Company conversion in Nepal is a legal process that allows businesses to change their structure from a private limited company to a public one, from a sole proprietorship to a private limited company, and more. This guide explains the types, process, documents, legal compliance, and important factors to consider for a successful company conversion.
Introduction to Company Conversion in Nepal
What Is Company Conversion?
Company conversion refers to the legal process of changing a company's classification : from a private company to a public one, or vice versa. This doesn’t create a new company; rather, it alters the company’s status while maintaining its legal identity.
Why Convert a Company?
Businesses opt for conversion due to various reasons:
- To access capital: Going publicfrom private allows companies to raise funds through the stock market.
- For privacy and flexibility: Going private from public helps companies avoid strict public compliance.
- To restructure ownership or meet market demands.
Types of Company Conversion
Conversion from Private Limited to Public Limited
A private company can be convert into a public limited company to raise capital from the public. This requires meeting the minimum capital and shareholder requirements, and amending the MOA and AOA accordingly.
Conversion from Public Limited to Private Limited
In case a public company wishes to limit its operations or reduce regulatory burdens, it can be convert into a private company, subject to shareholder approval and OCR consent.
Conversion from Partnership Firm to Private Limited Company
This conversion allows business partners to limit their personal liability and operate under a corporate structure. It is a common choice for growing businesses in Nepal. But, the laws of Nepal do not allow to convert the partnership firm into private companies.
Conversion from Sole Proprietorship to Private Limited Company
Many sole proprietors convert their businesses into private limited companies to gain legal recognition, attract investors, and enjoy separate legal entity status. But, the laws of Nepal do not allow to convert the proprietorship firm into private companies.
Conversion of Private Company into Public Company
Requirements for Conversion to Public Company
To convert to a public company in Nepal, a private company must:
- Have at least 7 shareholders in the company
- Increase its paid-up capital to the threshold required i.e NPR 1 Million
- Fulfill statutory and compliance obligations
- Obtain approval via a special resolution of shareholders
Procedure for Conversion of Private to Public Company
The general steps include:
- Hold a Board Meeting and decide on the conversion
- Conduct a Special General Meeting to pass the resolution
- File necessary documents with OCR
- Update the Articles of Association (AOA) and Memorandum of Association (MOA)
- Obtain approval from OCR and a new Certificate of Incorporation
Documentation and Forms Needed
- Amended AOA and M0A
- Special Resolution
- Application for conversion
- Updated shareholder and director list
- Proof of paid-up capital
Regulatory Approval from OCR (Office of the Company Registrar)
The OCR confirms all legal conditions are met before issuing a fresh certificate recognizing the company as public. The conversion is not valid without the approval of the office of the Company Registrar.
Compliance Requirements After Conversion
Post-conversion, the company must adhere to:
- Public company disclosure norms
- Regular audits, AGMs, and reporting
- Possible listing on the stock exchange
Conversion of Public Company into Private Company
Conditions to Convert Public Company into Private Company
This is usually pursued to gain operational flexibility. A public company may convert if:
- The number of shareholders drops below the threshold
- It decides to delist or reduce disclosure obligations
- It aims to return to a family-owned structure
Step-by-Step Process for Conversion
- Pass a special resolution for conversion
- Amend AOA and MOA to reflect private company provisions
- File application with OCR
- Receive new Certificate of Incorporation as a private company
Documents Required for Company Conversion
General Documents Required
- Application for conversion (in prescribed format)
- Board or Partner Resolution
- Updated Memorandum of Association (MOA)
- Updated Articles of Association (AOA)
- Copy of existing company registration certificate
- Tax clearance certificate
Additional Documents Based on Type of Conversion
- Auditor’s report (for public to private conversion)
- Shareholder list and capital structure details
- Newspaper publication notice (for private to public)
Step-by-Step Process for Company Conversion in Nepal
Pass the Required Resolution
The company must hold a meeting (Board or General Meeting, depending on the type of company) to pass a resolution approving the conversion.
Submit Application to the Office of Company Registrar (OCR)
An application must be filed with the OCR, including all necessary documents and prescribed fees.
Review and Approval from OCR
The OCR will review the submitted documents and either approve the conversion or request further clarification or additional documentation.
Publication in National Daily (if applicable)
For conversions involving public companies, a public notice must be published in a national daily newspaper for transparency and legal compliance.
Legal Compliance and Post-Conversion Formalities
Update PAN and Tax Details
Once converted, the new entity must update its Permanent Account Number (PAN) and tax information with the Inland Revenue Office.
Inform the Bank and Other Stakeholders
Banks, clients, vendors, and other stakeholders should be informed of the conversion and provided with the updated company documents.
Update Share Structure and MOA/AOA
The company must ensure that all changes in capital structure and legal documents are properly filed and updated.
Important Things to Consider Before Conversion
Tax Implications
Conversion may lead to capital gains tax, VAT implications, or other tax obligations. Consult with a tax advisor before proceeding.
Regulatory Requirements
Ensure the new company structure complies with applicable laws, such as those under SEBON, NRB, or IRD, depending on your industry.
Impact on Existing Contracts and Licenses
Review existing agreements, licenses, and permits to ensure they remain valid or are updated after conversion.
Frequently Asked Questions (FAQs) on Company Conversion in Nepal
How long does the company conversion process take in Nepal?
Typically 2 to 4 weeks, depending on OCR processing time and document completeness.
Is there any fee for company conversion in Nepal?
Yes, the OCR charges a processing fee based on the type of conversion and capital structure.
Can I convert my NGO into a company?
No, NGOs and not-for-profit entities are governed by different legal frameworks and cannot be converted into a for-profit company.
Do I need to re-register my PAN after conversion?
Yes, you must update or re-register your PAN with the Inland Revenue Office to reflect the new company status.
Final Thoughts
Converting a company in Nepal can be a strategic move to boost growth, meet compliance standards, or restructure operations. Whether you're shifting from a sole proprietorship to a private limited company or planning to go public, it's essential to follow the legal process carefully and seek professional advice when needed.
Need Help with Company Conversion?
Estartup Nepal provides expert assistance for converting any type of business entity in Nepal. From document preparation to OCR processing, our team ensures a smooth and compliant transition tailored to your needs.
Contact us today to simplify your company conversion process.