A private limited company may convert into a public limited company either for business reasons or because the law requires it. This insight examines the eligibility requirements, the conversion procedure before the Office of the Company Registrar, and the obligations that follow conversion.
01When conversion is needed
Conversion may be driven by business needs, or by the mandatory rule in Section 12 of the Company Act, 2063 (2006), which requires certain businesses — banking, insurance, mutual funds and other notified activities — to be incorporated as public limited companies. By the first amendment to the Act, telecommunication service providers with paid-up capital exceeding NPR 50 million are also subject to this requirement.
02Requirements for conversion
Section 11 of the Act and Directives 13 and 14 of the Company Directive, 2072 (2015) set the prerequisites:
- minimum paid-up capital of NPR 10 million;
- net assets not less than the total of paid-up capital and the restricted (non-distributable) reserve fund;
- a minimum of seven shareholders.
03Procedure
- Special resolution — under Sections 13(a) and 83(h), the general meeting must adopt a special resolution to convert.
- Application to the OCR — under Section 13(b), the company applies to the Office of the Company Registrar with the resolution, documents and fees within thirty days of passing the resolution.
- Time frame — if the requirements are met, the OCR converts the company within sixty days and issues the conversion certificate.
04Required documents
Under Directive 14 of the Company Directive:
- application requesting conversion;
- copy of the special resolution authorising conversion;
- amended Articles and Memorandum of Association (two copies);
- audited financial statements not older than six months;
- an auditor’s declaration that net assets are not less than paid-up capital plus the restricted reserve fund;
- a directors’ declaration of compliance with all legal conditions enabling conversion.
05Post-conversion requirements
Under Section 13(8), all provisions applicable to a public limited company apply to the converted entity immediately. This includes obtaining approval to commence business — applying to the relevant authorities, providing evidence of full payment of called and subscribed shares, and acquiring the licence to commence business within three months of conversion. The Memorandum and Articles must be published within three months of obtaining the licence. Compliance is essential to avoid penalties and complications.