Public Company Registration in Nepal

Public company registration in Nepal unlocks access to a wider investor pool. Compared to private companies, they require a minimum of 7 shareholders, allowing public offerings of shares. This translates to stricter regulations and higher minimum capital (currently NPR 1 Crore). The process involves approval from the OCR, potentially needing additional permits for your business activity. Public companies benefit from increased visibility and potential for higher valuations. 

What is a public company registration in Nepal?

Registering a public company in Nepal involves the legal process of establishing a corporate entity that can offer shares to the general public. It signifies the transformation of a private enterprise into a publicly traded company, subject to regulations outlined by the Company Act and Securities Act of Nepal.

Public company registration requires compliance with specific legal formalities, including drafting the company’s memorandum and articles of association, appointing directors, and obtaining necessary approvals from regulatory authorities like the Department of Industry and the Securities Board of Nepal. Once registered, the company can issue shares to raise capital from investors.

What are the eligibility criteria for public company registration?

To qualify for public company registration in Nepal, the entity must meet certain eligibility criteria set forth by regulatory authorities. These criteria typically include having a minimum paid-up capital as mandated by the prevailing laws, such as the Companies Act and Securities Act.

the company must comply with corporate governance standards and fulfill specific requirements regarding the structure of the board of directors and shareholder composition.

How does public company registration differ from private registration?

Public and private company registration in Nepal differs in several key aspects:

• Shareholders: Public companies require a minimum of 7 shareholders and can offer shares to the public, while private companies have a maximum of 50 shareholders and don’t offer public shareholding.
• Capital Requirements: Public companies have a minimum paid-up capital requirement (typically higher than private companies) to ensure financial stability.
• Regulations: Public companies face stricter regulations and reporting requirements compared to private companies due to increased public scrutiny.
• Transparency: Public companies must be more transparent due to public shareholding, often requiring public audits and wider information disclosure.

What are the requirements for issuing shares in a public company?

Public companies in Nepal must follow stricter rules for issuing shares compared to private companies. Here’s the gist:

• Board and Shareholder Approval: Both the board of directors and shareholders need to approve the share issuance through proper meetings and voting procedures.
• Prospectus Required: A detailed prospectus outlining the company’s financial health, plans for using the raised capital, and potential risks must be prepared and approved by the Securities Board of Nepal before offering shares to the public.
• Compliance with Securities Act: The entire process must comply with Nepal’s Securities Act, ensuring transparency and investor protection.

 

Can foreigners invest in public companies in Nepal?

Yes, foreigners can absolutely invest in public companies in Nepal! The country welcomes foreign investment. Here’s the gist:

• No Restrictions: There are no limitations on nationality for investing in publicly traded shares.
• Stock Exchange Participation: Foreigners can participate in Nepal Stock Exchange (NEPSE) through local brokers.
• Investment Options: You can invest directly in listed companies or through mutual funds.
• Due Diligence: Researching the company and market is crucial before investing. Consider consulting a financial advisor familiar with the Nepalese market.

Also Read: Private Company Registration in Nepal

How many directors are required for a public company registration?

Public company registration in Nepal requires a minimum of 3 directors, with a maximum of 11. There’s an additional requirement: if the company has a woman shareholder, at least one director must be a woman. This ensures a level of diversity and promotes gender representation on the board.

Are there any minimum capital requirements for public companies?

 Yes, there are minimum capital requirements for public companies. Generally, public companies must have a minimum paid-up capital to ensure they have sufficient financial resources to operate and meet regulatory obligations. For example, some countries may require a minimum paid-up capital of $50,000 or more. This capital must be fully subscribed and paid for by shareholders before the company can commence business operations.

What are the advantages of public company registration?

Public company registration offers several advantages, including access to capital markets, enhanced liquidity for shareholders, and improved visibility and credibility in the marketplace.

Public company registration offers several advantages:

• Raising Capital: Public companies can raise large amounts of capital by issuing shares to the public, fostering growth and expansion.
• Increased Credibility: Public listing enhances a company’s reputation and credibility, potentially attracting investors and partners.
• Liquidity for Shareholders: Publicly traded shares provide liquidity for shareholders, allowing them to sell their shares more easily.
• Improved Brand Recognition: A public listing can significantly increase brand awareness and recognition for the company.

Can a public company offer shares through an IPO?

Yes, a public company in Nepal can definitely offer shares through an Initial Public Offering (IPO). In fact, one of the key distinctions between public and private companies in Nepal is the ability to raise capital through IPOs.

Here’s how IPOs work for public companies in Nepal:

• Eligibility: A company needs to be registered as a public limited company (Ltd.) to be eligible for an IPO.
• Book Building Process: The public offering process often involves a book building mechanism. This allows institutional investors to bid within a price range, helping determine the final offer price for the shares.
• Public Offering: Once the price is determined, the company can offer its shares to the general public at the IPO price. This allows a wider range of investors to participate and raise significant capital.
• Regulations: The Securities Board Nepal (SEBON) regulates the IPO process, ensuring transparency and protecting the interests of investors.

Are there any restrictions on shareholder rights in public companies?

Yes, there are some restrictions on shareholder rights in public companies compared to private companies in Nepal. Here’s a breakdown:

• Transfer of Shares: While public companies allow share transfers, there might be limitations outlined in the company’s Articles of Association (AOA). These could include requiring board approval or giving existing shareholders the right of first refusal before shares are sold to outsiders. (Private companies generally have more flexibility in share transfer.)
• Voting Rights: Shareholder voting rights in public companies are typically proportional to their shareholding. However, the Companies Act 2063 allows companies to establish “class shares” with different voting rights attached. This can create a potential scenario where some shareholders have more voting power than others, even with a smaller ownership stake. (Private companies typically have a “one share, one vote” structure.)
• Minority Shareholder Protection: While Nepal’s legal framework aims to protect minority shareholders to some extent, it might not be as comprehensive as some other jurisdictions. Public companies with large shareholder bases can present challenges for ensuring all voices are heard and minority shareholder rights are adequately protected.

What are the reporting requirements for public companies?

Public companies have stringent reporting requirements to ensure transparency and protect investors. Key requirements include:

1. Annual Financial Statements: Public companies must prepare and publish audited financial statements annually.
2. Quarterly Reports: These provide updates on the company’s financial performance and must be filed with the regulatory authorities.
3. Annual Reports: Comprehensive reports including financial statements, management discussions, and analysis.
4. Disclosure of Material Events: Immediate reporting of significant events that might affect the company’s stock price or operations.
5. Corporate Governance Reports: Information on the company’s adherence to governance practices.
6. Shareholder Meetings: Annual General Meetings (AGMs) and Extraordinary General Meetings (EGMs) must be conducted and documented.

Can a public company trade its shares on the stock exchange?

Yes, public company registration in Nepal is a prerequisite for a company to trade its shares on the Nepal Stock Exchange (NEPSE). Here’s the connection:

• Public Offering: Public companies are established with the intention of raising capital from the public by issuing shares.
• Listing Requirement: NEPSE, the only stock exchange in Nepal, requires companies to be publicly registered to list their shares and become tradable on the exchange platform.

What are the post-registration compliance requirements for public companies?

Public companies in Nepal face stricter compliance demands compared to private ones. Here’s a quick rundown:

• More Frequent Filings: Annual reports and financial statements need to be submitted more frequently (possibly quarterly) compared to private companies.
• Auditing Requirements: Public companies undergo mandatory audits by SEBON-approved auditors, ensuring transparency for investors.
• Corporate Governance: Stricter adherence to corporate governance practices is required, promoting board accountability and ethical conduct.
• Information Disclosure: Public companies must promptly disclose any material information that could impact share prices to maintain investor confidence.

Can a public company be privatized after registration?

Yes, a public company can be privatized after registration through various mechanisms, such as delisting from the stock exchange, share buybacks, or corporate restructuring. Privatization involves transforming the publicly traded entity into a privately held company, thereby restricting share ownership to a limited number of investors, often including founders, management, or private equity firms. The process of privatization may require approval from regulatory authorities and compliance with legal and contractual obligations, including shareholder consent and fair valuation of shares. Once privatized, the company is no longer subject to the stringent disclosure requirements, regulatory oversight, and corporate governance standards applicable to public companies. Privatization may be pursued for various reasons, including strategic realignment, operational efficiency, or enhancing shareholder value.

How does public company registration impact government regulations?

Public company registration influences government regulations by subjecting companies to a set of legal and regulatory frameworks aimed at ensuring transparency, investor protection, and market integrity. Government regulations governing public companies encompass various aspects, including corporate governance standards, financial reporting requirements, disclosure obligations, and securities laws. Public companies are required to comply with these regulations to maintain their status as publicly traded entities and access capital markets. Moreover, public company registration may prompt regulatory authorities to enact or modify regulations.

Are there any tax incentives for public companies in Nepal?

In Nepal, public companies may be eligible for certain tax incentives aimed at promoting investment, entrepreneurship, and economic development. These incentives may include tax deductions or exemptions on specific types of income, such as dividends received from subsidiary companies, capital gains on the sale of shares, or certain types of investments in priority sectors designated by the government. public companies may benefit from tax incentives aimed at encouraging research and development activities, innovation, and technology adoption. the availability and extent of tax incentives for public companies in Nepal may vary depending on factors such as the industry sector, investment location, and compliance with regulatory requirements.

Can public companies access government grants and subsidies?

Yes, public companies in Nepal may be eligible to access government grants and subsidies aimed at promoting economic growth, innovation, and industry development. These grants and subsidies may be provided by government agencies, development banks, or specialized financial institutions to support specific projects, initiatives, or investments that align with national development priorities. Examples of government grants and subsidies available to public companies may include grants for research and development, technology adoption, infrastructure development, export promotion, and environmental sustainability initiatives. public companies may benefit from subsidies or incentives aimed at promoting employment generation, skills development, or regional development in underprivileged areas.

Public Company Registration in Nepal

What is the minimum number of promoters for a public company?

A public company in Nepal requires at least 7 promoters for registration.

What is the minimum capital requirement for a public company?

The minimum paid-up capital for a public company is NPR 10 million.

Can a public company offer shares to the public?

Yes, public companies can offer shares to the public through IPOs.

How long does it take to register a public company?

Public company registration typically takes 3-4 weeks, depending on documentation completeness.

What are the main regulatory bodies for public companies?

Key regulators include the Office of Company Registrar and Securities Board of Nepal.