Ordinary Shares

First published 21 Aug 2026 · Last verified 29 Aug 2026

Lesson 13.1 — What You Own When You Buy a Share: Rights, Claims, Residual Nature

When you purchase an ordinary share in a Nepali company — whether it is a commercial bank listed on the Nepal Stock Exchange (NEPSE), a hydropower project, or a microfinance institution — you are doing something far more consequential than acquiring a piece of paper or a digital record in your DMAT account. You are purchasing a fractional ownership interest in a real, operating enterprise. This distinction between merely holding a security and actually owning part of a business is the most important conceptual foundation any investor can carry into the market.

In Nepal, the governing legal instruments are the Companies Act 2063 (2006) and the Securities Act 2063 (2006), along with their subsequent amendments. The Companies Act defines a share as the right of a shareholder to participate in the company's capital and profits. This deceptively simple definition carries within it a layered bundle of economic rights, governance rights, and residual claims whose character shapes every investment decision you will ever make.

The Bundle of Rights Embedded in a Share

Ownership of an ordinary share confers at minimum four categories of rights that operate simultaneously and often in tension with each other.

The first category is economic rights. As an ordinary shareholder you are entitled to receive dividends when the board recommends and the annual general meeting approves them. In Nepal, dividends may be paid in cash or, more commonly, as bonus shares — an issuance of additional shares in lieu of a cash payout. You are also entitled to participate in any rights offerings the company extends. And most fundamentally, when the company is liquidated, you hold a claim against whatever assets remain after all liabilities and preference claims have been satisfied. That last clause — after all liabilities and preference claims — is the heart of what makes ordinary equity residual in nature.

The second category is governance rights. Each ordinary share carries one vote at the general meeting of shareholders, which in Nepal is governed by the Companies Act. Through this vote you participate in electing the board of directors, approving significant transactions, ratifying the audited financial statements, and authorising the appropriation of profit. In theory, this makes you a principal whose agents — the board and management — owe you fiduciary duties. In practice, the effectiveness of this governance mechanism depends heavily on the concentration of share ownership, the quality of institutional investor participation, and the regulatory oversight exercised by SEBON.

The third category is information rights. SEBON regulations oblige listed companies to publish audited annual reports, quarterly unaudited financials, and material disclosures in a timely fashion. As a shareholder you are entitled to receive these disclosures. You may inspect the register of shareholders. You may attend and speak at the annual general meeting. These rights, modest as they sound, are the foundation of informed ownership.

The fourth category is transferability rights. You may sell your shares on the secondary market through a licensed broker and NEPSE's trading system, or in the case of promoter shares, through regulated over-the-counter mechanisms. This liquidity — the ability to convert your ownership stake back into cash — is what distinguishes equity from starting your own business, and it is why the existence of NEPSE matters so much to the practical functioning of capital markets in Nepal.

The Residual Nature of Ordinary Equity

The concept of residuality is not merely academic. It has direct, practical consequences for how you think about investment risk in Nepal. Consider the priority waterfall that operates in any Nepali company. When revenues flow in, they are first applied to operating expenses: wages, supplies, rent, utilities. What remains is earnings before interest and taxes. From this, interest on all debt — bank loans, debentures, bonds — is paid. The remaining pre-tax income is then subject to corporate income tax. What is left after tax is net profit, and only this net profit belongs to equity holders as a class. Even then, ordinary shareholders receive it only after any preference dividend obligations are met.

In a liquidation, the waterfall works similarly but with more finality. Secured creditors are paid first from the collateral securing their claims. Unsecured creditors follow. Preference shareholders receive their capital and any accrued preference dividends. Ordinary shareholders receive whatever remains — which in many insolvencies is nothing at all.

This is why the concept of leverage matters so intensely to ordinary equity investors. When a hydropower company finances sixty percent of its project cost with debt, it is placing ordinary shareholders at the base of a tall priority stack. In good years, the high fixed-interest costs are easily covered and the residual profit flowing to shareholders is amplified. In bad years — when the monsoon fails, when power purchase agreement terms are unfavourable, when interest rates rise — that same leverage destroys equity value disproportionately. Understanding that you, as the ordinary shareholder, bear the bottom risk in return for the top reward is not a theoretical nicety. It is the practical reality that should inform every analysis you perform.

Ordinary vs. Preference Shares in Nepal

Nepal's Companies Act permits companies to issue preference shares, which carry a fixed dividend rate and priority over ordinary shares in both income distribution and liquidation. In practice, relatively few listed companies in Nepal have significant preference share capital on their balance sheets compared to many international markets, partly because bank financing has historically been accessible and partly because investor appetite has concentrated on the equity of commercial banks and hydropower companies. Nevertheless, you should always read a company's share capital structure carefully. A company with large preference obligations is one where the residual for ordinary shareholders narrows.

Lesson 13.2 — Face Value in Nepal: The NPR 100 Standard and Its Relevance

In Nepali capital markets, the face value — also called the par value or nominal value — of an ordinary share is almost universally fixed at NPR 100. This is not a coincidence or an arbitrary convention. It is a regulatory standard embedded in company prospectuses, share certificates, and the calculations that govern bonus share issuances, rights offerings, and dividend reporting. Understanding what face value means, what it does not mean, and how it interacts with other valuation measures is essential to reading Nepali financial documents correctly.

What Face Value Is

Face value is the nominal amount per share stated in a company's memorandum of association and endorsed on each share certificate or DMAT record. It represents the minimum price at which shares were originally issued when the company was first incorporated. If a company is established with an authorised capital of NPR 1 billion divided into 10 million shares, each share has a face value of NPR 100. The face value multiplied by the total number of issued shares gives you the paid-up capital, which is the foundation of the company's equity base as shown on its balance sheet.

In Nepal, SEBON's prospectus regulations, the Companies Act, and the Securities Registration and Issuance Regulation all operate around this NPR 100 standard. When a company issues bonus shares — the Nepali equivalent of a stock dividend — those new shares are issued at NPR 100 face value. The accounting entry moves retained earnings or a share premium reserve into paid-up capital at NPR 100 per new share. When rights shares are offered, they are typically offered at NPR 100 or at a modest premium above NPR 100, far below the prevailing market price. This creates the mechanics of rights pricing that we will explore in later chapters.

What Face Value Is Not

Face value is not market value. Standard Chartered Bank Nepal's shares may trade at many times their face value of NPR 100. A struggling insurance company's shares may trade below NPR 100. The market price reflects investor expectations about future earnings, the risk of the business, liquidity, and sentiment. None of these factors are captured in the fixed NPR 100 face value figure.

Face value is not book value. Book value per share is derived by dividing total shareholders' equity — paid-up capital plus reserves and surplus minus accumulated losses — by the number of shares. A mature, profitable Nepali commercial bank that has accumulated substantial retained earnings over decades will have a book value per share that may be NPR 200, NPR 300, or more, even though each share still carries a face value of NPR 100.

Face value is not intrinsic value. Intrinsic value is a discounted present value of future cash flows attributable to the share. It may be far above or far below both face value and book value depending on the quality and growth prospects of the business.

Practical Uses of Face Value in Nepali Investing

Despite its limitations as a valuation metric, face value does practical work in several contexts you will encounter repeatedly. First, in dividend calculations, Nepali companies often declare dividends as a percentage of face value rather than as an absolute rupee amount. If a company declares a 15% cash dividend, it means NPR 15 per share (15% of NPR 100 face value). This convention means that a 15% dividend yield in the face-value sense is very different from a 15% yield on the market price paid. Always convert face-value percentage dividends into rupee amounts and then calculate the actual yield based on your cost of acquisition.

Second, bonus share entitlements are computed as a ratio to existing shares at face value. A 20% bonus means one new share for every five held, each new share carrying NPR 100 face value. The accounting reduces the company's free reserves and increases paid-up capital by the equivalent amount. This does not create value ex nihilo; it merely redistributes the equity structure between paid-up capital and reserves.

Third, when you read SEBON filings and annual reports, capital adequacy calculations for banks (based on Nepal Rastra Bank's Basel framework) and solvency calculations for insurance companies are anchored to paid-up capital, which is simply face value times shares outstanding. Regulatory minimum paid-up capital thresholds — such as the NRB directive requiring commercial banks to have paid-up capital of at least NPR 8 billion — are expressed in these terms.

Lesson 13.3 — Market Price vs. Face Value vs. Book Value: The Three Numbers

Any serious analysis of a Nepali listed company requires you to hold three distinct numbers in mind simultaneously: market price, face value, and book value. Each answers a different question, and the relationships between them — the price-to-book ratio, the premium or discount to face value — carry interpretive weight. But they are also capable of misleading you if examined in isolation.

Market Price: What the Market Thinks Today

The market price is the price at which a share last traded on the Nepal Stock Exchange, or the price at which a willing buyer and a willing seller would transact right now. It is the most visible number — it flashes on the NEPSE trading system, it appears in the daily market summary published by NEPSE, and it is the number most casual observers equate with a share's value.

Market prices in Nepal are determined by the forces of supply and demand operating within NEPSE's order-matching system. That system now uses a continuous double-auction mechanism, where buy and sell orders from all NEPSE-licensed brokers are matched electronically. The price reflects the aggregated expectations, information, and sentiments of all active market participants at a given moment.

The difficulty is that market participants in Nepal, as in any emerging market, bring varying degrees of information quality, analytical sophistication, and behavioural rationality to their trading decisions. The market price at any moment is the intersection of all these inputs — which means it may incorporate both genuine fundamental signals and substantial noise. Understanding when price deviates meaningfully from value, and why, is the central challenge of active equity investing.

Book Value: What the Accounts Say

Book value per share is calculated by taking total shareholders' equity from the balance sheet — paid-up capital plus share premium plus general reserve plus retained earnings or accumulated deficit — and dividing by the number of ordinary shares outstanding. In Nepal, the format of financial statements is governed by Nepal Financial Reporting Standards (NFRS), which are largely converged with IFRS.

Book value is a retrospective number. It tells you what accountants have determined the equity is worth based on historical transactions recorded under applicable accounting standards. It is not a forward-looking estimate of what the business can earn. A commercial bank with NPR 500 of book value per share has accumulated that equity through years of profitable operation. A newly listed hydropower company in its first year of commercial operation may show book value close to face value because it has had little time to accumulate earnings.

The price-to-book ratio (P/B ratio) is one of the most frequently cited valuation metrics in the Nepali market. When analysts say a commercial bank is trading at 1.5x book value, they mean the market price is 1.5 times the book value per share. In theory, a business worth buying should have a P/B ratio above 1.0 only if it generates returns on equity above its cost of equity. A company persistently earning return on equity below the cost of equity is one where the book value overstates the economic value to shareholders.

The Price-to-Book Relationship in Practice

Consider a simplified example using a hypothetical Nepali commercial bank. Suppose the bank has paid-up capital of NPR 10 billion, which at NPR 100 face value means 100 million shares outstanding. Its total shareholders' equity (paid-up capital plus reserves) is NPR 25 billion, giving a book value per share of NPR 250. If the market price is NPR 375, the P/B ratio is 1.5x. The share trades at a premium to book value because investors expect future return on equity to justify that premium.

Now suppose earnings deteriorate due to rising non-performing loans. Return on equity drops from 18% to 10%. Investors reprice the shares. The market price falls to NPR 200, a P/B ratio of 0.8x. The book value per share is still NPR 250 — the accounts have not changed — but the market no longer believes the business can earn adequate returns on that book value, so it prices the shares at a discount to it.

This dynamic — the relationship between return on equity, cost of equity, and the resulting justified P/B multiple — is central to bank equity analysis, and since the banking sector constitutes a dominant portion of NEPSE's total market capitalisation, it is central to understanding the Nepali equity market as a whole.

Face Value in This Triangle

Where does the NPR 100 face value fit in this triangle? It sits beneath both book value and market price as the floor of the equity accounting structure. A company cannot have a book value per share below zero indefinitely — once accumulated losses exceed total paid-up capital and reserves, the company is technically insolvent. And in that unhappy scenario, the face value of NPR 100 turns into a reminder of what shareholders originally subscribed, now largely or entirely gone.

More practically, when market price falls below face value — when a share trades below NPR 100 — it is a significant signal that the market is pricing severe fundamental distress. In Nepal, a share trading below NPR 100 is often in that territory because of accumulated losses, regulatory sanctions, or severe deterioration of business fundamentals. It is not a reason to buy simply because the price is close to face value. Face value has no magnetic power to pull the price back upward.

Lesson 13.4 — Promoter Shares vs. Public Shares: Differences and OTC Transfer Rules

When a company is established in Nepal, its initial share capital is typically divided into two categories: promoter shares and public shares. Understanding the distinction between these two classes — in terms of their origin, their lock-in obligations, and the rules governing their transfer — is essential for any investor analysing the ownership structure of a listed Nepali company.

Promoter Shares: The Foundational Capital

Promoter shares are the shares held by the founding investors of a company — the individuals, institutions, or corporate entities who conceived the business, subscribed to its initial capital at the time of incorporation, and took on the risk of the enterprise before it had any operating history. In Nepali company law and SEBON regulations, promoters are distinguished from the public both by their role and by the regulatory treatment applied to their shareholding.

For companies incorporated under the Companies Act 2063, promoters typically subscribe to a specified minimum percentage of the total authorised capital before the company can offer shares to the public through a primary market offering. For commercial banks and financial institutions, Nepal Rastra Bank's licensing requirements specify minimum promoter shareholding ratios. For hydropower companies, the promoter group often includes project developers, infrastructure funds, and in some cases government entities or local community organisations.

The key regulatory feature of promoter shares is the lock-in restriction. SEBON regulations impose a minimum lock-in period during which promoters cannot freely sell their shares on the open market. For most companies listed on NEPSE, the lock-in period is three years from the date of public issue. For certain categories — particularly banking and financial institutions — the lock-in may be longer, and NRB regulations add additional layers of restriction on the transfer of shares by promoters of licensed institutions.

Public Shares: The Market-Tradable Float

Public shares are those offered to the general public through an Initial Public Offering (IPO), Further Public Offering (FPO), or rights issue. Once allotted and listed, public shares are freely tradable on NEPSE through the normal secondary market mechanism, subject to the trading rules of the exchange and any general regulatory restrictions on the sector.

The distinction between promoter and public shares is recorded in SEBON's share registry and in the company's share register. In the DMAT system operated by CDS and Clearing Ltd (CDSC) — Nepal's central depository — the depository account of each shareholder carries information about whether the shares are promoter-category or public-category. This tagging is what enables the enforcement of lock-in restrictions.

The OTC Transfer Mechanism for Promoter Shares

When the lock-in period expires, or when SEBON grants specific approval for a promoter share transfer within the lock-in period under exceptional circumstances, the transfer of promoter shares does not occur through the normal NEPSE trading system. Instead, it occurs through an Over-the-Counter (OTC) mechanism regulated under SEBON's directives on OTC trading.

The OTC transfer process for promoter shares in Nepal involves several steps. First, the selling promoter and the buying party negotiate terms — price per share and quantity — directly or through a broker acting as intermediary. Second, they execute a share transfer agreement. Third, they submit the required documentation to SEBON and to the company's share registrar for regulatory approval. Fourth, the transfer is recorded in the company's share register, the appropriate stamp duty is paid, and the CDSC updates the DMAT records accordingly.

The price at which promoter shares change hands in OTC transactions is often a matter of significant interest to public market participants. A promoter selling shares at a price substantially below the current NEPSE market price is a bearish signal — it suggests insiders are willing to exit at a discount to the market valuation. Conversely, a strategic investor acquiring a significant promoter stake at a premium to market price may signal confidence in the company's future prospects. Because OTC transactions are required to be disclosed to NEPSE and published in its official communications, diligent investors monitor these announcements.

Ownership Concentration and Its Implications

The promoter-versus-public share structure has a direct bearing on the effective free float of a listed company's shares. If promoters collectively hold 51% of shares and are subject to lock-in, only 49% of shares are available for public market trading. If a portion of the public float is also held by institutional investors with long holding horizons, the actively traded float may be considerably smaller.

Low free float has two significant practical consequences. First, it reduces market liquidity, meaning that large buy or sell orders can move the price substantially. Second, it concentrates governance power in the hands of the promoter group. In Nepal, where promoter shareholding in commercial banks is regulated at specific levels and where hydropower projects are often controlled by compact promoter groups, understanding the real free float is important both for liquidity risk management and for assessing the practical scope of minority shareholder governance.

Lesson 13.5 — Share Certificates to Demat: The Historical Transition in Nepal

For much of Nepal's modern corporate history, a shareholder's proof of ownership was a physical share certificate — a paper document bearing the company's seal, the shareholder's name, the number of shares, the face value per share, and the share numbers assigned to those specific shares. The certificate was not merely a record of ownership; under the law, it was the instrument of ownership. Losing it meant navigating a cumbersome replacement process. Transferring it meant physically delivering the certificate, completing a share transfer form, and waiting for the company's registrar to update the share register.

The Paper-Based System: How It Worked and Why It Failed

The paper certificate system served Nepal's nascent corporate sector reasonably well when the number of listed companies was small, trading volumes were modest, and the investor population was limited primarily to Kathmandu Valley. Each company maintained its own physical share register, recording transfers manually as certificates changed hands.

But as NEPSE grew through the 1990s and 2000s, and as the investor base expanded geographically, the limitations of the paper system became acute. Settlement was slow — days or weeks might pass between a trade on NEPSE and the actual transfer of the certificate and updating of the register. Fraudulent certificates appeared. Genuine certificates were lost to fire, flood, and ordinary misplacement. Shares of deceased investors became trapped for years in succession disputes because certificates could not be located. The cost of physical administration — storing, transferring, replacing, and verifying paper instruments — fell on companies, registrars, investors, and brokers alike.

More fundamentally, the paper system was incompatible with any aspiration toward a modern, efficient securities market. Settlement risk — the risk that one party to a trade would deliver shares or cash while the other failed — was structurally embedded in a system built on physical instruments.

The Regulatory Push Toward Dematerialisation

The Securities Act 2063 and subsequent SEBON regulations provided the legal foundation for dematerialisation. CDS and Clearing Ltd (CDSC) was established as Nepal's central securities depository, authorised to maintain electronic records of share ownership in demat accounts and to operate the clearing and settlement of NEPSE trades on a book-entry basis.

Under SEBON's directives, listed companies were required to progressively shift their share capital into demat form. Companies were instructed to engage with CDSC, connect their share registers to the electronic system, and require shareholders to surrender physical certificates in exchange for equivalent demat holdings. NEPSE's trading system was modified to settle trades exclusively through CDSC's book-entry mechanism, meaning that shares could only be bought and sold on NEPSE if they were held in a DMAT account.

How the DMAT System Works Today

Today, every investor who wishes to trade on NEPSE must have a DMAT account with CDSC. These accounts are opened through licensed depository participants — typically commercial banks, their securities subsidiaries, or broker-dealers authorised to act as depository participants. The DMAT account is linked to a Mero Share account, CDSC's online portal through which investors can view their holdings, apply for IPO allotments through the ASBA (Application Supported by Blocked Amount) mechanism, and access transaction statements.

When you buy shares on NEPSE, your broker's system matches your order with a counterpart seller. Settlement occurs on a T+2 basis — trade date plus two business days — during which CDSC's clearing system ensures that the buyer's bank account is debited, the seller's bank account is credited, and the share ownership records are updated electronically. The shares are never physically moved. A simple arithmetic entry changes the balance in the seller's DMAT account downward and the buyer's DMAT account upward.

This system eliminates the settlement risk and administrative burden of the old paper certificate era. Shares cannot be counterfeited in the traditional sense. Lost instruments are not a concept in the demat world — what exists is a database entry, backed up and governed by CDSC's systems. Transfers are instant in principle and completed within the settlement cycle in practice.

Residual Certificate Issues and Legacy Complications

Despite the overall success of the transition, physical certificates from the pre-demat era still surface periodically. Some investors, particularly elderly shareholders in rural areas who received allotments in early IPOs of institutions like Nabil Bank or Nepal Investment Bank, held their certificates for decades without converting. When they seek to sell or transfer — or when their heirs attempt to claim after the shareholder's death — they must first complete the dematerialisation process, which requires submitting the physical certificate to the company's registrar, obtaining a demat confirmation, and then crediting the shares to a DMAT account.

In some cases, certificates have been lost entirely. The Companies Act provides a procedure for replacement — involving a publication in a national newspaper, a waiting period for any adverse claims, and a board resolution authorising reissuance — but the process is time-consuming and uncertain. For shares of high-value companies, the effort is worthwhile. For shares of smaller or delisted companies, the practical recovery may be negligible.

Estate settlements involving unconverted share certificates introduce additional complications, because the legal process for transmission of shares — the formal transfer of ownership from a deceased person to their heirs — requires both probate documentation and coordination between the company's registrar and CDSC. Investors who hold physical certificates should treat their dematerialisation as an urgent and important piece of financial housekeeping.

The ASBA Revolution and Its Tie to Demat

The dematerialisation of shares was the precondition for another transformative development in Nepal's retail investor experience: the ASBA mechanism for IPO applications. Under ASBA, when you apply for shares in a new listing, your bank account is not immediately debited. Instead, the application amount is blocked — held in reserve — until the allotment is made. If you receive a full allotment, the blocked amount is debited. If you receive a partial allotment or no allotment, the remaining blocked amount is released. Allotted shares flow directly into your DMAT account without any certificate being printed, delivered, or converted.

ASBA, operating through the banking system and CDSC's demat infrastructure, has made IPO participation accessible to investors across Nepal, including those in Provinces 1 through 7 who in the paper era would have had to physically submit applications in Kathmandu. The scale of retail participation in Nepali IPOs — with hundreds of thousands of applicants routinely submitting for popular issues — would be operationally impossible without the underlying demat and electronic clearing infrastructure.

The transition from share certificates to demat is not just a technical footnote in Nepali market history. It is the infrastructure story that enabled the democratisation of equity investing in Nepal. Every subsequent development — ASBA allotments, online trading platforms, the Mero Share portal, and the eventual integration of NEPSE into regional capital market networks — rests on the foundation laid by that painstaking conversion of paper certificates into electronic book entries. As an investor in Nepal today, you inherit the benefits of that transition every time you execute a trade and see your DMAT balance update by the next business day.