Partnership Firm in Nepal: Registration, Types, Deed & Legal Guide (2026)

A partnership firm remains one of the most popular business structures in Nepal, particularly for small and medium enterprises run by two or more people who want to share capital, skills, and profits without the regulatory burden of incorporating a company. Whether you are two friends launching a trading business or a group of professionals setting up a consultancy, the Partnership Act 2020 BS (1964 AD) provides the legal framework that governs how your firm is formed, operated, and -- if necessary -- dissolved.

Despite being governed by one of Nepal's oldest commercial statutes, partnership firms continue to thrive because of their simplicity, flexibility, and minimal compliance requirements compared to company registration in Nepal. This guide covers every aspect of forming a partnership firm in Nepal -- types of partnerships, the registration process, what your partnership deed must include, partner rights and duties, tax obligations, liability rules, and the dissolution process under current law.

What Is a Partnership Firm?

A partnership firm (Sajhedari Firma, साझेदारी फर्म) is a business arrangement where two or more individuals agree to share the profits and losses of a business carried on by all or any of them acting for all. Under the Partnership Act 2020 BS, a partnership is defined as the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

Key characteristics of a partnership firm in Nepal include:

• Agreement-based: A partnership arises from a contract, not from status (unlike a Hindu Undivided Family business)
• Minimum 2 partners: You cannot form a partnership alone -- that would be a sole proprietorship
• Maximum 20 partners: Firms exceeding this limit must register as a company under the Companies Act 2063
• Mutual agency: Every partner is both a principal and an agent of the firm and other partners
• Profit sharing: Partners share profits (and losses) in agreed ratios
• No separate legal entity: A general partnership firm is not a separate legal person distinct from its partners (unlike a private limited company)

Types of Partnership in Nepal

Nepal recognizes two main types of partnership under the Partnership Act 2020 BS and related commercial laws. Understanding the distinction is critical because it determines partner liability, management rights, and regulatory requirements.

General Partnership

In a general partnership, all partners share management responsibilities and bear unlimited joint and several liability for the firm's debts and obligations. This means that if the firm cannot pay its debts, creditors can pursue any individual partner's personal assets -- including property, bank accounts, and other holdings. Each partner acts as an agent of the firm, and any partner's actions within the scope of the business bind all other partners.

Limited Partnership

A limited partnership allows certain partners to limit their liability to the amount of capital they have contributed to the firm. However, at least one partner must remain a general partner with unlimited liability. Limited partners (Seemit Sajhedar) cannot participate in the day-to-day management of the firm -- if they do, they lose their limited liability protection under the law.

Limited partnerships are less common in Nepal than general partnerships but are useful when one party provides capital (the limited partner or investor) while the other manages operations (the general partner).

Partnership Act 2020 BS: Legal Framework

The Partnership Act 2020 BS (1964 AD) is the primary statute governing partnership firms in Nepal. Despite its age, it remains in force and provides the foundational rules for partnership formation, operation, and dissolution.

Key provisions of the Act include:

• Section 3: Definition of partnership -- an agreement between two or more persons to carry on a business and share its profits
• Section 5: Partnership deed requirements and contents
• Section 7: Registration of partnership firms
• Section 10: Rights and duties of partners
• Section 14: Implied authority of partners to bind the firm
• Section 20: Liability of partners for acts of the firm
• Section 25: Dissolution of partnership
• Section 28: Distribution of assets upon dissolution

The Act is supplemented by provisions in the Contract Act 2056 BS (2000 AD) for general contractual matters and the Income Tax Act 2058 BS (2002 AD) for taxation of partnership income. For firms involving foreign investment, the Foreign Investment and Technology Transfer Act 2075 BS (2019 AD) also applies.

How to Register a Partnership Firm in Nepal

While registration of a general partnership is technically optional under the Partnership Act 2020 BS, it is strongly recommended because an unregistered firm cannot file a lawsuit against third parties to enforce its rights. In practice, banks, tax authorities, and government agencies require proof of firm registration for most business transactions.

Registration Authority

Partnership firms in Nepal register at:

• Office of Company Registrar (OCR) -- for firms operating at a national level or with significant capital
• District Administration Office (DAO) -- for smaller, locally operating firms
• Department of Industry (DOI) -- if the partnership involves industrial activities requiring an industrial license

Step-by-Step Registration Process

The registration process for a partnership firm in Nepal follows these steps:

1. Draft the Partnership Deed: Prepare a comprehensive written agreement (Sajhedari Karar Patra) signed by all partners on NPR 100 stamp paper. The deed must cover all essential terms (see next section for details).
2. Choose a Firm Name: Select a unique name that does not conflict with existing registered firms. Check name availability at the OCR or DAO.
3. Prepare Required Documents: Gather citizenship certificates, photographs, and other documents for all partners (listed below).
4. Submit Application: File the registration application at the relevant authority with the partnership deed, supporting documents, and prescribed fee.
5. Verification and Approval: The registering authority verifies documents and approves registration, typically within 7-15 working days.
6. Obtain Registration Certificate: Collect the firm registration certificate (Firma Darta Praman Patra).
7. PAN Registration: Apply for a PAN card at the Inland Revenue Department within 30 days of registration.
8. VAT Registration (if applicable): If annual turnover is expected to exceed NPR 50 lakhs for goods or NPR 20 lakhs for services, register for VAT.

Documents Required for Registration

Registration Fees

Government fees for registering a partnership firm are modest compared to company registration:

• DAO registration: NPR 500 to NPR 1,000 depending on the district
• OCR registration: NPR 1,000 to NPR 5,000 depending on authorized capital
• Stamp paper for deed: NPR 100
• Legal drafting fees: NPR 5,000 to NPR 25,000 (if using a lawyer)

Partnership Deed: What It Must Include

The partnership deed (Sajhedari Karar Patra, साझेदारी करार पत्र) is the most important document in any partnership. It is the written contract that defines the rights, duties, and obligations of each partner and governs the firm's operations. Under Section 5 of the Partnership Act 2020 BS, a partnership deed must be in writing and signed by all partners.

Essential Clauses in a Partnership Deed

A comprehensive partnership deed should include the following clauses:

1. Name and Address of the Firm: The registered name of the partnership and its principal place of business
2. Names and Addresses of All Partners: Full legal names, citizenship numbers, and permanent addresses
3. Nature of Business: The specific business activities the firm will engage in
4. Date of Commencement: When the partnership begins operating
5. Duration of Partnership: Whether for a fixed term or at-will (until dissolved)
6. Capital Contribution: The exact amount each partner contributes in cash, property, or services
7. Profit and Loss Sharing Ratio: The percentage or ratio in which profits and losses are distributed
8. Drawings and Salary: Whether partners may draw regular salary, interest on capital, or periodic withdrawals
9. Management Responsibilities: Which partners handle day-to-day operations and decision-making authority
10. Banking Arrangements: Who operates bank accounts and signing authority
11. Admission of New Partners: The process and conditions for admitting new partners
12. Retirement and Expulsion: How a partner may retire or be expelled, including notice periods
13. Dispute Resolution: Arbitration or mediation mechanism for resolving internal disputes
14. Death or Incapacity: What happens to a deceased partner's share and whether heirs can join
15. Dissolution Clause: Conditions under which the firm may be dissolved
16. Non-Compete Clause: Restrictions on partners engaging in competing businesses

If the deed is silent on profit-sharing, the law presumes partners share equally. It is therefore essential to specify exact ratios to avoid disputes. Our legal team regularly drafts partnership deeds tailored to Nepali law -- contact us for professional deed drafting services.

Partner Rights and Duties

The Partnership Act 2020 BS, supplemented by the Contract Act 2056 BS, establishes a framework of rights and duties that govern the relationship between partners. These apply unless the partnership deed provides otherwise.

Rights of Partners

• Right to participate in management: Every general partner has an equal right to take part in the conduct of the firm's business (Section 10)
• Right to share profits: Partners are entitled to share profits in the agreed ratio, or equally if no ratio is specified
• Right to access books: Every partner may inspect and copy the firm's books of account at any time
• Right to be consulted: No major decision (changing the nature of business, admitting a new partner, taking loans beyond a limit) can be made without consent of all partners
• Right to interest on capital: If agreed in the deed, partners earn interest on their capital contributions
• Right to indemnity: A partner acting within authority is entitled to be indemnified by the firm for losses incurred in the ordinary course of business

Duties of Partners

• Duty of good faith: Partners must act in utmost good faith (uberrima fides) toward each other and the firm
• Duty to account: A partner must account for any private profit derived from the firm's business or property
• Duty not to compete: Partners must not carry on a competing business without the consent of all other partners
• Duty of care: Partners must exercise reasonable care and diligence in managing the firm's affairs
• Duty to share losses: Partners must bear losses in the same ratio as profits unless the deed specifies otherwise
• Duty to indemnify: A partner must indemnify the firm for any loss caused by willful neglect or fraud

Tax Obligations for Partnership Firms

Partnership firms in Nepal are subject to various tax obligations under the Income Tax Act 2058 BS (2002 AD). Understanding these obligations is essential for compliance and avoiding penalties.

Income Tax

Under the Income Tax Act 2058, a partnership firm is treated as a separate tax entity. The firm itself pays tax on its income, and the partners' shares of profit are not taxed again at the individual level (to avoid double taxation). Key tax rates for partnership firms:

PAN and VAT Requirements

Every partnership firm must obtain a Permanent Account Number (PAN) from the Inland Revenue Department (IRD) within 30 days of registration. If the firm's annual turnover exceeds the VAT threshold, VAT registration is also mandatory. Failure to register for PAN or VAT within the prescribed time attracts penalties under the Revenue Administration Act 2052 BS.

Annual Tax Filing

Partnership firms must file an annual income tax return within 3 months of the end of the fiscal year (by Ashoj end, typically mid-October). Firms with annual turnover exceeding NPR 1 crore must also submit an audited financial statement. Tax clearance certificates may be required for government tenders and contracts -- you can learn more in our guide to tax clearance certificates in Nepal.

Liability of Partners

Understanding partner liability is perhaps the most critical aspect of choosing a partnership structure. The liability framework differs significantly between general and limited partnerships.

Joint and Several Liability in General Partnership

Under Section 20 of the Partnership Act 2020 BS, all partners in a general partnership are jointly and severally liable (Sanyukta ra Vyaktigat Dayitva) for all acts of the firm done while they are partners. This means:

• Creditors can pursue any one partner for the entire debt of the firm, not just that partner's share
• A partner's personal assets -- including land, house, bank deposits, and other property -- can be seized to satisfy the firm's debts
• Liability extends to contracts, torts, and other obligations entered into by any partner acting within the scope of the firm's business
• A new partner joining an existing firm is not liable for debts incurred before their admission (unless they specifically agree)
• A retiring partner remains liable for debts incurred before retirement unless creditors agree to release them

Limited Liability Protection

In a limited partnership, limited partners enjoy liability protection -- they can only lose the amount they have invested in the firm. However, this protection is lost if a limited partner:

• Participates in the management of the firm
• Allows their name to be used in the firm's name
• Fails to properly register the partnership as a limited partnership

Criminal Liability

Partners may also face criminal liability under the National Criminal Code 2074 BS if the firm's activities involve fraud, tax evasion, money laundering, or other criminal offenses. Criminal liability is personal and cannot be limited by the partnership deed.

Partnership vs. Other Business Structures

Choosing the right business structure is a fundamental decision. Here is how a partnership firm compares with other options available in Nepal:

For businesses that need limited liability protection, perpetual succession, or foreign investment, registering a private limited company is usually the better choice. For small, locally-focused businesses with trusted partners, a partnership firm offers simplicity and lower costs.

Dissolution of a Partnership Firm

Dissolution (Vibhajan, विभाजन) of a partnership firm ends the relationship between partners and winds up the firm's affairs. Under Sections 25-28 of the Partnership Act 2020 BS, dissolution can occur in several ways.

Grounds for Dissolution

• By agreement: All partners agree to dissolve the firm
• Expiry of term: The partnership was formed for a fixed period that has expired
• Completion of venture: The specific venture or undertaking for which the firm was formed has been completed
• Death of a partner: Unless the deed provides for continuation with the deceased partner's heirs
• Insolvency of a partner: If a partner is adjudicated insolvent
• By notice: In a partnership at-will, any partner may dissolve the firm by giving written notice to all other partners
• By court order: A court may order dissolution on grounds of partner's incapacity, persistent breach of the deed, misconduct, or when the business can only be carried on at a loss
• Illegality: If the firm's business becomes illegal due to a change in law

Dissolution Process

1. Settlement of accounts: All firm debts are paid from firm assets
2. Return of advances: Partners who advanced money beyond their capital are repaid
3. Return of capital: Each partner's capital contribution is returned
4. Distribution of surplus: Any remaining surplus is distributed in the profit-sharing ratio
5. Notification: Third parties, banks, and the registering authority must be notified of the dissolution
6. Tax clearance: The firm must obtain a final tax clearance from the IRD
7. Deregistration: File for cancellation of the firm's registration at the OCR or DAO

If partners cannot agree on dissolution terms, any partner may apply to the District Court for judicial dissolution and appointment of a receiver to wind up the firm's affairs.

Common Partnership Disputes and Resolution

Partnership disputes are among the most common business litigation matters in Nepal. Common causes include:

• Disagreements over profit distribution
• Misuse of firm funds or property by a partner
• One partner engaging in competing business
• Disputes over admission or expulsion of partners
• Disagreements on business direction or expansion

Dispute Resolution Mechanisms

The preferred methods for resolving partnership disputes in Nepal are:

1. Mediation: An informal process where a neutral mediator helps partners reach a mutually acceptable resolution
2. Arbitration: If the deed includes an arbitration clause, disputes must first be referred to arbitration under the Arbitration Act 2055 BS (1999 AD)
3. Civil litigation: Partners may file a civil suit in the District Court if mediation and arbitration fail
4. Criminal complaint: In cases of fraud, embezzlement, or forgery, a partner may file an FIR at the local police station

Including a detailed dispute resolution clause in the partnership deed is the best way to prevent costly litigation. If you are facing a partnership dispute or need help drafting a dispute-proof deed, contact our legal team for expert advice.

Practical Tips for Running a Successful Partnership in Nepal

• Always register: Even though registration is optional for general partnerships, an unregistered firm cannot sue third parties
• Get the deed drafted by a lawyer: Template deeds miss critical clauses -- invest in professional drafting
• Maintain separate books: Keep firm accounts separate from personal finances
• Hold regular meetings: Document decisions in writing, even if informally
• Plan for exit: Include clear retirement, expulsion, and dissolution provisions in the deed
• Review annually: Update the deed when circumstances change (new capital, new partners, business expansion)
• Comply with tax obligations: File returns on time, maintain proper records, and obtain a TIN number for all tax dealings
• Consider insurance: Professional indemnity and general liability insurance can protect partners' personal assets

Conclusion

A partnership firm remains a practical and cost-effective business structure for entrepreneurs in Nepal who want to combine resources, skills, and capital without the complexity of company incorporation. However, the unlimited liability exposure in general partnerships, the need for a well-drafted deed, and ongoing tax compliance obligations make professional legal guidance essential from the start.

Whether you are forming a new partnership, drafting or revising a partnership deed, resolving a partner dispute, or winding up a firm, our Nepal Bar Council-registered lawyers provide end-to-end legal support. Contact Court Marriage in Nepal Pvt. Ltd. for a free consultation today.