Sole vs partnership vs private limited in Nepal: choose right

If you’re exploring business registration in Nepal, entity choice is your most strategic early decision. The right structure influences liability, tax, capital, hiring, foreign investment, and exit flexibility. In Nepal, the three most common routes are Sole Proprietorship, Partnership (General Partnership), and Private Limited Company (Pvt. Ltd.). Each works best in different scenarios. This guide compares them in plain language and gives you a crisp decision framework.

This article is written for foreign founders, regional heads, and in-country managers who want practical clarity before they meet lawyers or consultants.

Business registration in Nepal: entity options at a glance

• Sole Proprietorship — fast, low-cost, unlimited personal liability, no foreign equity.

• Partnership — simple for local co-founders, unlimited liability of partners, limited scaling, no foreign equity.

• Private Limited Company (Pvt. Ltd.) — separate legal entity, limited liability, FDI-ready, best for growth and compliance.

Core laws and references (no links):
Companies Act, 2063 (2006); Industrial Enterprise Act, 2076; Foreign Investment and Technology Transfer Act, 2019 (FITTA 2019); Nepal Rastra Bank (NRB) Foreign Investment Regulations and circulars; Income Tax Act, 2058; Value Added Tax Act, 2052; Labor Act, 2074; Social Security Fund Act.

We cite these frameworks because they define formation, ownership, FDI, tax, and employment obligations in Nepal.

Quick comparison table

Original insight: only the Private Limited structure aligns with foreign shareholding, bankable governance, and repatriation pathways under FITTA and NRB procedures.

Who should choose what? (decision guide)

Use the following simple rules to narrow your choice:

1. Need foreign shareholding now or later? Choose Private Limited.

2. Risk exposure matters? Avoid unlimited liability. Choose Private Limited.

3. Need investor due diligence comfort? Choose Private Limited.

4. Micro local side-business with negligible risk? Sole can work if fully local.

5. Two local co-founders testing a concept with low risk? Partnership is fine short-term, but plan to convert to Private Limited if you scale.

6. Hiring at scale, ESOPs, cross-border contracts, enterprise clients? Private Limited wins.

A weighted decision matrix (score your situation)

Score each factor 1–5 (5 = very important). Multiply by the weight. Higher total suggests the best fit.

Interpretation: Growth, FDI, and risk control quickly push the Private Limited structure to the top.

Legal framework and regulators you will meet

• Companies Act, 2063 (2006): Incorporation, directors, shares, meetings, and filings.

• FITTA 2019: Foreign equity approval pathways and technology transfer.

• NRB Foreign Investment Regulation & circulars: Inward remittance, capital account, and repatriation.

• Income Tax Act, 2058: Corporate tax, withholding, and permanent establishment rules.

• VAT Act, 2052: VAT registration and input credit rules.

• Labor Act, 2074 and Social Security Fund Act: Contracts, benefits, and SSF contributions.

• Industrial Enterprise Act, 2076: Sector incentives, classification, and industry registration.

These frameworks govern your entire lifecycle: entry, operation, profit, and exit.

Incorporation pathways: step-by-step

A. Sole Proprietorship (local-only)

1. Select a trade name and obtain local registration.

2. Get PAN (Permanent Account Number).

3. Assess VAT registration if you cross thresholds or require input credit.

4. Open a bank account and begin bookkeeping.

5. File taxes as an individual.

Good for: micro retail, solo consulting, low-risk local trade.

B. Partnership (General)

1. Draft a Partnership Deed with capital, profit sharing, roles, and dispute terms.

2. Register with the relevant office, then obtain PAN.

3. Assess VAT registration needs.

4. Open a partnership bank account.

5. Maintain books; distribute profits to partners.

Good for: two or more local co-founders validating a concept.

C. Private Limited Company (Pvt. Ltd.)

1. Name reservation with the Office of the Company Registrar (OCR).

2. Prepare MOA/AOA, director consents, and KYC.

3. File incorporation with OCR and obtain the Certificate of Incorporation.

4. Obtain PAN; consider VAT registration if needed.

5. Open a corporate bank account.

6. If foreign shareholding, follow FITTA and NRB steps: capital approval, inward remittance, share allotment, and reporting.

7. Register with Labor Office and Social Security Fund if hiring.

8. Set up accounting, payroll, and statutory registers.

9. Schedule AGMs/board meetings and annual filings.

Good for: scale, cross-border contracts, enterprise clients, and FDI.

Tax, VAT, and accounting: what to expect

• Corporate income tax: The standard corporate tax rate is commonly 25% for general companies (subject to incentives and sector rules under the Income Tax Act, 2058).

• VAT: The standard VAT rate is 13% under the VAT Act, 2052. Registration is mandatory above turnover thresholds or where input credit is needed.

• Withholding taxes: Apply on salaries, services, dividends, and certain cross-border payments as per the Income Tax Act. Rates vary by payment type and treaty positions.

• Personal taxation: Sole and partnership profits are taxed to individuals at slab rates.

• Accounting: Maintain books in Nepal, follow local standards, and prepare annual financial statements for filings.

• Audits: Private Limited companies typically require annual statutory audit depending on thresholds and sector.

Practical tip: A Private Limited structure creates cleaner books for due diligence, transfer pricing, and repatriation.

Directors, shareholders, and control

• Sole: One owner controls everything. No board.

• Partnership: Partners control per deed. Add clear clauses on disputes, IP, and partner exit.

• Private Limited: Board governs. Shareholders appoint directors. Use Shareholders’ Agreement for drag/tag, ESOP, and reserved matters.

Resident director? The Companies Act does not require a “resident director” per se. However, banking, tax administration, and HR workflows are smoother when you appoint a local authorized signatory and maintain a registered office.

Capital, FDI, and repatriation

• Sole/Partnership: Foreign equity is not available through these structures.

• Private Limited: Eligible for foreign direct investment under FITTA 2019 and NRB rules.

• Minimum FDI threshold: A policy threshold applies. Check current NRB/DoI circulars for the prevailing floor before planning capital.

• Process: Approval → inward remittance via banking channel → share allotment → filings → annual compliance.

• Repatriation: Dividends and disinvestment proceeds are repatriable subject to audited profits, tax clearance, board/shareholder approvals, and NRB procedures.

Plan your capitalization table with headroom for future rounds and ESOP.

Risk and liability

• Unlimited liability in Sole and Partnership means personal assets are exposed for business debts.

• Limited liability in a Private Limited caps exposure to unpaid share capital.

• Contracting with enterprise buyers, lenders, and international partners usually favors company structures because of risk ring-fencing and clearer recourse.

Timelines and indicative costs

• Sole: fastest. Days, not weeks. Low fees.

• Partnership: days to a couple of weeks, depending on deed drafting and registration.

• Private Limited: typically a few weeks, longer with FDI approval and banking. Costs cover government fees, drafting, translations, notary, and professional advisory.

Timelines vary by name checks, document completeness, sector approvals, and banking KYC. Treat these as indicative only.

Compliance calendar snapshot (Private Limited)

• Annual: AGM, financial statements, corporate tax return, audit (as applicable), SSF annual tasks.

• Periodic: VAT returns, TDS returns, payroll filings, board meetings, share register updates.

• Event-based: Share transfers, director changes, capital increases, FDI reporting, repatriation requests.

Contracts and IP hygiene

• Use localized contracts referencing Nepalese law.

• Protect IP by assigning all creations to the company.

• Include confidentiality, non-solicitation, and invention assignment in staff and vendor contracts.

• Register trade marks if brand value matters.

Banking, FX, and payments

• Use a corporate current account for the Private Limited.

• For FDI, ensure the bank sets up the proper capital account and reporting tags.

• Maintain remittance proofs, share allotment filings, and NRB paperwork.

• Align FX invoicing with contracts and tax invoices.

Hiring, visas, and payroll

• A Private Limited structure integrates best with Labor Act requirements, Social Security Fund contributions, and work permits for expatriates.

• Draft clear employment contracts, staff handbooks, and policies.

• Set up payroll, TDS, SSF, and leave management before mass hiring.

Common mistakes to avoid 

• Choosing a Sole or Partnership while planning foreign equity later.

• Under-documented shareholder agreements and board powers.

• Ignoring NRB requirements until repatriation day.

• Mixing personal and company expenses.

• Skipping VAT registration when supply chain needs input credit.

• Weak document legalization and KYC for foreign shareholders.

• No compliance calendar, leading to penalties.

The step-by-step checklist 

1. Confirm your entity using the decision matrix.

2. Map FDI need now or later.

3. Prepare shareholder/partner KYC and legalized documents.

4. Draft MOA/AOA or Partnership Deed.

5. Reserve name with OCR.

6. File incorporation and obtain PAN (and VAT, if needed).

7. Open bank account.

8. For FDI: complete NRB/DoI approval and remittance steps; allot shares.

9. Register for Labor and SSF if hiring.

10. Implement accounting, payroll, and compliance calendar.

11. Sign key contracts and set IP/brand protection.

12. Revisit governance and ESOP as you scale.

Case-style scenarios

• Foreign SaaS vendor building Nepal delivery: Choose Private Limited to hire engineers, run payroll, and contract in-country.

• Local designer freelancing: Sole is fine until risk or revenue increases.

• Two local partners launching a cafe: Start Partnership for simplicity, then convert to Private Limited when you scale outlets or seek investors.

• Regional brand entering Nepal: Private Limited with FDI compliance is the standard route.

What the numbers say 

• Corporate tax in Nepal is generally 25% for standard companies, per the Income Tax Act, 2058 and periodic Finance Acts.

• VAT is 13% per the VAT Act, 2052.

• FDI is governed by FITTA 2019 and NRB rules.

• Companies Act 2063 sets the backbone for Private Limited governance.

• Labor Act 2074 and SSF rules mandate formal employment practices.

Always confirm sector-specific incentives, tax holidays, or special rates before finalizing your plan.