOA/AOA provisions.

Increase Issued Capital Within Existing Authorised Capital

May be done through:

Ordinary Resolution of the General Meeting

under Section 56(5), provided the increase remains within the authorised capital.

Increase Paid-up Capital

Occurs when shareholders actually subscribe/pay for issued shares.

Do not use these three terms interchangeably.

Authorised Capital

Authorised capital is the maximum capital the company is presently authorised to issue under its constitutional documents.

Example: Authorised capital:

NPR 10,000,000

Issued capital: NPR 5,000,000

Paid-up capital: NPR 5,000,000

The company has room to issue another NPR 5,000,000 without first increasing authorised capital, subject to the proper issued-capital/allotment process.

Increase Authorised Capital

If the company wishes to issue shares beyond the existing authorised limit, it must first alter its capital structure under Section 56.

OCR states that the company should:

• comply with its Articles;

• pass a Special Resolution at the General Meeting;

• amend the relevant MOA/AOA capital provisions;

• pay registration fee on the increased authorised-capital difference.

Documents for Authorised Capital Increase

OCR currently lists documents including:

• company application/request;

• complete old/new capital wording;

• reason for amendment;

• certified General Meeting Special Resolution;

• amended MOA/AOA clauses signed by the required directors;

• relevant regulator recommendation/approval;

• registration fee on capital difference.

The exact CAMIS event should be used for the current company record.

Issued Capital Within Existing Authorised Capital

Suppose: Authorised capital:

NPR 20,000,000

Current issued capital: NPR 10,000,000

Company wants issued capital: NPR 15,000,000

No increase in authorised capital is needed.

Section 56(5) permits increase of issued capital within the authorised limit through:

Ordinary Resolution of the General Meeting.

The company must then follow the proper:

• rights/offer;

• subscription;

• allotment;

• Section 31 return;

• register/CAMIS

process.

Paid-up Capital

Paid-up capital reflects the amount actually paid against issued shares.

Example: Issued capital:

NPR 10,000,000

Amount actually paid: NPR 7,000,000

Paid-up capital: NPR 7,000,000

Do not report NPR 10 million as paid-up merely because shares were authorised or issued.

Capital should be supported by actual:

• bank receipts;

• subscription evidence;

• lawful non-cash consideration.

Existing Shareholders' Rights

When new shares are issued under Section 56, existing shareholders generally have first right in proportion to their existing shareholding.

They should ordinarily receive at least: 35 days

to subscribe or transfer their right, unless a statutory exception applies.

Capital increase should therefore not be used as a device to dilute existing shareholders without following the Companies Act.

Capital Increase vs Share Transfer

Example: A sells existing shares to B.

Company capital does not increase.

That is:

Share Transfer.

Company creates and allots additional shares to B.

Issued/paid-up capital increases.

That is:

Share Issue / Capital Increase.

This distinction is fundamental.

Foreign-invested Company

A company with foreign investment may require Department of Industry/other approval before changing:

• capital;

• ownership;

• foreign investment amount.

OCR currently identifies Department of Industry recommendation/approval among the documents required for capital changes of relevant foreign-investment companies.

NRB/foreign-exchange documentation may also be required for actual foreign-capital inflow.

Regulated Companies

Depending on the business, capital changes may require regulator approval.

Examples:

• banks/financial institutions;

• insurance;

• foreign employment;

• security services;

• other regulated industries.

OCR should not be treated as the only approval authority.

Public Company and Public Issue

Where a public company increases capital through a public securities issue, it must comply with:

• Companies Act;

• securities law;

• SEBON;

• prospectus/public-issue requirements.

Section 56 specifically requires the public company to follow both company and securities law when increasing capital by public issue.

Capital Cannot Be Increased by Revaluation Alone

Section 56 prohibits increasing share capital or issuing bonus shares merely by:

revaluation of company property

instead of using profit or reserves created from profit.

A property revaluation surplus should therefore not automatically be converted into share capital.

Accounting for Capital Increase

Example: Company issues:

30,000 shares

Face value: NPR 100

New paid-up capital: NPR 3,000,000

Accounting: Bank — Dr NPR 3,000,000
Share Capital — Cr NPR 3,000,000

Where shares are legally issued at premium:

the face value and premium should be accounted for separately according to the Companies Act/accounting framework.

Capital Increase Example

Current: Authorised capital = NPR 5,000,000
Issued capital = NPR 5,000,000

Company wants: Issued capital = NPR 8,000,000

Because current authorised capital is insufficient:

Step 1

Special Resolution: Increase authorised capital to at least NPR 8,000,000.

Step 2

Amend MOA/AOA and record with OCR.

Step 3

Pass appropriate issued-capital/share issue resolution.

Step 4

Offer shares according to shareholder rights.

Step 5

Receive subscription/payment.

Step 6

Allot shares.

Step 7

File Section 31 allotment details.

Step 8

Update CAMIS/shareholder register.

Capital Increase Checklist

• Check existing authorised capital

• Check issued capital

• Check paid-up capital

• Determine target capital

• Determine Special vs Ordinary Resolution

• Check AOA

• Check regulator approval

• Check foreign-investment approval

• Prepare old/new capital clause

• Pass General Meeting resolution

• File authorised-capital amendment

• Pay OCR registration fee

• Offer shares to existing shareholders

• observe 35-day period

• Receive subscription

• Allot shares

• File Section 31 return within 30 days

• Update shareholder register

• Update CAMIS

• Issue share certificates

• Reconcile bank and accounting records

Common Errors

Using Board Resolution alone to increase authorised capital

Confusing authorised, issued and paid-up capital

Recording paid-up capital without actual payment

Ignoring existing shareholder rights

Failing to file allotment details after capital increase

Increasing capital from asset revaluation

Ignoring foreign-investment/regulatory approval

Further guidance and practical checks

Capital increase is normally a two-layer exercise: first ensure sufficient authorised capital, then legally issue and allot the additional shares. Corporate records, banking evidence and CAMIS should all reconcile to the final capital structure.