In the vibrant, fast-paced world of Nepali entrepreneurship, many of the best business ideas are born over cups of milk tea between close friends. With every sip, a unique startup idea is expressed. You share a vision, passion, and excitement to build something together. Naturally, because you trust your friends implicitly, you start your business on a “handshake deal.”
It feels authentic and informal. It feels like “doing business” the traditional way, one step at a time. However, for young, first-time entrepreneurs piloting the complicated world of entrepreneurship, relying only on verbal agreements is the single most common mistake that can derail a promising venture before it truly begins.
Why the ‘Handshake’ is a Dangerous Foundation
When you are young and just starting a business, you are likely wearing ten hats at once: product developer, marketer, salesperson, accountant, HR, procurer, all while not being entirely sure how to build a company. In this state of uncertainty, a handshake deal creates three main vulnerabilities for a startup:
The “Memory Gap” Trap
When you are excited, your interpretation of the “deal” might differ from your partner’s. You assume you agreed on a 50/50 split; they assume a contribution-based split. As time passes and the business grows, these undiscussed discrepancies solidify into “facts” in each of your minds, leading to unavoidable conflicts and eventually the fall of the business.
The Silence on the “What Ifs”
Most young Nepali entrepreneurs focus on the “what”: what are we selling? They rarely discuss the “what-ifs”: What if one of us wants to quit? What if one of us wants to transfer our shares? What if we need to give away the franchise? Without an adequately written contract, you have no roadmap for the difficult days.
The legal gap
If your business hits a snag or if a friendship sours, a handshake cannot be presented in the court. Without a written agreement, you have no objective record of your rights, responsibilities or ownership. In the eyes of the law, ambiguity usually results in stalemate or, worse, the total collapse of the entity so you need a document that stands the test of law.
How to Protect Your Startup (Before It’s Too Late)
Moving away from handshake deals doesn't mean you trust your friends any less, it means you respect the business enough to protect it. Here is how you can safeguard your venture from day one:
The Foundation: Entity Registration
Before officially beginning your business, or signing any lease or agreement, ensure your business is a legally registered entity. Whether a private company or a partnership firm, make sure the government formally recognizes your business entity.
When should entrepreneurs choose to register their business in the Office of the Company Registrar (OCR)?
One should opt for registration at OCR (Company Registration) rather than a local ward or department-based registration if your business goals include any of the following:
a. In a Private Limited Company, the company is a separate legal entity; your personal liability is generally limited to the amount you invested as share capital.
b. If you are starting with friends, a formal company structure provides a clear, legal framework for equity distribution, roles, and how to handle disagreements.
c. If you intend to take bank loans, seek venture capital, or bring in Foreign Direct Investment (FDI), you must be a registered company.
d. If you intend to create a formal, protected identity for your business name that is recognized nationwide.
e. If you intend to formalize your business transactions and tax liabilities, your business must be registered as a company.
The ‘Naksha Pass’ Verification
For commercial properties, it is essential to verify that the structure you are leasing or renting has a valid Naksha Pass [construction map approval] from the local municipality. Operating a business in an illegal or non-compliant structure can lead to sudden closure, fines, or demolition my municipal authorities. Always ensure the property’s intended use matches your business needs.
Partnership Agreements: Defining the Rules
If you are starting your business with partners, a Partnership Deed is your most foundational internal document. Key provisions to include in this Deed are the specification of partner names, capital contributions, profit-sharing ratios, management responsibilities, and a dispute prevention clause.
Lease Agreement
To ensure your business is legally protected, a lease agreement is one of the basic preliminary agreements that you need to sign based on local legal standards:
Key provisions to include in the lease agreement are:
a. Obligations for rent
b. Security deposits (legally capped at two months’ rent)
c. Utility payments
d. Conditions for termination.
Protect Your Venture Before It Begins
In the early days of building a business in Nepal, trust feels like enough. But a legally sound, written contract is not a sign of distrust in your friendship; it is a blueprint that protects both the friendship and the business when challenges arise.