Having received kudos from the banking and business community for the last piece on interest rates, your favourite Beed decided to explore another area that nobody bothers about but has affected the functioning of efficient businesses.
Like anywhere else, under the Companies Act businesses are required to be registered with the Registrar of Companies (ROC). This government authority is supposed to register and monitor corporate entities while also functioning as a documentation agency where corporate reports and other statutory documents are filed. In Nepal, its role has neither been understood by the people who sit in its offices or by those who are supposed to abide by it.
Opening a company here is paying consulting fees to a lawyer or a quasi-lawyer who drafts a set of documents and returns with a certificate from the registrar. It is more about signing a heap of documents that no one wants to read and understand. No one wants to look at basic documents like the Memorandum of Association or Articles of Association. No one perhaps wants to look at varied forms of shares apart from the 'vanilla' equity shares with the same rights and liabilities. The monitoring of document filing in this authority is so poor that shareholding changes even after decades remain a mystery.
Trying to locate records is a nightmare because the functioning and record keeping is still manual. The people sitting in this office surely require more training and exposure, they have to get away from the controlling-rent seeking function. At this moment, they should thank their stars that all they require to know is the Nepali legal environment. Pashupatinath only knows what will happen if Nepali corporate houses are allowed to invest in foreign corporate and a maze of inter-corporate holdings and transnational holdings become the rules of the game. This attitude has also closed doors for Nepali companies going to global markets for funds, be it the Global Depository Receipts or placement to global private equity firms.
The world will not change its documentation method for Nepal or stop using English as its prime language. The objective of keeping work minimal for minimally trained and exposed employees of the ROC will not get us anywhere. While many discussions have been carried out on the Companies Act, no specific analysis has been done on the functioning of this entity.
One of the key prerequisites to reforms and encouragement of investment, both direct and foreign, is a user-friendly registrar's office. In most countries, one can now open companies at the click of a button through the Internet. These companies, once opened, are properly regulated. While companies are growing transnational post 9/11, regulatory requirements have also grown more stringent. The challenge has been to provide quick services and at the same time, be a strong regulator.
Some countries have made their company formation laws and the ROC so user-friendly that they are using it as a USP to sell investments in their countries. In Nepal, the ROC along with an antiquated stock exchange has been an impediment for companies going public, keeping the Nepali people from benefiting from investments.
This situation should be an opportunity for the government to really crack for reforms in the ROC and make it more efficient. It would send a positive signal to the investing community, both at home and abroad.