How to Convert Private Company into Public Company in Nepal

Introduction to Private to Public Company Conversion

Converting a private company into a public company is a significant step in a business’s growth journey. In Nepal, this process is governed by the Companies Act, 2063 (2006) and overseen by the Office of the Company Registrar (OCR). This conversion allows a company to offer shares to the public, potentially increasing its capital and expanding its operations. The process involves several steps, from shareholder approval to regulatory compliance, and can have far-reaching implications for the company’s structure and governance.

Understanding Private and Public Companies

What is a Private Company?

A private company in Nepal is a business entity with limited liability, typically owned by a small group of shareholders. According to Section 2(d) of the Companies Act, 2063, a private company has restrictions on the transfer of shares and limits on the number of shareholders. These companies are not allowed to invite the public to subscribe to their shares or debentures.

What is a Public Company?

A public company, as defined in Section 2(e) of the Companies Act, 2063, is a company that can offer its shares to the general public. Public companies have more shareholders, fewer restrictions on share transfers, and are subject to stricter regulatory requirements. They can be listed on stock exchanges, providing liquidity to shareholders and access to capital markets.

Key Differences Between Private and Public Companies

The main differences between private and public companies in Nepal include:

1. Ownership structure
2. Capital raising capabilities
3. Regulatory compliance requirements
4. Financial reporting obligations
5. Management and governance structures

Process of Converting Private Company to Public Company

Shareholder Approval

The first step in converting a private company to a public company is obtaining shareholder approval. This requires:

1. Calling a general meeting of shareholders
2. Presenting the proposal for conversion
3. Obtaining a special resolution with at least 75% approval from shareholders

Amending Company Documents

After shareholder approval, the company must amend its constitutional documents:

1. Modify the Memorandum of Association
2. Update the Articles of Association
3. Remove restrictions on share transfers
4. Adjust the company name to include “Public Limited”

Increasing Share Capital

To meet public company requirements, the share capital must be increased:

1. Determine the new authorized capital
2. Issue additional shares if necessary
3. Comply with minimum paid-up capital requirements as per Section 39 of the Companies Act, 2063

Appointing Required Officers

Public companies must appoint certain officers as per legal requirements:

1. Appoint a company secretary (Section 168 of Companies Act, 2063)
2. Ensure the required number of directors (minimum 3 for public companies)
3. Appoint an auditor approved for public company audits

Filing Documents with the Company Registrar

Submit the following documents to the Office of the Company Registrar:

1. Application for conversion
2. Amended Memorandum and Articles of Association
3. Special resolution approving the conversion
4. List of shareholders and directors
5. Audited financial statements
6. Proof of increased share capital

Obtaining Regulatory Approvals

Seek necessary approvals from relevant authorities:

1. Office of the Company Registrar
2. Securities Board of Nepal (SEBON) for public issuance of shares
3. Nepal Rastra Bank for financial institutions

Issuing Shares to the Public

If planning a public offering:

1. Prepare a prospectus as per SEBON guidelines
2. Obtain SEBON approval for the public issue
3. Appoint issue managers and underwriters
4. Conduct the public offering process

Requirements for Private to Public Company Conversion

Minimum Capital Requirements

As per Section 39 of the Companies Act, 2063, public companies must have:

1. Minimum paid-up capital of NPR 10 million for non-listed companies
2. Higher capital requirements for listed companies and specific sectors

Minimum Number of Shareholders

Public companies must have:

1. At least 7 shareholders as per Section 3(2) of the Companies Act, 2063
2. No upper limit on the number of shareholders

Board of Directors Requirements

Public companies must comply with:

1. Minimum of 3 directors (Section 86 of Companies Act, 2063)
2. Independent director requirements for listed companies

Financial Reporting and Auditing

Enhanced reporting obligations include:

1. Annual audited financial statements
2. Quarterly financial reports for listed companies
3. Appointment of auditors approved for public company audits

Documents Required for Company Conversion

Shareholder Resolution

1. Special resolution approving the conversion
2. Minutes of the general meeting where the resolution was passed

Amended Company Documents

1. Revised Memorandum of Association
2. Updated Articles of Association
3. New Certificate of Incorporation reflecting public status

Financial Statements

1. Audited financial statements for the past 3 years
2. Opening balance sheet as a public company

Regulatory Filings

1. Application form for conversion
2. Compliance certificates from relevant authorities
3. Due diligence report (if required)

Timeline and Cost of Company Conversion

Estimated Timeline

The conversion process typically takes:

1. 2-3 months for internal preparations and shareholder approval
2. 1-2 months for regulatory filings and approvals
3. Additional time if public offering is planned

Associated Costs

Costs involved in the conversion include:

1. Legal and professional fees
2. Regulatory filing fees
3. Capital increase costs
4. Public offering expenses (if applicable)

Legal Framework Governing Company Conversion in Nepal

Companies Act, 2063 (2006)

The primary legislation governing company conversion:

1. Sections 14-16 on company classification and conversion
2. Sections 39-41 on capital requirements
3. Sections 86-88 on board composition

Securities Act, 2063 (2007)

Regulates public offerings and stock exchange listings:

1. Chapter 4 on public issuance of securities
2. Chapter 5 on stock exchange operations

Nepal Rastra Bank Act, 2058 (2002)

Governs conversion of financial institutions:

1. Section 47 on licensing of banks and financial institutions
2. Directives on capital requirements for different classes of financial institutions

Regulatory Authorities Overseeing Company Conversion

Office of the Company Registrar (OCR)

Primary authority for company registration and conversion:

1. Approves company conversion applications
2. Issues new certificates of incorporation
3. Maintains the company register

Securities Board of Nepal (SEBON)

Regulates public offerings and capital markets:

1. Approves prospectuses for public issues
2. Oversees the public offering process
3. Ensures compliance with securities laws

Nepal Rastra Bank (NRB)

Regulates conversion of financial institutions:

1. Approves conversion of banks and financial institutions
2. Sets capital and operational requirements for different classes of financial institutions

Conclusion

Converting a private company to a public company in Nepal is a complex process that requires careful planning, legal compliance, and regulatory approvals. While it offers opportunities for growth and capital raising, it also comes with increased responsibilities and regulatory oversight. Companies considering this transition should seek professional advice to navigate the legal and financial complexities involved in the conversion process.