CHAPTER 3 :LEGAL ISSUES FOR

ENTREPRENEURIAL DEVELOPMENT
 LEGAL ENVIRONMENT
Concept: The legal environment is the set of laws, rules, and regulations that
govern how businesses, individuals, and organizations operate.
Significance: It ensures fairness, protects rights, and creates a stable
environment for businesses and society.
“It’s the "rulebook" for how everyone operates legally!”
 ENTREPRENEURSHIP REGISTRATION IN NEPAL

 Selection of Business → Choose the type and nature of business.

 Company Name Reservation → Reserve a unique name with the Office of
Company Registrar (OCR).
 Business Registration → Register the business with OCR or relevant
authority.
 Obtaining PAN/VAT Number → Get a Permanent Account Number (PAN) and
VAT registration from the Inland Revenue Department.
 Industry-Specific License & Permit → Acquire necessary industry-related
approvals.
 Social Security Fund (SSF) Registration → Register with the SSF for
employee benefits.
 Business Operation Permit → Get permission from the local municipality or
ward office.
 TYPES OF BUSINESS ENTERPRISES
 SOLE PROPEITORSHIP
 PARTNERSHIP FIRM
 JOINT STOCK COMPANY
 SOLE PROPRIETORSHIP
CONCEPT:
A sole proprietorship is the simplest and most common form of business
ownership. It is owned and operated by one individual, with no legal distinction
between the owner and the business. It’s a "one-person show" – simple to start, but
the owner takes all the risks and rewards!
KEY FEATURES:
 Single Owner: One person owns and runs the business.
 No Legal Separation: The business and owner are the same in the eyes of the law.
 Easy to Start: Minimal paperwork and low startup costs.
 Full Control: The owner makes all decisions and keeps all profits.
 Unlimited Liability: The owner is personally responsible for all debts and legal
issues.
ADVANTAGES:
 Simple and inexpensive to set up.
 Complete control over business decisions.
 All profits go directly to the owner.
  Direct relation with customers
SOLE PROPRIETORSHIP

DISADVANTAGES:
 Owner bears all risks and liabilities(unlimited liability) .
 Hard to raise funds or get loans.
 Business ends if the owner dies or steps away.
 Challenges regarding growth

EXAMPLE: A freelance graphic designer, a local bakery owner, or a plumber

running their own business are all examples of sole proprietorships.(NOT
SUITABLE FOR MNCs
 SOLE PROPRIETORSHIP
PROCESS OF REGISTRATION:
1. Choose a business name
2. Obtain a business location
3. Register with department of industry(DOI)
4. Register at inland revenue department(IRD) for PAN/VAT number
5. Register for local business license
6. Obtain a labor license
7. Social security funs(SSF) registration
 PARTNERSHIP FIRM
CONCEPT
A partnership firm is a type of business structure where two or more individuals
(or entities) come together to run a business and share its profits, losses, and
responsibilities. It’s a step up from a sole proprietorship and is governed by
a partnership agreement.
KEY FEATURES
Ownership: Two or more partners own the business.
Agreement: Partners sign a partnership deed outlining roles, profit-sharing, and
responsibilities.
Liability: Partners have unlimited liability, meaning personal assets can be used
to pay business debts.
Decision-Making: Partners share control and decision-making.
Profit Sharing: Profits (and losses) are shared as per the partnership agreement.
 Decision-Making: Partners share control and decision-making.
Profit Sharing: Profits (and losses) are shared as per the partnership agreement.

PARTNERSHIP FIRM

ADVANTAGES:
 Easy to form with minimal legal formalities.
 More resources and skills due to multiple partners.
 Shared responsibilities and workload
 Lower tax
DISADVANTAGES:
 Unlimited liability.
 Disputes between partners can arise.
 Decisions require mutual agreement, which can slow things down
 Shared profit
  Shared profit

PARTNERSHIP FIRM

TYPES OF PARTNERS
1. Active Partner (Working Partner):
 Role: Manages the day-to-day operations of the business.
 Liability: Has unlimited liability (personally responsible for business debts).
 Profit Sharing: Shares profits as per the partnership agreement.
 Example: A partner who handles client meetings, operations, or finances.

2. Sleeping Partner (Dormant Partner):

 Role: Invests capital but does not participate in managing the business.

 Liability: Has unlimited liability.

 Profit Sharing: Shares profits but stays inactive in operations.
  Profit Sharing: Shares profits but stays inactive in operations.
 Example: A silent investor who provides funds but doesn’t get involved in daily activities.

PARTNERSHIP FIRM
3. Limited Partner:
 Role: Contributes capital but has no role in management.

 Liability: Limited liability (only liable up to their investment).

 Profit Sharing: Shares profits as per the agreement.
 Example: Found in Limited Liability Partnerships (LLPs), where partners are not personally liable for
business debts.
4. Nominal Partner:
 Role: Does not invest capital or share profits but lends their name or reputation to the business.

 Liability: May have unlimited liability if they represent themselves as partners.

 Example: A celebrity endorsing a business without being actively involved.
 PARTNERSHIP FIRM
5. Partner by Estoppel:
 Role: Someone who is not officially a partner but behaves like one (e.g., represents themselves as a partner).

 Liability: Can be held liable to third parties who rely on their representation.
 Example: A person who introduces themselves as a partner to secure a deal.

6. Secret Partner:
 Role: Actively involved in the business but their partnership is not disclosed to the public.

 Liability: Has unlimited liability.

 Example: A partner who works behind the scenes without public knowledge.

7. liability partner:
 Role: this person carries over the larger portion of the liabilities of the business

 Liability: Has most liability depending on the agreement.

 Example: A partner who shares profits as per the agreement but takes big involvement in financial
responsibility.
 PARTNERSHIP FIRM

8. Partner in Profits Only:

 Role: Shares only in the profits of the business, not in losses.

 Liability: May have limited liability depending on the agreement.

 Example: A partner who receives a share of profits in exchange for providing resources or
connections.

Partners can be active (working), sleeping (inactive), limited (low risk), or even nominal (just a
name). Each type has different roles and levels of responsibility!
 JOINT STOCK COMPANY
CONCEPT
A joint stock company is a type of business organization where the capital is divided
into shares (or stock), and ownership is distributed among shareholders. It is a
separate legal entity, meaning it can own assets, incur liabilities, and enter into
contracts independently of its owners. Joint stock companies are commonly used for
large-scale businesses and are often publicly traded on stock exchanges.
KEY FEATURES:
1. Separate Legal Entity: The company is distinct from its shareholders. It can
sue, be sued, and own property in its own name.
2. Limited Liability: Shareholders are only liable for the amount they invested in
the company. Their personal assets are not at risk.
3. Transferable Shares: Shares can be bought and sold freely (in public
companies) without affecting the company’s operations.
4. Perpetual Existence: The company continues to exist even if shareholders
change or pass away.
5. Large Capital: Can raise significant funds by issuing shares to the public.
6. Management by Board of Directors: The company is managed by a board of
directors elected by shareholders.
 JOINT STOCK COMPANY

TYPES:
 Public Limited Company (PLC):
• Shares are traded publicly on stock exchanges.
• No restriction in number of share holders
• Example: Apple, Microsoft, or Reliance Industries.
 Private Limited Company (Ltd):
• Shares are not publicly traded and are held by a small group of individuals.
• Limited number of share holders(usually up to 50)
• Example: A family-owned business or startup.

ADVANTAGES:
 Limited liability protects shareholders’ personal assets.
 Ability to raise large amounts of capital by selling shares.
 Perpetual existence ensures business continuity.
 JOINT STOCK COMPANY

DISADVANTAGES:
 Complex and expensive to set up and maintain.
 Subject to strict government regulations and compliance requirements.
 Shareholders have limited control over day-to-day operations.
 Risk of hostile takeovers (for public companies).

PROCESS OF REGISTERATION:
1. Choose the type of company
2. Name reservation
3. Prepare documents
4. Submit application
5. Certificate of incorporation
6. Tax registration
7. Obtain necessary license
 TRUST
CONCEPT:
A trust is a legal arrangement where one party (the trustor or settlor) transfers assets or
property to a second party (the trustee) to manage for the benefit of a third party (the
beneficiary). Trusts are commonly used for estate planning, asset protection, and charitable
purposes. A trust is like a "safety box" where assets are placed, managed by a trustee, and
distributed to beneficiaries according to the trustor’s wishes. It’s a powerful tool for protecting
and managing wealth!
TYPES OF TRUST
1. Revocable Trust: Can be changed or canceled by the trustor; flexible for estate
planning.
2. Irrevocable Trust: Permanent; offers asset protection and tax benefits.
3. Testamentary Trust: Created in a will; takes effect after death.
4. Charitable Trust: Benefits charities; provides tax deductions.
5. Special Needs Trust: Supports disabled individuals without affecting
government benefits.
 6. Family Trust: Manages wealth for family members across generations.
7. Business Trust: Holds and manages business assets for investment or
operations. TRUST

ADVANTAGES OF TRUST
 Estate Planning: Avoids probate, ensuring faster and private distribution of
assets.
 Asset Protection: Protects assets from creditors or legal disputes.
 Tax Benefits: Can reduce estate or inheritance taxes.
 Control: Allows the trustor to specify how and when assets are distributed.
 Charitable Goals: Facilitates donations to charitable causes.
DISADVANTAGES OF TRUST
 Cost: Setting up and maintaining a trust can be expensive.
 Complexity: Requires legal expertise to draft and manage.
 Irrevocability: Some trusts cannot be changed once established.
 Intellectual property
CONCEPT:
Intellectual Property (IP) refers to creations of the mind, such as inventions, artistic works, designs,
symbols, names, and images, which are protected by law. IP gives creators exclusive rights to their
work, allowing them to benefit financially and control how their creations are used. Intellectual
property is like a "legal shield" for ideas and creations, ensuring creators get credit and profit for
their work!
TYPES OF IP:
 Patents:
• Protect inventions (e.g., new products, processes, or technologies).

• Gives the inventor exclusive rights for a limited period (usually 20 years).

• Example: A new smartphone technology or a pharmaceutical drug.

 Trademarks:
• Protect brand identities, such as logos, names, slogans, or symbols.

• Helps distinguish a company’s goods or services from others.

• Example: The Nike "Swoosh" logo or the Coca-Cola brand name.

 Copyrights:
  Copyrights: Intellectual property
• Protect original artistic and literary works, such as books, music, films, and software.

• Gives the creator exclusive rights to reproduce, distribute, and display their work.

• Example: J.K. Rowling’s rights to the Harry Potter series.

 Trade Secrets:
• Protect confidential business information that provides a competitive edge.

• No formal registration is required, but it must be kept secret.

• Example: The Coca-Cola recipe or Google’s search algorithm.

 Industrial Designs:
• Protect the visual design of a product (e.g., shape, pattern, or color).

• Example: The unique design of an iPhone or a luxury car.

EXAMPLE:
 Patent: Thomas Edison’s patent for the electric light bulb.
 Trademark: The Apple logo for Apple Inc.
 Copyright: The copyright protection for the movie "Avatar."
 Trade Secret: KFC’s secret blend of 11 herbs and spices.
REGISTRATION PROCESS OF INTELLECTUAL PROPERTY

1. Conduct a patent 1. Conduct a 1. Prepare details of 1. Identify and 1. Prepare design

search to ensure trademark search. the creative work classify trade secrets. drawings and
novelty. 2. File an application (literary, artistic, 2. Implement security descriptions.
2. File a patent with the trademark musical, etc.). measures (NDAs, 2. Conduct a novelty
application with the registry. 2. File a copyright access controls). search.
patent office. 3. Examination by application with the 3. Register under 3. File an application
3. Undergo the registry. copyright office. trade secret with the design
examination and 4. Publication for 3. Examination and protection laws (if registration office.
review. public objection. approval. applicable in certain 4. Examination and
4. Respond to 4. Issuance of a jurisdictions). publication.
5. Registration and
objections or office renewal every 10 copyright certificate. 4. Maintain secrecy 5. Registration and
actions. years. through internal renewal as required.
5. Grant and policies.
maintenance of the
patent.
 TRADE PRACTICES IN NEPAL
 Concept:
 Methods and behaviors that are used by companies and individuals to buy, sell,
promote, and distribute goods and services to market. It is governed by the law
ensuring fair trade.
 KEY FEATURES
 Fair competition
 Consumer protection
 Anti-competitive practices
 Intellectual property protection
 Pricing transparency
 TAXATION IN NEPAL
Nepal's taxation system is governed by the Income Tax Act 2002, the Value Added Tax (VAT) Act 1996, and
other related laws. The tax system includes direct and indirect taxes levied by the federal, provincial, and
local governments.
TYPES OF TAXES IN NEPAL
 Direct tax: Direct tax is levied directly on individuals, businesses, and organizations based on their
income, profits, or assets. It is non-transferable and must be paid by the taxpayer directly to the
government. For example: income tax, corporate tax, capital gain tax.
 Indirect tax: Indirect taxes are levied on goods and services rather than directly on income. These taxes
are collected by businesses and passed on to the government, ultimately being paid by consumers. For
example: VAT, custom duty, local taxes, excise duty.
CHALLENGES IN TAXATION:
 Tax Evasion and Informal Economy
 Complex Tax System
 Low Tax Compliance
 Limited Tax Base
 Corruption
 Dependence on Remittances
 Weak Tax Administration
 PRODUCT SAFETY AND LIABLITY IN NEPAL
Product safety and liability are crucial aspects of consumer protection and business
regulation in Nepal. While there are laws and regulations in place to address these
issues, challenges remain in ensuring effective enforcement, consumer awareness, and
corporate accountability.
IMPORTANCE OF PRODUCT SAFETY AND LIABLITY IN NEPAL
 Consumer Protection
 Encouraging Ethical Business Practices
 Positive Economic Impact
 Controls market quality and safety
 Consumer Education and Awareness
 Promoting Sustainable Development
 Increases export opportunities
 INSURANCE IN NEPAL
Insurance in Nepal is an important sector that provides financial security against various
risks such as health, life, property, and business-related risks. While the insurance
industry has grown over the years, it still faces certain challenges and opportunities for
development.
TYPES OF INSURANCE
 Life insurance
 Health insurance
 Motor insurance
 Property insurance
 Travel insurance
 Business insurance
 CONTRACTS IN NEPAL
Contracts play a vital role in business and personal transactions in Nepal. A contract is a legally binding
agreement between two or more parties that outlines the terms and conditions of their mutual
obligations. The Contract Act, 2056 (2000) is the primary legislation governing contracts in Nepal.
Here's an overview of contracts in Nepal, including types, elements, and legal considerations.
KEY ELEMENTS:
 Offer
 Acceptance
 Consideration
 Intention to create legal relations
 Capacity to contract
 Legality of the purpose
TYPES OF CONTRACT
 Bilateral contract
 Unilateral contract
 Executed and executory contract
 Void and voidable contract