Company Conversion Procedure in Nepal

This Article covers the legal aspects of company conversion from private companies to public companies including approvals, compliances, documentations, and filings.

Prime Law Associates has a leading Corporate & Commercial Practice in Nepal. The Firm, established in 2009, has served 700 clients till date.

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Amit Karna

Amit Karna is a Corporate Lawyer in Nepal with extensive experience in registering multiple companies in Nepal.

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Sukra Subba

Sukra Subba has 10 Years of experience in the Corporate Sector of Nepal & facilitating associated companies at the Firm.

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Differences between Private & Public Companies

Aspect	Private Company	Public Company
Shareholders	Maximum 101	Minimum 7, no maximum
Capital Raising	Cannot offer shares publicly	Can raise capital through public share offerings
Transferability	Restricted share transfer	Freely transferable shares
Disclosure	Limited financial reporting	Extensive disclosure requirements
Listing	Not listed on stock exchange	Can be listed on stock exchange

Legal Framework for Company Conversion in Nepal

The Companies Act 2063 (2006) governs the conversion of private companies to public companies in Nepal. The Act stipulates requirements for shareholder approval, capital structure changes, and regulatory filings. It mandates companies to amend their memorandum and articles of association to align with public company regulations.

Regulatory Bodies governing Company Conversion in Nepal

The Office of Company Registrar (OCR) serves as the primary regulatory authority for company conversions in Nepal. It reviews conversion applications, verifies compliance with legal requirements, and issues conversion certificates. The Securities Board of Nepal (SEBON) regulates public offerings and stock exchange listings for converted companies. The Nepal Stock Exchange (NEPSE) facilitates the listing and trading of shares for public companies.

Also Read: Company Registration in Nepal

Eligibility Criteria for Conversion in Nepal

The fundamental eligibility criteria, a company must meet, for its conversion from a privately held company to a publicly owned & traded company is:

Minimum paid-up capital: The company must have a minimum paid-up capital of NPR 10 million.
Financial performance: The company should demonstrate profitability for at least three consecutive years prior to conversion.
Debt-equity ratio: The company’s debt-to-equity ratio should not exceed 4:1 at the time of conversion.
Board composition: The company must appoint independent directors as per public company requirements.
Shareholder structure: The company should have a minimum of seven shareholders after conversion.

Company Registration Lawyer in Nepal

Process of Private to Public Company Conversion

Step 1: Organization of Special General Meeting

The company’s board of directors calls a special general meeting of shareholders. The meeting notice includes the agenda to discuss and vote on the proposed conversion. The notice provides details on the rationale for conversion, implications for shareholders, and the proposed changes to the company’s structure. The company secretary prepares meeting documents, including draft resolutions for shareholder approval.

Step 2: Approval by Shareholder

At the special general meeting, shareholders discuss the conversion proposal. The company presents the benefits and challenges of public status. Shareholders vote on the resolution to convert the company. The Companies Act requires approval from at least 75% of shareholders present and voting. If approved, the resolution authorizes the board to proceed with the conversion process and make necessary changes to company documents.

Step 3: Preparation of Documents

The company prepares documents required for conversion. These include amended memorandum and articles of association reflecting public company status. The company drafts a conversion application for the Office of Company Registrar. Financial statements for the past three years are compiled. The company prepares a due diligence report on its operations and compliance status. Board resolutions authorizing the conversion are documented. The company creates a draft prospectus for the proposed public offering.

Step 4: Submission to OCR

The company submits the conversion application to the Office of Company Registrar. The application includes the special resolution, amended company documents, and financial statements. The OCR reviews the application for compliance with legal requirements. It verifies the company’s eligibility for conversion and examines the proposed changes to company structure.

Step 5: Validation with the Securities Board

The company submits its draft prospectus to the Securities Board of Nepal for review. SEBON examines the prospectus for compliance with disclosure requirements and investor protection standards. The board assesses the company’s financial position and business prospects. SEBON may provide comments or request revisions to the prospectus. Once satisfied, SEBON issues a letter of intent for the public offering.

Step 6: Issuance of IPO

Upon SEBON approval, the company proceeds with its initial public offering (IPO). It appoints issue managers and underwriters for the share issuance. The company publishes the approved prospectus and opens share applications to the public. It collects and processes share applications, conducts allotment, and issues shares to successful applicants. The company complies with SEBON regulations on IPO timing, pricing, and allocation.

Step 7: Completion of Conversion

After the IPO, the company submits final documents to the OCR. These include proof of share allotment and the updated shareholder register. The OCR verifies the completion of the conversion process. It issues a certificate of conversion, officially recognizing the company’s public status. The company then applies for listing on the Nepal Stock Exchange. Upon meeting NEPSE requirements, the company’s shares become available for trading on the stock market.

Documents & Information required for Company Conversion Process

The following documents and information are typically required for company conversion:

Special resolution approving the conversion
Amended memorandum of association
Amended articles of association
Audited financial statements for the past three years
Due diligence report on company operations
Board resolution authorizing conversion
Draft prospectus for public offering
Company registration certificate
PAN/VAT registration certificates
List of existing shareholders with shareholding details
Details of company directors and key management personnel
Compliance certificates from regulatory bodies
Valuation report of company assets
Bank statements and details of company accounts

Timeline for Completion of the Process

The conversion process from private to public company in Nepal typically takes 6 to 12 months. The duration varies based on the company’s preparedness, regulatory reviews, and market conditions. Document preparation and shareholder approval may take 1-2 months. OCR review and approval can take 2-3 months. SEBON prospectus review and approval may require 2-3 months. The IPO process, including subscription period and allotment, usually takes 1-2 months. Post-IPO procedures and stock exchange listing can take an additional 1-2 months.

Post-Conversion Compliance for Converted Company

After conversion to public status, the companies must:

1. Submit quarterly and annual financial statements to regulatory bodies and shareholders.

2. Hold annual general meetings and provide timely information to shareholders.

3. Conduct regular internal and external audits as per public company standards.

4. Hold regular board meetings and maintain proper records of proceedings.

5. Submit various reports and returns to OCR, SEBON, and other regulatory bodies as required.

Frequently Asked Questions:

What are the benefits of converting to public?

Conversion of Private Company to Public Company allows access to capital markets, increase liquidity for shareholders, enhance corporate image, and attract talent.

How does the conversion process take?

The conversion process takes 6-12 Months for document preparation, approvals, and IPO Procedures.

Can a public company convert back to private?

Yes, public companies can convert back to private status through a process called “going private.”

What is the minimum capital for public companies?

The minimum paid-up capital requirement for public companies in Nepal is NPR 10 million. However, specific industries may have higher capital requirements set by regulatory authorities.

Are there ongoing compliance costs after conversion?

Yes, public companies face ongoing compliance costs related to financial reporting, corporate governance, regulatory filings, and investor relations.

Conclusion

Converting from a private to a public company in Nepal is governed by the Companies Act, 2063 (2006). Companies must meet eligibility criteria, obtain shareholder approval, and comply with requirements.

Disclaimer: This Article is for informational purposes only and shall not be construed as legal advice, advertisement, personal communication, solicitation, or inducement of any sort from the firm or any of its members. The firm shall not be liable for consequences arising out of any action undertaken by any person relying on the information provided herein.

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