Legal Practices of Merger and Acquisition in Nepal

1. What is Merger and Acquisition, as defined by Nepalese Law?

A merger denotes a strategic business transaction in which two or more entities amalgamate their operations and assets to establish either a novel corporate entity or integrating into an extant one. The Office of the Company Registrar will not approve the merger if it appears to create a monopoly, unfair trade restriction, or is contrary to public interest

An acquisition refers to a strategic business maneuver wherein one company procures a controlling interest in another entity by purchasing a substantial portion or all of its shares, assets, or equity.

2. What are the Statutory Provisions Governing Mergers and Acquisitions in Nepal?

The Legal Regime governing Mergers and Acquisitions in Nepal are:

  1. Companies Act, 2063
  2. Merger Bylaws, 2068
  3. Acquisition Bylaws, 2068
  4. Merger and Acquisition Bylaws, 2073

3. What are the categories of Mergers and Acquisitions practiced in Nepal?

Mergers are categorized into various forms based on the operating Sectors of those Companies. Horizontal Merger involves the consolidation of companies that are in the same industry and are competing in the same market segment. Vertical Merger are those where companies from different stages of the production or distribution chain combine. Conglomerate Mergers involve companies that operate in unrelated industries.

Acquisitions also varies on the methodology used to acquire the Company. Asset Acquisition happens when the acquiring company purchases specific assets and liabilities of the target company. Stock Acquisition occurs when the acquiring company purchases the shares or stock of the target company and gains ownership of the entire business.

4. What is the Procedure for the Merger of Public Companies in Nepal? 

Step 1: Adoption of Special Resolution

The merger process begins with a special resolution adopted during a general meeting of the public company.

Step 2: Submit an Application to the OCR

Within thirty days of adopting the special resolution, the company must make an application to the Office for approval of the merger. The application should include various documents and information as specified.

Step 3: Review and Evaluation of Application

Upon receiving the application and required documents, the Office will study the matter and make a decision within three months.

Step 4: Approval and Transfer of Assets and Liabilities

If the Office approves the merger, all assets and liabilities of the merging company are deemed to be transferred to the merged company. Shareholders who do not consent to the merger have the right to get their shares valued before the merger and receive a proportionate return of the amount held by them from the merging company.

5. What are the Required Documents for Merger in Nepal?

The application submitted to the Office must include:

  • A copy of the decision made during the general meeting for public companies or relevant provisions from the memorandum of association, articles of association, or consensus agreement for private companies.
  • The last balance sheet and auditor’s report of the merging company.
  • Written consent from creditors of both the merging and merged companies.
  • Valuation of movable and immovable properties, along with details of assets and liabilities of the merging company.
  • Any decisions made regarding creditors, employees, and workers of the merging and merged companies.
  • The scheme of arrangement for the merger between the companies.

6. How to Value Assets and Liabilities of Companies for Mergers and Acquisitions?

The Companies must value the assets and liabilities of companies where initially the company’s assets and liabilities must be identified and categorized. Thereafter, the financial statements, balance sheet, income statement and cash flow statement of the companies will be reviewed. Thereafter, the Liabilities and Assets of the companies are valued by consideration of the Balance Sheet of the Company and the future cash outflow. 

7. What happens Post-Merger and Acquisition in Nepal?

After either Merger and Acquisition of Merging Companies, a detailed Compliance and Due Diligence phase is initiated until the finalization of the deal. Thereafter, the Organizational Reintegration of the Companies happen.

8. Conclusion

Mergers and Acquisitions in Nepal are governed by the Companies Act of 2063, Merger Bylaws of 2068, Acquisition Bylaws of 2068, and Merger and Acquisition Bylaws of 2073. The Process of Merger for Public Companies in Nepal begin with adopting a special resolution, submitting an application to the Office of the Company Registrar (OCR), review and evaluation by the OCR, and approval with the transfer of assets and liabilities.


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