Legal Framework for Initial Public Offering: IPOs in Nepal

1.1. Introduction of Initial Public Offering

An Initial Public Offering (IPO) denotes the inaugural issuance of a private company’s shares to the public market of Nepal, namely, Nepal Stock Exchange thereby transforms the company into a Publicly Traded Entity. The Companies issues the ownership of their Companies by issuing shares to institutional investors and General Public. After the issuance of the IPO, the shares of the company are listed on Nepal Stock Exchange to engage in Trading of Shares. 

1.2. Laws Governing IPO in Nepal

The Legal Regime governing Initial Public Offering in Nepal are:

  1. Securities Act, 2063
  2. Securities Issue and Allotment Directives, 2074
  3. Securities Listing By-Law, 2075
  4. Securities Registration and Issue Regulation, 2073

2. IPO Requirements in Nepal

The Requirements to be Fulfilled by Companies to conduct Initial Public Offering and to be listed in the Stock Exchange are:

  1. The Company should have a minimum of Seven Shareholders
  2. The Company has a Minimum Paid Up Capital of NPR 1,00,00,000.
  3. The Company must have obtained the authorization of Securities Board of Nepal.

 3. Procedure for Registration of IPO

Step 1: Submission of Application to SEBON

A body corporate intending to issue securities must submit an application to the Board in the prescribed format along with essential and required documents related to the Registration of Share.

Step 2: Inquiry and Evaluation by SEBON

Upon receiving the application, the Board is required to conduct a necessary inquiry into the matter.

Step 3: Registration of Company for IPO

Upon successful registration of the securities, the Board will issue a securities registration certificate to the concerned body corporate. For body corporates that have already issued securities before the enactment of the relevant legislation, there is a provision mandating them to register such securities with the Board within a specified timeframe.

Step 4: Public Issuance of Shares

If a body corporate intends to sell and distribute securities to more than fifty persons simultaneously, it is required to conduct a public issue for the sale and distribution of such securities. The timeframe during which applications for the securities to be issued publicly can be made is determined by regulations.

4. Documents Required for IPO in Nepal

The Following Documents are required for Initial Public Offering of Company Shares in Nepal:

  1. Application for Registration of Securities to the Security Board of Nepal
  2. Memorandum of Association
  3. Articles of Association
  4. Additional Relevant Documents Related to the Securities.

5. Sale and Transfer of Securities

When a body corporate allocates or sells securities subsequent to their registration, it must notify the Board within seven days. This notice should include details of the securities allotted or sold. Upon receiving the notice, if the Board deems it necessary to ensure fairness and transparency in the allotment and sale of securities for the benefit of investors and the body corporate, it may issue directives to the concerned body corporate.  

6. Company Conversion Procedure in Nepal

Step 1: Submission of Application to OCR

The concerned private company must pass a resolution to convert into a public company.

Within thirty days of passing the resolution, the company must submit an application, as prescribed, along with a copy of the resolution and the required fees to the office.

Step 2: Assessment of Application by OCR

Upon receiving the application, the office will assess whether the private company has fulfilled the necessary requirements to operate as a public company.

Step 3: Authentication for Conversion

If all requirements are met, the office will mention the conversion of the company into a public company in the company register and issue a company conversion certificate within sixty days.

Step 4: Legal Status

Upon conversion into a public company, any subsidiary company of the private company will also be deemed to have converted into a public company simultaneously.

The concerned company and its subsidiary must apply to the office to record the conversion in the company register and obtain the necessary certificates. Once converted, the private company assumes the legal status and obligations of a public company, and all assets and liabilities of the private company are transferred to the successor public company.

7. Conclusion

Initial Public Offering (IPO) is the preliminary stage for the conversion of a Private Company to a Publicly traded entity in the Nepal Stock Exchange. To conduct an IPO and list on the stock exchange, companies must meet certain requirements including having a minimum number of shareholders, a specific paid-up capital, and obtaining authorization from the Securities Board of Nepal. The Registration Process of IPO: submission of applications, inquiry and evaluation by regulatory bodies, and issuance of securities registration certificates.

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