How to convert Private Company to Public Company in Nepal

At the time of the incorporation of a business entity, the applicants have options for selecting the types of Company, based on which the Companies Act, 2063 provisions will be applied. The Companies Act allows changing the types post-incorporation from Private Company to Public Company and vice versa.  

In simple words, Private Company is a closely held Company which put a restriction on transfer of shares through its Articles of Association (AoA). The Companies Act, 2063, prohibits the invitation to the public to subscribe for shares in a Private Company. 

On the other hand, Public Company does not have any such restrictions regarding an invitation to the public for the subscription of shares or transferability of shares. Both types of companies, have their benefits and limitations. The applicants sometimes desire to change their class of Company.

What is a Private Company and Public Company?

The Companies Act, 2063 provides for different types of Companies, of which the most popular in the corporate world are the Private and Public Companies. These are the most preferred and the requisites of the Private and Public Company are as under:

Private Company

• The Articles of Association (AoA) restricts the transferability of shares in the Company and prevent the public at large to subscribe for the shares of the Private Company

• The maximum number of the members for Private Company is 101. This maximum number does not include any former employee or present employees who have obtained shares under employee share scheme.
• There shall be at least 2 directors (1 in case of single shareholder company) 
• Private company cannot issue its shares in public.
  

Public Company

• The public Company for expansion can trade-in an open market by selling shares to the public at large to raise capital.
• The minimum number of shareholders for Public Company is 7  
• There shall be at least 3 directors. 
• Public company can issue its shares through public issue of private placement. 

Key Considerations for converting Private company to Public company:

• Shareholders of the Company shall approve the conversion of the company into public company by passing Special Resolution in the General Meeting.
• Name clause of the Memorandum and Articles needs to be amended to exclude the word 'Private'.
• If the number of shareholders is less than 7, appropriate steps should be taken to increase them to at least 7.
• If the number of directors of the company is two, the numbers of directors should be increased to at least 3 by amending the Articles.
• Increase the authorized, issued and paid up share capital of the company, to make its capital of at least 1 crore.
• If there is any restrictive provision regarding transfer of shares, the articles of the company shall be suitably amend for the removal of restrictive provision applicable to private company. The new set of articles is available in the website of office of company registrar.

Procedure for Conversion from Private to Public company

The procedure to be followed for the conversion of private company to public company are as follows:

• Calling of Board Meeting
• Issue of General Meeting Notice
• Holding of General Meeting
• Filing all the documents at Company Registrar Office

Calling of Board Meeting

The Board Meeting should be held to discuss the following agendas: 

• To adopt new Memorandum of Articles (MoA) subject to the approval of shareholders.
• To adopt new Articles of Articles (AoA) subject to the approval of shareholders.
• To get the approval of Conversion of Private Company to Public Company from the shareholders in General Meeting.
  
• Fix date, time and the place for holding GM of the Company.
• To get approval from GM and authorize someone to circulate notice of GM.

Issue of GM Notice 

According to the provisions of Section 67 of Companies Act, 2063, the notice shall be sent to every shareholders of the company by providing lawful notice.

Holding of General Meeting

The shareholder’s approval for the Conversion of Private Company to Public Company will be taken in the resolution passed by all the shareholders in the General Meeting. The resolution to be passed by the shareholders is in the nature of Special Resolution. The notice shall be sent to shareholders at least 21 before the holding of AGM & 15 days before the holding of EGM. The called general meeting may be either AGM or EGM.

Filing of Documents with OCR

After passing of the resolution in GM, it is mandatory to file the documents with 30 days of passing resolution along with applicable fees. The documents to be attached includes: 

• Application for Conversion 
  
• Minutes of Board Meeting
• Minutes of General Meeting
• Copy of Altered MOA
• Copy of Altered AOA
• Copy of Resolution Passed in General Meeting
• Tin Mahale Bibaran
• Other Documents; if required
  
• Power of Attorney; if any
  

Conclusion

The Companies Act, 2063, provides for Conversion of Private Company to Public Company. By alteration in the Memorandum of Association (MoA) and Articles of Association (AoA), the Conversion can be done of Private Company to Public Company. The procedure of Conversion is time-consuming.

Read other article: Forfeiture of Shares in Nepal