Are you an aspiring entrepreneur, ready to take your business idea from a dream to reality?
Formalizing your business is a crucial step towards establishing a legal and solid foundation for your venture. With a formalized business, you have a strong platform for growth and expansion. You have more flexibility to develop your operations, explore new markets, and draw in prospective business partners that prefer doing business with well-known, respectable organizations.
In simple terms, here are the key formalities to complete:
- Business registration
- Bookkeeping
- Tax registration
- Formalities related to social security
- Labor regulations and decent work
- Taking into account specific requirements
This blog will walk you through the step-by-step process to formalize your business. Let’s dive right in!
Step 1: Determine your business type and structure
The first step in formalizing your business is to determine its type and structure. There are four main types of businesses in Nepal:
- Sole proprietorships: Sole proprietorships are the most common type of business. They don’t require any unique permits or licenses and are simple to set up. However, because sole proprietorships do not provide personal liability insurance, you may be responsible for any debts or legal actions brought against your company.
- Partnerships: Similar to sole proprietorships, partnerships consist of two or more people. There are two types of partnerships: limited partnerships (LP) and limited liability partnerships (LLP).
- Limited liability companies (LLCs): LLCs are a more formal type of business than sole proprietorships or partnerships. LLCs shield their owners from being held personally liable for the firm’s obligations. However, setting up an LLC can be more complicated and expensive than setting up a sole proprietorship or partnership.
- Corporations: Corporations are the most formal type of business entity, which gives them an independent legal status from their owners. It can make a profit, be taxed, and be held legally liable.
Each structure has its own unique operational and legal implications. You can choose the structure that supports your business objectives and proceed.
Step 2: Register Your Business Name
Your business name is an important part of your brand identity. It should be unique and reflect your business’s values, mission, and vision.
Once you’ve chosen a name for your business, you can move on to the next step, i.e., registering your business.
You can register your business name at the Office of The Company Registrar.
The legal recognition and protection of your company name are ensured by this registration. To confirm that the provided business name is available, the CRO will run a name search. After being accepted, you can continue with the registration procedure.
Step 3: Register with the tax authority
The third step in formalizing your business is to register with the Tax Authority. This can be done online through the e-Registration System or by visiting the nearest Inland Revenue Office.
A Permanent Account Number (PAN) must be obtained from the Inland Revenue Department (IRD). PAN registration is important for paying taxes, filing tax returns, and conducting financial transactions.
Some businesses may require to register in the VAT as well. You can get this done as well at the IRD.
You can apply for registration and get more information here: https://taxpayerportal.ird.gov.np/taxpayer/app.html
Step 4: Obtain a license from the Department of Industry
Another step in formalizing your business is to obtain a license from the Department of Industry. The Department of Industry issues licenses for businesses engaged in manufacturing, trading, and service industries.
The Office of Cottage and Small Industries is responsible for registering micro, cottage, and small businesses.
To obtain a license, you must submit an application form along with the required documents. If your application is approved, you will be issued a license.
Step 5: Obtain permits and certificates necessary for your business
Obtaining permits and certificates are the final steps to formalizing your business.
Depending on the type of business, there may be different procedures and standards. For example, you may need trade licenses, tax registration, VAT registration, industry-specific permits, or other regulatory clearances. Thus, it is crucial to make sure you comply with all applicable laws.
Once you have obtained all the necessary permits and certificates, you will be ready to start operating your business.
In addition, depending on your industry, location, and specific circumstances, the formalization process may require additional steps. Therefore, it’s advisable to consult with legal and business professionals to ensure you meet all necessary obligations.
