The legal regulations and provisions for selling the private business in Nepal differ for private and public companies. While the laws regarding legal regulations of the sale of a public company (Merger or Acquisition of the public company) are explicitly mentioned in the <a href="https://admin.theiguides.org/Media/Documents/CompanyAct2006.pdf">Companies Act, 2063</a>, provisions regarding the sale of private business depends primarily on the <a href="https://groww.in/p/tax/memorandum-of-association-moa">Memorandum of Association (MOA)</a>, <a href="https://en.wikipedia.org/wiki/Articles_of_association">Article of Association (AOA)</a>, and Consensus agreement of the business entity. Generally, when we talk about the sale of a business, it means the transfer of shares, assets, and liabilities of the company or acquisition (sometimes merger) in legal terms. Let’s explore the legal process of selling a private business in Nepal.&nbsp;&nbsp;<h3>Legal Process of Sale of Private Business in Nepal&nbsp;</h3>&nbsp;<h4>Due Diligence</h4><figure class="image"><img src="https://api-v1.biznestbazaar.com/public/blog_media/Due_Diligence.jpg"></figure>&nbsp;Due Diligence is the first and foremost thing to access while selling or <a href="https://www.biznestbazaar.com/blog/advantage-of-buying-registered-business-in-nepal">buying a business</a>. This includes examining financial records, contracts, licenses, permits, last balance sheet, auditors report, movable and immovable property valuation, actual details of the assets and liabilities, and any potential company legal issues.&nbsp;&nbsp;It is the first thing a buyer looks at while deciding whether to invest in your company. Thus, it is crucial that you have all of the documents prepared and assessed by the certified auditor and attorney before <a href="https://www.biznestbazaar.com/blog/8-things-to-consider-while-selling-your-business">selling the business</a>. This helps show buyers that your company follows legal compliances, employee regulations, and governance systems, generates consistently profitable revenue, etc.&nbsp;<h3>&nbsp;</h3><h4>Valuation of the Company</h4>&nbsp;<figure class="image image_resized" style="width:84.43%;"><img src="https://api-v1.biznestbazaar.com/public/blog_media/Things_Considered_When_valuating_A_Company.jpg"></figure>&nbsp;The second step to selling a company is evaluating the company’s assets and shares to determine the market value of the company. The total valuation of the assets, liabilities, and shares is done by an auditor and is incorporated in the <a href="https://corporatefinanceinstitute.com/resources/accounting/independent-auditors-report/">auditor’s report</a>. Things like total revenue, movable and immovable assets, liabilities, brand value, market value, etc., are considered while valuating any company.&nbsp;&nbsp;In Nepal, there are no specific regulations for valuing private companies, so valuation is typically based on the company's Memorandum of Association (MOA), Articles of Association (AOA), and Consensus agreements. However, Section 64 of the <a href="http://THE COMPANIES ACT, 2063 (2006) TheiGuides.org https://admin.theiguides.org › CompanyAct2006">Companies Act</a> prohibits the sale of shares at a discounted price.&nbsp;If a company intends to sell shares at a discounted rate, a special resolution must be passed during a general meeting to determine the discounted rate. This provision is applicable when selling shares due to capital restructuring, converting loans to shares, implementing an employee share scheme, or under other approved conditions as determined by the regulatory office.&nbsp;&nbsp;Also read: &nbsp;<a href="https://www.biznestbazaar.com/blog/a-comprehensive-guide-to-securing-startup-funding-in-nepal">A Comprehensive Guide to Securing Startup Funding in Nepal</a>&nbsp;<h4>Transfer of Share</h4>&nbsp;According to Section 10(c) of the Companies Act, private companies must maintain privacy in trading their shares. This means that you should conduct buying and selling shares of your private company privately.&nbsp;The rules regarding the selling of shares of the private business are guided by the Memorandum of Association (MOA), Articles of Association (AOA), and any consensus agreement [Section 42(1) ] of the business entity. However, remember that you cannot sell shares typically before your business entity's first <a href="https://www.ig.com/en/glossary-trading-terms/annual-general-meeting-definition">Annual General Meeting (AGM)</a>.&nbsp;Additionally, if the BOD of a private entity that has received loans from a banking or financial institution intends to sell 75% or more of the shares of the undertaking operated by it, it must be approved by a special resolution in a general meeting of shareholders, as stated in Section 105.&nbsp;&nbsp;<h4>Submission to the OCR Regarding the Transfer of Share</h4>&nbsp;As per section 43 of the Companies Act, after the share sale, the buyer should submit an application in the prescribed format along with the following documents.&nbsp;<ul><li>Required Fee,</li><li>The bank statement regarding payment of the sum equivalent to the shares (should be transferred to the company’s Bank account),&nbsp;</li><li>&nbsp;A copy of the share transfer deed,</li><li>A copy of the share certificate issued pursuant to section 33(1) of the Companies Act 2063.</li></ul>&nbsp;The office of the company Registrar then accesses and transfers the name of the shareholder within 15 days after the buyer submits such application. Nevertheless, you(seller) or the company selling the shares can also submit an application to the office of the Company Registrar for the transfer of the shareholder name along with the above mentioned documents.&nbsp;&nbsp;<h4>Payment of Capital Gain Tax in Inland Revenue Department&nbsp;</h4>&nbsp;The <a href="http://Income Tax Act, 2058 (2002) नेपाल कानून आयोग https://www.lawcommission.gov.np › 2018/10 › i...">Income Tax Act, 2058</a>, provisions for the payment of capital Gain Tax for the sale of assets of the business entity and for the sale of the share. Acquisition or Sale of business generally covers two aspects; taxability of assets and liabilities of the Acquired Company (seller) and Taxability to the Shareholders of the Acquired Company.&nbsp;&nbsp;While the transfer of the shares, the assets, and liabilities of the company are also deemed to be disposed of by virtue of section 40 of the Income Tax Act, here, the calculation of taxability depends on several factors. According to section 95A (2) (b), if an individual resident of Nepal makes the sale, he/she is liable to pay a capital gain tax at the rate of 10% to the Inland Revenue Department.&nbsp;However, if the transfer of shares is done by a company or business entity, the rate of capital gain tax to be paid is 15% for the resident business entity and 25% for foreign companies. For the taxability of the assets and liability, the market value of the assets and liabilities will be considered as Incoming and Net expenses incurred in such assets or liabilities as outgoing. Such tax should be paid by the company that is selling the business.&nbsp;&nbsp;Also read: <a href="https://www.biznestbazaar.com/blog/franchise-of-foreign-brand-business-in-context-of-nepal">Franchise of foreign brand business (in context of Nepal )</a><h2>&nbsp;</h2><h3>Frequently Asked Questions (FAQs)</h3>&nbsp;<h4>What is the status of Liabilities and Assets of the Acquirer or the buying company or individual?&nbsp;</h4>&nbsp;According to the Companies Act, the liabilities and assets of the company after the share transfer shall be as mentioned in the MOA, AOA, and consensus agreement. However, Section 57 of the Income Tax Act provisions that "If the ownership of any entity changes by Fifty percent or more as compared to its ownership until before the last three years, the entity shall be deemed to have disposed the property under its ownership or the liability borne by it."&nbsp;Therefore, after the transfer of the share of any entity or company, the liability and assets also seem to be disposed of, if the transfer is more than 50%.&nbsp;&nbsp;<h4>How is the Valuation of the Share of the company done?</h4>&nbsp;Section 141 of the Companies Act explicitly mentions provisions regarding the sale of shares or property of public companies; however, regarding private business entities, the Act has not mentioned any basis.&nbsp;So, the valuation of the share shall be done according to the MOA, AOA, consensus agreement, total assets and liabilities, revenue, market value, etc. Nevertheless, the company's valuation is done by an auditor and must be verified by certified CPAs.&nbsp;&nbsp;<h4>Is the Intellectual property also transferred by virtue of the transfer of the entire share of the business/company/entity?&nbsp;</h4>&nbsp;Yes, the transfer of shares automatically transfers the ownership right of the intellectual property to the person/entity buying it. However, it is recommended that the provision regarding the transfer of intellectual property rights is also incorporated in the share transfer deed.&nbsp;Disclaimer: The information provided here is for informational purposes only and should not be considered as legal advice. Please consult with a qualified legal expert for professional legal opinions. You can also consult with our <a href="https://www.biznestbazaar.com/hire-professional">professionals</a> for further assistance.

Legal Process Of Selling A Private Business In Nepal

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