Comprehensive Guide to Company Incorporation in Bhutan

1. Introduction to Company Incorporation in Bhutan

What is Company Incorporation?

Company incorporation in Bhutan refers to the legal process of registering a business as a distinct legal entity, separate from its owners. This process grants the business a corporate identity, allowing it to enter into contracts, own assets, incur liabilities, and sue or be sued in its own name. Once incorporated, the business operates under the provisions of the Companies Act of Bhutan, 2016.

Why Incorporate a Business in Bhutan?

Incorporating a business offers several advantages, primarily limiting the liability of its owners (shareholders) to the amount of capital they have invested. This means personal assets are generally protected from business debts and obligations. Additionally, incorporation enhances credibility, facilitates access to finance, and provides a structured framework for growth and succession planning. It also ensures compliance with national laws and regulations, contributing to a transparent and well-regulated business environment in Bhutan.

Who Oversees Company Incorporation in Bhutan?

The primary regulatory body responsible for overseeing company incorporation and regulating corporate affairs in Bhutan is the Corporate Regulatory Authority (CRA), operating under the Ministry of Industry, Commerce and Employment. The CRA is mandated by the Companies Act of Bhutan, 2016, to ensure that all companies comply with the legal framework, promoting good governance, transparency, and a vibrant market economy. The Registrar of Companies, an official within the CRA, is responsible for the registration process and maintaining the register of companies.

2. Types of Companies and Their Requirements

The Companies Act of Bhutan, 2016, categorizes companies primarily into public and private entities, each with distinct characteristics and regulatory requirements. Understanding these types is crucial for prospective business owners to choose the appropriate structure for their venture.

Public Companies

A public company is authorized by its Articles of Incorporation to offer its shares or other securities to the public. This allows for broader capital raising through public offerings. Key requirements for public companies include:

• Minimum Allotted Share Capital: A prescribed minimum amount of allotted share capital is required.
• Directors: Shall have at least three directors.
• Company Secretary: A company secretary is mandatory.
• Compliance with Regulatory Authority and Securities Exchange: If shares are offered to the public, the company must comply with additional requirements imposed by the Regulatory Authority and the Securities Exchange.
• Government-Owned Public Companies: Shall have clear divestment criteria and procedures as prescribed by the Regulatory Authority.
  
  

Private Companies

A private company is restricted from offering its shares to the public. This type of company is typically preferred for smaller businesses or those with a limited number of shareholders. Key requirements for private companies include:

• Restriction on Public Offering: Not permitted to offer its shares to the public.
• Directors: Shall have at least two directors.
• One Person Company: Where one person incorporates a company, they must indicate another person with prior written consent who will become a member in case of the subscriber's death or incapacity. This consent must be filed with the Registrar.
  
  

Government Companies

A Government Company, as defined by the Act, is required to be incorporated as a public company. This ensures a higher level of transparency and regulatory oversight due to public interest.

Companies Incorporated Under Other Acts

Companies incorporated under other Acts of Parliament or previous Companies Acts must also be registered under the Companies Act of Bhutan, 2016. While the specific provisions of their original incorporating Act may apply, they must still adhere to the registration requirements of the current Companies Act. The Registrar will issue a Certificate of Registration for such companies, rather than a Certificate of Incorporation.

Re-registration of Companies

• Private to Public: A private company can re-register as a public company if it satisfies the requirements for a public company (sections 8 and 10 of the Act), adopts appropriate Articles of Incorporation, passes a special resolution for re-registration, and fulfills any additional requirements prescribed by regulations.
  
  
• Public to Private: A public company (not listed on the Securities Exchange) can re-register as a private company if it adopts appropriate Articles of Incorporation for a private company, passes a special resolution for re-registration, and fulfills any additional requirements prescribed by regulations.

3. General Procedures for Company Incorporation

The process of incorporating a company in Bhutan involves several key steps, largely facilitated through the online platform of the Corporate Regulatory Authority (CRA). Please note that incorporating companies in Bhutan must be done through certified filing agents like Basnet Attorneys and Law only.  You cannot form a company in Bhutan without a filing agent. This section outlines the general procedures applicable to most incorporation types.

Name Approval Process

Before proceeding with the full incorporation, you must secure approval for your desired company name. This is done online through the CRA website:

1. Visit the CRA Website: Navigate to www.cra.gov.bt.

2. Access E-Services: Click on the "E-Services" section and select "Company Registration."

3. Initiate Name Search: Click on the designated green button to start the name search.

4. Enter Proposed Name: Input your chosen company name, omitting suffixes like "Private Limited" or "Limited."

5. Check Availability: The system will indicate if the proposed name is available. If it is, click "Continue."

6. Security Clearance: Ensure that the applicant's Security Clearance is up-to-date, as this is a prerequisite for name approval.

7. Applicant Details: Fill in all mandatory fields on the applicant page. It is advisable to click "Save as Draft" before proceeding to the next step.

8. Company Details: Provide the required information about the company.  Specifically, you are required to put information such as total project costs or the proposed paid-up capital, the location of the business, and the activities of the business.

9. Application Type: Select the appropriate application type. Currently, you can choose options like (1) Incorporation of new businesses, (2) incorporation of existing businesses, (3) incorporation of Foreign Direct Investment Company Institutional Investor, and (4)incorporation of Foreign Direct Investment Company Individual Investors.

10. Document Upload (for Name Approval): Scan all necessary documents into a single PDF file and upload it. The specific documents required at this stage may vary based on whether it's a new business activity or an existing one, and whether it involves foreign investment. Refer to the detailed sections below for specific document lists.

11. Submit Application: Complete the text validation and submit your application for name approval.

Upon approval from the Registrar, you will receive a link in your registered email. This link is crucial for creating user credentials to log in to the CRA website for subsequent steps.

Online Application Process (Company Incorporation)

Once your company name is approved and you have your login credentials, you can proceed with the full company incorporation application:

1. Visit the CRA Website and Login: Go to www.cra.gov.bt and log in using your newly created username and password.

2. Access Company Incorporation Tab: On your profile page, click on the "Company Incorporation" tab located on the left-hand panel.

3. Add/Upload Directors and CEO Details: Input or upload the details of the CEO and all Directors. This includes their CID/Passport Number, Email address, Contact Number, a passport-sized Photo, Signature, and Correspondence address.

• Note on Photos and Signatures: For Bhutanese citizens, photos should be passport-sized and show them in national dress. Signatures must be in image format with a clear white background. Both photo and signature files must be in JPEG format, and their filenames should not contain any special characters.

• Security Clearance: Ensure that the Security Clearance for all individuals (CEO and Directors) is up-to-date.

4. Enter Capital Information: Provide details for the Paid-up Capital and Authorized Capital in the Share Capital table.

5. Add/Upload Shareholder Details: Enter the details of all shareholders in the "Subscribers to Article of Incorporation" table.

6. Document Upload (for Incorporation): Scan all required documents into a single PDF file and upload. The specific documents depend on the type of incorporation (new business, existing business, FDI). Refer to the relevant sections below for detailed document lists.

7. Submit Application: Complete the company incorporation by submitting the application.

Fee Structure

There are two main fees associated with company incorporation in Bhutan:

• Name Approval Fee: Nu. 2000 (Bhutanese Ngultrum).
• Company Incorporation Fee: Nu. 5000 (Bhutanese Ngultrum).
  
  

Payment Process: After logging into your CRA account, click on the "Make Payment" tab on the left-hand panel of your profile page. After making the online payment, it is recommended to send a screenshot of the online payment receipt to the designated CRA email addresses (cltamang@moice.gov.bt / tdrakpa@moice.gov.bt) for confirmation.

4. Incorporating a New Business into a Company (Bhutanese Citizen)

This section outlines the process for Bhutanese citizens who wish to incorporate a completely new business activity that does not currently hold any existing business license.

Eligibility and Requirements

• The applicant must be a Bhutanese citizen and certified by the Corporate Regulatory Authority like our lawyers.
  
  
• The proposed business activity must be new and not currently licensed under any proprietorship or partnership.
  
  
• The applicant's Security Clearance must be up-to-date.

Required Documents

For the Name Approval stage:

• Authorization form: In the prescribed format, available on the CRA website.

For the Company Incorporation stage:

No documents required. (As per the provided information for new business activity without any business license).

5. Incorporating an Existing Business into a Company (Bhutanese Citizen)

This section details the process for Bhutanese citizens who are currently operating a business under a proprietorship or partnership and wish to incorporate it as a Private Limited Company.

Eligibility and Requirements

• The applicant must be a Bhutanese citizen.
• The business must currently hold a valid business license (proprietorship/partnership).
• The applicant's Security Clearance must be up-to-date.

Required Documents

For the Name Approval stage:

•Authorization form: In the prescribed format, available on the CRA website.

•No Objection Letter from Financial Institutions: A letter from banks (BNB, BOB, T-BANK, DPNB, RICB, BIL, BDBL, NPPF) stating no objection to forming a company. You will need to write a request letter (format usually shared by CRA or the banks) listing the licenses identified for incorporation and send it to the focal officer of the respective banks.

•Tax Clearance Certificate: From the Department of Revenue and Customs for Company Incorporation.

•Valid Existing Licenses: Copies of your current valid business licenses.

For the Company Incorporation stage:

•No Objection letters from all the banks: (Prescribed format, if any, or the same letters submitted for name approval).

•Tax clearance certificate: Your latest tax clearance certificate.

•Latest financial statement: Either unaudited or audited financial statements.

•Valid existing licenses: Copies of your current valid business licenses.

6. Incorporating Foreign Direct Investment (FDI) Companies

Bhutan welcomes foreign direct investment, and the process for incorporating FDI companies is streamlined, though it involves specific requirements related to foreign investors. FDI companies can be incorporated with individual foreign investors, institutional foreign investors, or a mix of both.

General FDI Requirements

• All FDI companies must comply with the Foreign Direct Investment Policy of Bhutan, in addition to the Companies Act, 2016.
• FDI Registration Certificate issued by the Invest Bhutan Division, Department of Industry (DoI), is a crucial document for all FDI incorporations.

FDI with Individual Foreign Investors

This category applies when foreign individuals are investing in a new company in Bhutan.

Eligibility and Requirements

• Foreign individual investors must meet the criteria set by the FDI Policy.
• Joint Venture Agreements are often required if there are multiple investors (foreign or local).

Required Documents

For the Name Approval stage:

• Authorization form: In the prescribed format, available on the CRA website.

For the Company Incorporation stage:

• CV of foreign Investors: Curriculum Vitae of all foreign individual investors.
• Passport of all investors: Notarized copies of passports for all foreign individual investors.
• Joint Venture Agreement: If applicable, an agreement between the investors/shareholders.
• FDI Registration Certificate: Issued by the Invest Bhutan Division, Department of Industry (DoI).

FDI with Institutional Foreign Investors

This category applies when foreign institutions or companies are investing in a new company in Bhutan.

Eligibility and Requirements

• The foreign institutional investor must be a legally registered entity in its home country.
• Joint Venture Agreements are required if there are Bhutanese partners or if the activity is not open for 100% foreign ownership.

Required Documents

For the Name Approval stage:

• Authorization form: In the prescribed format, available on the CRA website.
• Profile of the foreign company: A detailed profile of the foreign institutional investor in PDF format.
  
  

For the Company Incorporation stage:

• Passport of all authorized persons: Notarized copies of passports for all authorized representatives of the foreign institutional investor.
• Joint Venture Agreement: If applicable, an agreement between the foreign investors and Bhutanese partners/shareholders (especially for activities not open for 100% Foreign Investors Ownership).
• FDI Registration Certificate: Issued by the Invest Bhutan Division, Department of Industry (DoI).
• Certificate of Incorporation of the foreign investor company: Notarized by a licensed public notary.
• Article of Incorporation of the foreign investor company: Notarized by a licensed public notary.

FDI with Mixed Individual and Institutional Investors

When both individual and institutional foreign investors are involved, the requirements combine elements from both categories. All relevant documents for individual investors (CV, notarized passports) and institutional investors (company profile, notarized Certificate of Incorporation, notarized Article of Incorporation) will be required, in addition to the general FDI requirements and the FDI Registration Certificate. The Joint Venture Agreement will be particularly important to clearly define the roles and responsibilities of all parties involved.

7. Key Personnel Details and Requirements

During the company incorporation process, detailed information about key personnel, including the CEO, Directors, and Witnesses, is required. It is crucial to provide accurate and complete information for each individual.

CEO’s Details

For the Chief Executive Officer (CEO) of the proposed company, the following information and documents are typically required:

• Passport Number/CID Number: A valid identification number.
• Email address: A current and active email address for correspondence.
• Contact Number: A reliable contact telephone number.
• Passport-sized Photo Copy: A recent passport-sized photograph. For Bhutanese citizens, this should be in national dress.
• Signature Copy on White Paper: A clear copy of the CEO’s signature on a plain white background.
• Correspondence address: The official mailing address.

Director Details

For each Director of the proposed company, the following information and documents are typically required. This applies to Director 1, Director 2, and any additional directors:

• Passport Number/CID Number: A valid identification number.
• Email address: A current and active email address for correspondence.
• Contact Number: A reliable contact telephone number.
• Passport-sized Photo Copy: A recent passport-sized photograph. For Bhutanese citizens, this should be in national dress.
• Signature Copy on White Paper: A clear copy of the Director’s signature on a plain white background.
• Correspondence address: The official mailing address.

Witness Details

Witnesses are required for certain documents during the incorporation process. The following details are typically needed for each witness:

• Name: Full name of the witness.
• Address: Residential or official address of the witness.
• CID Number: A valid identification number.
• Signatures: A clear copy of the witness’s signature.
• Passport-Sized Photos: A recent passport-sized photograph.

8. Capital Information

During the company incorporation process, you will be required to provide details regarding the company's capital structure. This typically includes information on both Paid-up Capital and Authorized Capital.

Paid-up Capital

Paid-up capital refers to the amount of money that shareholders have actually paid to the company in exchange for shares. It represents the capital that is readily available to the company for its operations and investments. This is a crucial figure as it reflects the company's immediate financial strength and the commitment of its shareholders.

Authorized Capital

Authorized capital (also known as nominal or registered capital) is the maximum amount of share capital that a company is authorized by its Articles of Incorporation to issue to its shareholders. It is the total value of shares that a company can issue over its lifetime without amending its Articles of Incorporation. While the company may not issue all of its authorized capital at once, it cannot issue more shares than its authorized capital without increasing this limit through a formal process.

When filling out the incorporation forms, you will need to clearly state both the Paid-up Capital and the Authorized Capital of your proposed company.

9. Post-Incorporation Procedures and Documents

Upon successful submission and approval of your company incorporation application, the Corporate Regulatory Authority (CRA) will issue several important documents. These documents officially confirm your company's legal existence and provide essential details about its structure and governance.

After the Registrar approves your application, the following documents will be sent to the registered applicant’s email:

Certificate of Incorporation

This is the most crucial document, serving as official proof that your company has been legally incorporated in Bhutan. It signifies the birth of your company as a separate legal entity. The certificate typically includes the company's name, registration number, and the date of incorporation.

Articles of Incorporation

The Articles of Incorporation (also known as Articles of Association) are a set of rules governing the internal management and business conduct of the company. They define the rights and responsibilities of the company's members (shareholders) and directors, and outline how the company's operations will be managed. This document is fundamental to the company's governance structure.

Declaration of Compliance

This document confirms that all the requirements of the Companies Act, 2016, and other relevant regulations concerning the registration of the company have been complied with. It is a formal statement ensuring that the incorporation process was conducted in accordance with the law.

Consent to Act as Director

This document confirms that the individuals named as directors have given their consent to act in that capacity. It is a formal acknowledgment of their acceptance of the responsibilities and duties associated with being a company director.

These documents are vital for the company's legal standing and future operations. It is essential to keep them safe and accessible.

10. Important Considerations and Best Practices

Incorporating a company is a significant step, and understanding ongoing obligations and best practices is crucial for long-term success and compliance.

Legal Compliance

• Adherence to Companies Act: Continuously ensure your company operates in full compliance with the Companies Act of Bhutan, 2016, and any subsequent amendments or new regulations. Stay informed about changes in corporate law.

• Annual Filings: Companies are required to submit annual returns and other statutory documents to the CRA. Failure to do so can result in penalties or even the company being struck off the register.

• Corporate Governance: Implement robust corporate governance practices, including regular board meetings, proper record-keeping, and transparent decision-making processes.

• Director Responsibilities: Directors have significant legal responsibilities and duties. Ensure all directors are aware of their obligations and act in the best interest of the company and its shareholders.

Financial Aspects

• Tax Compliance: Register with the Department of Revenue and Customs (DRC) and comply with all tax laws, including timely filing of tax returns and payment of taxes.

• Auditing and Financial Statements: Maintain accurate financial records and prepare annual financial statements. Public companies, and some private companies, may be required to have their financial statements audited.

• Capital Management: Understand the implications of your company's paid-up and authorized capital. Any changes to share capital must follow prescribed legal procedures.

Ongoing Obligations

• Maintaining Records: Keep all company records, including minutes of meetings, share registers, and financial statements, meticulously organized and up-to-date.

• Changes in Company Details: Promptly notify the CRA of any changes to the company's name, registered address, directors, shareholders, or Articles of Incorporation.

•Business License Renewal: Ensure that your business licenses are renewed regularly as per the requirements of relevant authorities.

Best Practices

• Seek Professional Advice: Consider engaging legal and accounting professionals to assist with the incorporation process and ongoing compliance. Their expertise can help navigate complex regulations and avoid potential pitfalls.

• Understand Your Articles of Incorporation: Familiarize yourself thoroughly with your company's Articles of Incorporation, as they govern its internal operations and the rights and duties of its members.

• Regular Review: Periodically review your company's legal and financial standing to ensure it remains compliant and operates efficiently.

Disclaimer

This guide is intended to provide general information and a comprehensive overview of the company incorporation process in Bhutan based on publicly available information and the Companies Act of Bhutan, 2016. It is designed to assist business owners who are new to the process. However, this document does not constitute legal, financial, or professional advice. Laws and regulations can change, and individual circumstances vary. Therefore, it is highly recommended that you consult with qualified legal professionals, financial advisors, or the Corporate Regulatory Authority (CRA) directly for specific advice tailored to your situation before making any decisions or taking any actions related to company incorporation in Bhutan. The author and publisher of this guide shall not be held responsible for any errors or omissions, or for any actions taken based on the information provided herein.

Glossary of Key Terms

To ensure absolute clarity, this glossary defines key terms used throughout this guide and in the context of company incorporation in Bhutan. Understanding these terms is fundamental for navigating the legal and administrative landscape effectively.

• Articles of Incorporation (AoI): Also known as Articles of Association, this is a legal document that outlines the internal regulations for the management of a company. It defines the company's purpose, the duties and responsibilities of its directors, and the means by which shareholders exert control over the board of directors.

• Authorized Capital: The maximum amount of share capital that a company is legally permitted to issue to its shareholders. This figure is specified in the company's Articles of Incorporation and can only be increased through a formal amendment process.

• Bhutanese Ngultrum (Nu.): The official currency of Bhutan. All fees and capital amounts mentioned in this guide are in Bhutanese Ngultrum.

• CID Number: Citizen Identity Card Number. This is a unique identification number issued to citizens of Bhutan, used for various official purposes, including company incorporation.

• Companies Act of Bhutan, 2016: The primary legislation governing the formation, operation, and dissolution of companies in Bhutan. All companies incorporated in Bhutan must comply with the provisions of this Act.

• Company Incorporation: The legal process by which a business entity is formally registered with the Corporate Regulatory Authority (CRA), thereby gaining a distinct legal identity separate from its owners.

• Corporate Regulatory Authority (CRA): The government body in Bhutan responsible for the registration, regulation, and oversight of companies. It operates under the Ministry of Industry, Commerce and Employment.

• Director: An individual appointed to the board of a company to oversee its management and operations. Directors have legal duties and responsibilities to the company and its shareholders.

• Department of Industry (DoI): A department under the Ministry of Industry, Commerce and Employment, responsible for industrial development and investment promotion, including the issuance of FDI Registration Certificates.

• Department of Revenue and Customs (DRC): The government agency responsible for the collection of taxes and enforcement of customs laws in Bhutan. Companies must obtain a Tax Clearance Certificate from the DRC.

• FDI (Foreign Direct Investment): An investment made by a company or individual in one country into business interests located in another country. In Bhutan, FDI is governed by specific policies and regulations.

• FDI Registration Certificate: A certificate issued by the Invest Bhutan Division of the Department of Industry (DoI), confirming the registration of a foreign direct investment project in Bhutan. This is a mandatory document for FDI company incorporation.

• Financial Institutions: Banks and other organizations that provide financial services, such as the Bank of Bhutan (BOB), Bhutan National Bank (BNB), T-Bank, Druk PNB (DPNB), Royal Insurance Corporation of Bhutan (RICB), Bhutan Insurance Limited (BIL), Bhutan Development Bank Limited (BDBL), and National Pension and Provident Fund (NPPF). No Objection Letters from these institutions may be required for incorporation.

• Joint Venture Agreement: A contractual agreement between two or more parties (individuals or entities) to undertake a specific business project together. This is often required for FDI companies, especially when foreign investors partner with Bhutanese entities.

• Limited Liability: A legal structure where the financial liability of a company's shareholders is limited to the amount of capital they have invested in the company. Their personal assets are generally protected from the company's debts.

• Name Approval: The initial step in company incorporation where the proposed name of the company is submitted to the CRA for approval to ensure its uniqueness and compliance with naming conventions.

• No Objection Letter (NOC): A formal letter issued by a financial institution or other relevant authority stating that they have no objection to a proposed action, such as the incorporation of a company.

• One Person Company: A type of private company where a single individual is the primary subscriber to the Articles of Incorporation. Specific provisions apply to ensure continuity in case of the subscriber's death or incapacity.

• Paid-up Capital: The amount of money that shareholders have actually paid to the company in exchange for shares. This represents the capital that has been received by the company.

• Passport Number: A unique identification number found on a passport, used for foreign investors and authorized persons in FDI companies.

• Private Company: A company that restricts the transfer of its shares and does not offer its shares or other securities to the public. It typically has a limited number of shareholders.

• Public Company: A company that is authorized to offer its shares or other securities to the public. These companies generally have more stringent regulatory requirements.

• Registrar of Companies: An official within the Corporate Regulatory Authority (CRA) responsible for registering companies, maintaining the register of companies, and ensuring compliance with the Companies Act.

• Security Clearance: A background check or verification process conducted by relevant authorities to ensure that an individual meets certain security standards. This is a prerequisite for applicants and key personnel in company incorporation.

• Shareholder: An individual or entity that owns shares in a company. Shareholders are part-owners of the company and have certain rights and responsibilities.

• Tax Clearance Certificate: A document issued by the Department of Revenue and Customs (DRC) confirming that an individual or entity has no outstanding tax liabilities. This is a required document for company incorporation.

• Witness: An individual who observes the signing of a legal document and attests to its authenticity by also signing the document. Witnesses are required for certain aspects of the incorporation process.

This section addresses common questions that prospective business owners often have regarding company incorporation in Bhutan. These FAQs aim to provide quick and clear answers to frequently encountered queries, complementing the detailed information provided in the main sections of this guide.

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