Introduction
In Nepal, the transition from a private limited company to a public limited company is governed by the Company Act, 2063 (2006). This legal guide outlines the process, requirements, and post-conversion obligations involved in converting a private company into a public limited company, either voluntarily or due to mandatory regulatory provisions.
Businesses operating in sectors like banking, insurance, mutual funds, and telecommunications may be required by law to convert into public companies if certain criteria are met. Understanding this process is essential for legal compliance and strategic business growth.
Why Convert a Private Company into a Public Limited Company?
Regulatory Compliance
Under Section 12 of the Company Act, entities involved in specific sectors (e.g., banking, insurance, telecom with paid-up capital over NPR 50 million) must register as public limited companies.
Business Expansion
Conversion allows access to capital markets, enabling the company to raise funds from the public, issue shares, and gain increased visibility.
Legal Requirements for Conversion
As per Section 11 of the Company Act and Directives 13 and 14 of the Company Directive, 2072 (2015), the following requirements must be met:
- Minimum paid-up capital of NPR 10 million
- Net assets must exceed or equal the total of paid-up capital and non-distributable (restricted) reserves
- At least 7 shareholders must be present in the company
Step-by-Step Procedure for Conversion
Special Resolution by General Meeting
According to Section 13(a) and Section 83(h) of the Company Act, a special resolution must be passed by the company’s general meeting authorizing the conversion.
Application to Office of the Company Registrar (OCR)
Within 30 days of passing the resolution, the company must apply to the OCR, submitting required documents and paying applicable fees (Section 13(b)).
Review and Approval by OCR
If all legal requirements are met, the OCR will approve the conversion within 60 days and issue a conversion certificate to the company.
List of Required Documents
As outlined in Directive 14 of the Company Directive, the following documents must be submitted to the OCR:
- Application requesting conversion
- Certified copy of the special resolution
- Amended Memorandum and Articles of Association (2 copies)
- Audited financial statements not older than six months
- Auditor’s declaration confirming net asset adequacy
- Directors’ declaration confirming legal compliance for conversion
Post-Conversion Requirements
Once a company is converted into a public limited company, the following obligations must be fulfilled under Section 13(8) of the Company Act:
Business Commencement Approval
The company must apply to the relevant authority for approval to commence business, including:
- Proof of full payment of called-up and subscribed share capital
- Acquisition of a license to commence operations
Publication of Company Documents
Within three months of receiving the business license, the memorandum and articles of association must be published for public notice.
Conclusion
Converting a private company into a public limited company in Nepal involves statutory compliance, procedural diligence, and post-conversion regulatory obligations. Businesses planning to expand, raise capital, or operate in regulated sectors must understand and adhere to the legal framework under the Company Act, 2063 (2006).
For expert legal advice and assistance in company conversion, consult with a professional corporate law firm in Nepal.