Avoid Common Mistakes in Nepal’s Company Registration Process

Choosing between a private vs public company in Nepal is one of the first and most critical decisions foreign companies make when entering the Nepali market. Yet many investors rush this step, only to face delays, regulatory friction, or costly restructuring later.

Nepal welcomes foreign investment, but its company registration framework follows strict legal rules under national legislation and regulator oversight. Understanding how private and public companies differ, and where most foreign firms make mistakes, can save months of time and significant capital.

This guide is written specifically for foreign companies planning market entry, subsidiaries, or long-term operations in Nepal. It explains the legal distinctions, highlights common errors, and shows how to register correctly the first time.

Why “Private vs Public Company in Nepal” Matters More Than You Think

Foreign founders often assume that company structures work the same everywhere. In Nepal, that assumption leads to problems.

The choice between a private and public company determines:

• Who can own shares

• How capital can be raised

• Ongoing compliance and disclosures

• Tax, audit, and governance burden

• Exit and restructuring flexibility

Making the wrong choice can block foreign shareholding approval, slow regulatory clearances, or force costly conversion later.

Legal Framework Governing Companies in Nepal

Company registration in Nepal is governed primarily by:

• Companies Act, 2006 (Nepal)

• Foreign Investment and Technology Transfer Act (FITTA), 2019

• Industrial Enterprises Act, 2020

• Directives and procedures of the Office of Company Registrar

Foreign companies must align their structure with both corporate law and foreign investment rules from day one.

What Is a Private Company in Nepal?

A private company in Nepal is the most common structure for foreign investors entering the country.

Key Characteristics of a Private Company

• Minimum 1 shareholder, maximum 101 shareholders

• Shares cannot be publicly traded

• Share transfer is restricted

• Lower compliance and disclosure requirements

• Faster registration and approval timelines

Why Foreign Companies Prefer Private Companies

Private companies offer flexibility, confidentiality, and lower regulatory burden. They are ideal for:

• Wholly owned foreign subsidiaries

• Joint ventures with local partners

• Service centers and outsourcing operations

• Early-stage market entry

What Is a Public Company in Nepal?

A public company in Nepal is designed for large-scale enterprises that plan to raise capital from the public.

Key Characteristics of a Public Company

• Minimum 7 shareholders, no maximum

• Shares may be offered to the public

• Mandatory prospectus and regulatory approvals

• Higher minimum capital thresholds

• Extensive governance and disclosure requirements

When a Public Company Makes Sense

Public companies are typically suitable for:

• Large infrastructure projects

• Banks and financial institutions

• Hydropower and energy projects

• Companies planning IPOs in Nepal

For most foreign SMEs, this structure is unnecessarily complex.

Private vs Public Company in Nepal: Side-by-Side Comparison

Insight: Over 90 percent of foreign-owned entities in Nepal register as private companies due to ease of compliance and operational flexibility.

Common Mistakes Foreign Companies Make During Registration

1. Choosing a Public Company Without Needing One

Many investors believe public companies appear more “credible.” In Nepal, this choice often backfires due to:

• Higher capital requirements

• Stricter audits

• Public disclosures

• Regulatory scrutiny

Unless you need public fundraising, private is usually better.

2. Ignoring Foreign Investment Approval Alignment

Foreign investment approval must match the company structure. A mismatch between:

• Shareholding pattern

• Capital commitment

• Company type

can delay or invalidate approvals under FITTA.

3. Underestimating Minimum Capital Expectations

While Nepal does not impose a single universal minimum capital, sector-specific expectations apply.

Mistakes include:

• Declaring unrealistically low capital

• Misaligning capital with proposed activities

• Failing to justify investment size

This can trigger regulator queries and resubmissions.

4. Using Generic MOA and AOA Templates

Foreign companies often reuse templates from other jurisdictions.

In Nepal, this leads to:

• Rejected filings

• Misaligned business objectives

• Share transfer restrictions that hurt future exits

5. Poor Shareholding and Exit Planning

Many founders do not think about:

• Future investors

• Employee share plans

• Parent-subsidiary restructuring

Private company provisions must be drafted carefully to allow flexibility later.

Step-by-Step: Correct Company Registration Process in Nepal

Step 1: Decide the Correct Company Type

Ask these questions:

1. Will you raise capital from the public in Nepal?

2. How many shareholders will you have initially?

3. Do you need operational speed or public visibility?

For most foreign firms, the answer leads to a private company.

Step 2: Name Reservation and Object Clause Drafting

The business objective must:

• Match intended activities

• Align with sector approvals

• Be future-proofed

Poor drafting here is a common rejection reason.

Step 3: Prepare MOA and AOA

Key focus areas:

• Share transfer rules

• Director powers

• Capital structure

• Foreign ownership clarity

Step 4: Registration with the Office of Company Registrar

Documents are filed digitally with the regulator.

Typical timeline:

• Private company: 7 to 15 working days

• Public company: 30 to 60 working days

Step 5: Post-Incorporation Compliance

After registration, companies must complete:

• Tax registration

• Social Security Fund enrollment

• Bank account opening

• Foreign investment reporting

Compliance Differences Foreign Companies Must Know

Private Company Compliance

• Annual return filing

• Basic audit requirements

• Limited disclosures

Public Company Compliance

• Statutory audits

• Public disclosures

• Board committees

• Prospectus compliance

Foreign SMEs often underestimate these ongoing costs.

Private vs Public Company in Nepal: Which Is Right for You?

Choose a private company if you want:

• Speed

• Control

• Lower compliance

• Confidential ownership

Choose a public company only if you need:

• Public capital

• Large-scale fundraising

• IPO readiness

Key Takeaways for Foreign Investors

• Private companies are the default choice for foreign investors

• Public companies carry heavy compliance obligations

• Early structure decisions affect future exits

• Regulatory alignment is critical

Avoiding early mistakes saves time, cost, and credibility.

Frequently Asked Questions (People Also Ask)

Is private or public company better for foreign investors in Nepal?

For most foreign investors, a private company is better due to lower compliance, faster setup, and greater control.

Can a private company convert into a public company in Nepal?

Yes. Conversion is permitted but requires regulatory approval, capital restructuring, and updated compliance filings.

How long does company registration take in Nepal?

A private company usually takes 7 to 15 working days. Public companies take significantly longer.

Is 100 percent foreign ownership allowed in Nepal?

Yes, in most sectors. Some industries require approvals or local participation under sector-specific rules.

What is the biggest mistake foreign companies make?

Choosing a public company without needing public fundraising is the most common and costly mistake.

Final Thoughts: Private vs Public Company in Nepal

Understanding private vs public company in Nepal is essential for successful market entry. The right structure reduces risk, accelerates approvals, and supports long-term growth.

Foreign companies that plan carefully at the registration stage avoid years of compliance friction later.