A Global Investor’s Guide to Nepal: Opportunities and Strategies

If you are evaluating private vs public company in Nepal, you are already asking the right strategic question. Your entry structure will shape taxation, control, fundraising, compliance, and even exit value.

Nepal is attracting increasing foreign direct investment under the Foreign Investment and Technology Transfer Act (FITTA) 2019. The country offers sector incentives under the Industrial Enterprises Act 2020 and corporate governance clarity under the Companies Act 2006. Yet many foreign investors underestimate how much their choice between a private limited and public limited company affects long-term outcomes.

This guide is written for foreign companies. It combines regulatory precision with commercial strategy. By the end, you will know exactly which structure aligns with your capital model, risk appetite, and scaling plan.

Understanding the Legal Framework in Nepal

Before comparing structures, you need context.

Company registration and governance in Nepal are primarily regulated by:

• Companies Act 2006
• Foreign Investment and Technology Transfer Act (FITTA) 2019
• Industrial Enterprises Act 2020
• Income Tax Act 2002
• Securities regulations administered by the Securities Board of Nepal (SEBON)

Foreign investors typically register through the Department of Industry or Investment Board, depending on project size.

Nepal allows 100% foreign ownership in most sectors, except restricted industries such as small-scale retail and certain agriculture activities.

Now, let us break down the core comparison.

Private vs Public Company in Nepal: Core Differences

Under the Companies Act 2006, both private and public companies are limited liability entities. However, their operational and capital structures differ significantly.

Definition Overview

• Private Limited Company (Pvt. Ltd.)
  • Cannot invite the public to subscribe to shares
  • Share transfer restrictions apply
  • Maximum 101 shareholders
• Public Limited Company (Ltd.)
  • Can invite public subscription
  • Shares may be listed on the Nepal Stock Exchange
  • Minimum 7 shareholders required

For foreign investors, this distinction is not cosmetic. It determines capital raising flexibility and compliance exposure.

Comparison Table: Strategic Decision Matrix for Foreign Investors

Strategic Insight:
Most foreign investors begin with a private company for control and later convert to public if capital markets become relevant.

When Should a Foreign Company Choose a Private Limited Company?

A private company is the most common entry structure for foreign direct investment in Nepal.

Best suited for:

• Wholly owned subsidiaries
• Technology service centers
• Back-office operations
• Manufacturing under SEZ framework
• Joint ventures with defined equity caps

Why it works

1. Control remains tight.
2. Compliance obligations are manageable.
3. Reporting is not public-facing.
4. Share transfer restrictions protect ownership.

Under FITTA 2019, repatriation of dividends and capital is allowed subject to Nepal Rastra Bank approval.

If your strategy prioritizes operational efficiency and profit repatriation over public capital markets, a private structure is typically optimal.

When Does a Public Company Make Strategic Sense?

A public company becomes relevant when scale and capital access matter more than control concentration.

Ideal scenarios:

• Hydropower or infrastructure projects
• Banking and financial institutions
• Large-scale manufacturing
• IPO-driven growth strategy

Public companies must comply with SEBON regulations. They must issue a prospectus and maintain public disclosures.

Governance standards are stricter. Independent directors are often required. Financial transparency is mandatory.

This increases compliance cost but improves credibility and valuation potential.

Capital Raising: Private Equity vs Public Markets

Let us talk strategy.

Private Company Capital Path

• Foreign parent equity
• Intercompany loans
• Strategic private investors
• Venture capital
• Joint venture equity

Public Company Capital Path

• Initial Public Offering (IPO)
• Follow-on public offerings
• Debenture issuance
• Broad shareholder participation

If your long-term vision includes listing on Nepal Stock Exchange, early structural planning is critical.

Conversion from private to public is possible under the Companies Act 2006. However, governance restructuring is required.

Compliance and Regulatory Burden

Compliance affects cost and risk exposure.

Private Company Compliance

• Annual general meeting
• Annual financial audit
• Office of Company Registrar filings
• Tax filings under Income Tax Act 2002
• Social Security Fund compliance
• Labor Act 2017 compliance

Public Company Additional Requirements

• SEBON reporting
• Prospectus disclosures
• Continuous public reporting
• Corporate governance disclosures
• Share registry management

Public entities face greater scrutiny but gain institutional credibility.

Taxation Perspective

Corporate tax rates under Nepal’s Income Tax Act 2002 are generally:

• Standard corporate tax: 25%
• Manufacturing: 20%
• Hydropower concessions available
• SEZ entities may receive tax holidays

Tax rates do not differ based on private or public classification. However, capital structure and dividend distribution planning differ.

Foreign investors should structure profit repatriation carefully under Nepal Rastra Bank guidelines.

Governance and Board Structure

Private companies may operate with a simple board structure.

Public companies require stronger governance architecture.

Governance Factors to Consider

• Independent directors
• Audit committee
• Internal control systems
• Public disclosure policies
• Shareholder voting structures

Foreign investors seeking long-term institutional investors benefit from public governance standards.

Exit Strategy Considerations

Your company structure affects exit flexibility.

Private Company Exit Options

• Share sale to strategic buyer
• M&A transaction
• Internal buyout
• Conversion before IPO

Public Company Exit Options

• Secondary market share sale
• Public tender offers
• Market-driven valuation exit

If your business model anticipates acquisition, a private company may provide cleaner negotiations.

If liquidity and valuation transparency matter, public listing adds leverage.

Risk Analysis: What Foreign Investors Often Miss

Here is what experienced investors analyze before choosing structure:

• Capital intensity of sector
• Long-term funding requirements
• Public reputation strategy
• Governance tolerance
• Compliance budget
• Timeline to scale
• Regulatory sector exposure

In Nepal, many infrastructure projects are structured as public companies due to capital pooling needs.

Technology and service companies almost always begin as private entities.

Sector-Specific Guidance

Manufacturing and SEZ Investors

Private structure is common initially. SEZ incentives include income tax concessions under Industrial Enterprises Act 2020.

Hydropower Projects

Often structured as public companies to mobilize domestic capital participation.

Financial Institutions

Banking Act requirements may mandate public structure.

Technology and Outsourcing

Private subsidiaries are preferred for FDI flexibility.

Strategic Recommendation Framework

Here is a simplified decision approach:

1. Are you raising capital from the Nepali public?
   → Choose public.
2. Is full foreign control critical?
   → Choose private.
3. Do you expect IPO within five years?
   → Consider structuring as private with conversion roadmap.
4. Is governance transparency a branding strategy?
   → Public may help.
5. Is compliance simplicity a priority?
   → Private wins.

Advantages and Disadvantages Summary

Private Company Advantages

• Operational flexibility
• Lower regulatory burden
• Ownership control
• Confidential reporting

Private Company Limitations

• Limited public fundraising
• Transfer restrictions

Public Company Advantages

• Access to capital markets
• Higher perceived credibility
• Broader ownership

Public Company Limitations

• Higher compliance cost
• Public scrutiny
• Complex governance

Conversion: Private to Public in Nepal

Under Companies Act 2006 provisions:

• Shareholder approval required
• Amend memorandum and articles
• Meet minimum capital requirement
• Appoint additional directors
• File with Office of Company Registrar

Strategic conversion planning should begin early.

Conclusion: Choosing the Right Structure for Private vs Public Company in Nepal

The decision between private vs public company in Nepal is not simply legal. It is strategic.

For most foreign investors entering Nepal, a private limited company offers optimal control, manageable compliance, and flexibility.

Public companies are powerful vehicles for capital-intensive sectors and long-term domestic participation.

Your structure should align with capital strategy, governance appetite, sector regulations, and exit vision.

If you are planning entry into Nepal, structured advisory is essential. Regulatory misalignment at incorporation stage can create long-term inefficiencies.

Frequently Asked Questions 

1. Can a foreign investor own 100% of a private company in Nepal?

Yes. FITTA 2019 permits 100% foreign ownership in most sectors, except restricted industries. Approval from the Department of Industry is required.

2. Is a public company mandatory for large projects?

Not always. However, infrastructure and banking sectors often require public structure due to regulatory frameworks.

3. Can a private company convert into a public company?

Yes. Conversion is allowed under Companies Act 2006. Governance and capital restructuring is required.

4. Is taxation different for private and public companies?

No. Corporate tax rates are generally the same. Incentives depend on sector, not company type.

5. Which structure is better for IPO planning?

A public company structure is required for IPO. Many companies convert from private before listing.