Business registration in Nepal is your first strategic move. The entity you choose shapes liability, tax, funding, and brand trust. Most foreign companies weigh a private limited company against a partnership firm. The right answer depends on ownership, risk appetite, sector rules, and exit plans. This guide explains both options in simple terms. It gives you laws, numbers, timelines, and a step-by-step decision framework.
Choose a private limited if you want limited liability, FDI eligibility, equity funding, and stronger brand trust.
Choose a partnership if you want low cost, founder-run operations, and simple governance for a small local team.
Foreign direct investment (FDI) flows only into companies, not general partnerships.
Most growth-oriented or cross-border businesses pick a private limited.
Nepal recognizes several forms. Two common choices are private limited companies and partnership firms.
Private limited company is governed by the Companies Act, 2063 (2006). Maximum shareholders: up to 101. Liability is limited to capital.
Partnership firm is governed by the Partnership Act, 2020 (B.S.). Partners manage the firm and usually have unlimited, joint and several liability unless structured otherwise.
Other relevant laws you will touch:
Foreign Investment and Technology Transfer Act (FITTA), 2019 — FDI approvals.
Income Tax Act, 2058 (2002) — income taxation.
Value Added Tax (VAT) Act, 2052 (1996) — 13% VAT standard rate.
Labour Act, 2074 (2017) and rules — employment compliance.
Social Security Act, 2017 — employer and employee contributions via SSF.
Note: Sectoral laws (banking, insurance, telecom, education, health, etc.) may add approvals or minimum capital.
A private limited company is a separate legal person. It can own assets, sign contracts, and sue or be sued. Liability is capped to unpaid capital. Shares are private and not freely traded with the public. Governance runs through directors and shareholders’ resolutions.
Key traits
Separate legal personality
Limited liability
Share capital divided into shares
Board oversight and statutory filings
Eligible to receive foreign investment under FITTA 2019, subject to the negative list and thresholds
Higher credibility with banks, enterprise buyers, and global partners
A partnership is an association of two or more people running a business for profit. Partners typically share profits as agreed. Governance is contractual. Most partnerships do not offer limited liability to partners.
Key traits
Not a separate legal person in the corporate sense
Partners manage and are often personally liable
Simple setup and low ongoing costs
Not suitable for equity investors
Generally not eligible for FDI as a vehicle for foreign shareholding
| Dimension | Private Limited Company | Partnership Firm | Why it matters |
|---|---|---|---|
| Legal status | Separate legal entity | Partners = business | Entity status drives risk and banking comfort |
| Liability | Limited to capital | Unlimited and joint/several | Risk containment for founders and investors |
| Owners | 1–101 shareholders | 2+ partners | Ownership scale and flexibility |
| FDI eligibility | Yes (FITTA 2019) | No in practice | Foreign investors need a company structure |
| Tax base | Corporate taxpayer | Firm/partner taxation per Income Tax Act | Changes how profits are taxed |
| VAT | 13% if registered | 13% if registered | Indirect tax parity, process differs |
| Governance | Board + resolutions | Partnership deed | Formality vs flexibility |
| Audit | Annual statutory audit | Audit as required by law/thresholds | Assurance for lenders and buyers |
| Branding & trust | High with enterprise buyers | Moderate; founder-centric | Impacts sales cycles and pricing power |
| Banking | Stronger for credit and LC | Limited for larger facilities | Facilities and trade instruments |
| Transferability | Share transfers via OCR process | Re-deed or dissolution | Affects exit and stake sales |
| ESOP & equity | Possible with board/shareholder control | Hard to structure | Talent and investor alignment |
| Sector licenses | Company-friendly | Often requires company | Regulated sectors prefer companies |
| Setup time | Moderate | Fast | Speed vs long-term benefits |
| Cost | Higher | Lower | Budget planning |
| Exit options | Share sale, asset sale, merger | Retirement or dissolution | Liquidity and valuation pathways |
Bottom line: If you plan to take investment, sign big B2B contracts, or expand, pick private limited. If you are testing a local service with low risk and no FDI, a partnership can work.
Private limited: FDI is governed by FITTA 2019 and related rules. You must check the negative list and capital thresholds. FDI approval typically involves the Department of Industry or the Investment Board Nepal, plus foreign currency inward remittance and share certification.
Partnership: There is no clean pathway to inject foreign equity into a general partnership. Cross-border partners usually incorporate a company instead.
Practical insight: Cross-border payments, IP licensing, and royalty arrangements also route better through a company.
Private limited: Liability is limited to unpaid share capital. Directors owe fiduciary duties under the Companies Act. Personal guarantees may still be required by banks.
Partnership: Partners are usually jointly and severally liable for debts. One partner’s mistake can expose the others’ personal assets.
Risk-reduction checklist
Need to ring-fence risk from personal assets? → Private limited
Contracting with large buyers or government? → Private limited
Operating in regulated sectors? → Private limited
Small, low-risk local service with trusted partners? → Partnership may suffice
Always validate rates for your specific activity and incentives. The following is a general snapshot under the Income Tax Act, 2058 (2002) and prevailing budgets.
Corporate income tax
Private limited: Standard rate commonly around 25% for general companies, with sectoral variations and incentives.
Partnership: Tax treatment follows firm or partner rules. In practice, firms register for PAN. Profit allocation and partner remuneration must follow the deed and tax law.
Withholding and dividends
Dividends from companies are subject to withholding at declared rates.
Partnerships do not declare dividends; they distribute profits per deed, with taxation per law.
VAT
Standard VAT rate is 13% under the VAT Act, 2052 (1996). Both forms can register if eligible. Input credit rules and invoicing standards apply.
Payroll and social security
Employers must comply with the Labour Act, 2074 (2017) and Social Security Act, 2017.
Social Security Fund contributions apply once enrolled, with employer and employee portions.
Tip: Your sector and turnover can trigger audit, TDS, and excise obligations. Build a tax calendar early.
Private limited
Memorandum and Articles of Association required.
Board meetings, shareholder resolutions, statutory registers, and annual audit.
Filing of annual returns and financials with the Office of the Company Registrar (OCR).
If foreign-invested, follow FITTA reporting and Nepal Rastra Bank (foreign exchange) compliance for capital and returns.
Partnership
Deed governs admission, exit, profit sharing, and dispute resolution.
Registration of the firm and PAN.
Accounting, tax filings, and audit as applicable by law and thresholds.
Fewer corporate formalities, but personal liability increases the need for strong internal controls.
Banks prefer companies for higher credit facilities, letters of credit, and trade finance.
Enterprise buyers and export partners often ask for company documents, board resolutions, and audited accounts.
Partnerships can invoice and operate, but often face credibility questions in large-ticket deals.
Result: If you plan to sell to large corporates or export, a private limited strengthens credibility and speeds due diligence.
Private limited company — typical flow
Name reservation with OCR.
Charter drafting (MoA/AoA) and notarization.
Capital structure and shareholding plan.
Filing and incorporation certificate.
PAN registration at the Inland Revenue Department.
VAT registration if eligible.
Open bank accounts; if FDI, manage inward remittance and share certification.
Industry-specific licenses as needed.
Labour and SSF onboarding for employees.
Partnership firm — typical flow
Draft and sign the partnership deed.
Register the firm and obtain PAN.
Optional VAT registration.
Open bank account.
Begin operations and maintain accounts.
Apply sectoral permits if any.
Time: Partnerships can start faster. Companies take longer due to corporate filings and, if foreign-invested, FDI steps.
Costs vary by sector, capital, and advisors. Think in three buckets.
One-time setup
Company: legal drafting, notarization, OCR filing, stamp duty, PAN/VAT, FDI approvals (if any).
Partnership: deed drafting, registration, PAN, VAT (if any).
Recurring
Company: audit fees, accounting, secretarial filings, board administration, tax compliance.
Partnership: bookkeeping, tax filings, audit where applicable.
Opportunity costs
Company: more structure but higher trust, better funding options.
Partnership: cheaper now, but may cost more if you later convert to a company.
Score each criterion 1 to 5. Higher score favors private limited.
FDI needs (No=1, Yes=5)
Liability sensitivity (Low=1, High=5)
Enterprise sales (Rare=1, Core=5)
External funding (None=1, Planned=5)
IP and brand value (Low=1, High=5)
Regulatory exposure (Low=1, High=5)
Exit/transfer plans (No=1, Yes=5)
Speed to start (Need tomorrow=1, Can wait=5)
Budget for governance (Tight=1, Adequate=5)
If total ≥28: Private limited is the natural fit.
If total ≤18: Partnership may be acceptable for a pilot.
Between 19–27: Consider a company if you plan to scale within 12–18 months.
Pick a private limited if you…
Require foreign capital or technology transfer.
Sell to banks, telcos, multinationals, or the government.
Need audited accounts and board-level governance for credibility.
Plan to grant ESOPs or bring in multiple investors.
Want clean share transfers and better valuation during exit.
Pick a partnership if you…
Run a small local service with trusted partners.
Want very low setup and maintenance costs.
Do not need external equity or large facilities.
Are testing a concept before formal scaling.
1) SaaS support hub with global clients
A UK SaaS vendor builds a Nepal delivery team. Clients demand data protection, formal contracts, and audits. The team needs bank guarantees and payroll compliance. Private limited wins. It supports FDI, investor options, and enterprise due diligence.
2) Two-partner local design studio
Two designers serve local SMEs. No FDI. Small invoices. They value agility and low cost. A partnership works for the first year. If they grow into enterprise accounts, they can convert to a company later.
Picking a partnership when your sales are enterprise-heavy.
Underestimating partner liability for loans and accidents.
Forgetting FDI rules and negative list items.
Skipping audit and board records in a company.
Delaying PAN/VAT when clients demand tax invoices.
Using a generic deed that fails to cover partner exits and deadlock.
For a private limited company
Proposed name, objectives, and registered office.
Shareholding plan and identity documents.
MoA and AoA drafts.
Board and promoter resolutions.
Capital contribution plan; if FDI, remittance plan and declarations.
PAN/VAT applications.
Employment, SSF, and industry permits.
For a partnership
Partnership deed with capital, roles, and dispute clauses.
Partner IDs and photographs.
Firm registration and PAN.
VAT registration, if eligible.
Sectoral permits as required.
Private limited
Profits taxed at corporate rates.
Dividends attract withholding when declared.
Directors’ remuneration is deductible if compliant.
Annual audit is expected and supports bank facilities.
Partnership
Profit shares and partner remuneration follow the deed and tax rules.
Simpler distributions but watch compliance.
Banks may ask for audited accounts at higher facility levels.
Private limited usually gets faster traction for:
LCs, guarantees, and foreign remittances.
Merchant accounts and payment gateways.
Vendor onboarding by large buyers.
Partnership can open accounts and operate. But facility limits and risk perception may cap growth.
Moving from a partnership to a company later is possible. It involves asset transfer, tax considerations, and fresh contracts with clients and employees.
Companies allow share sales, mergers, or asset sales under the Companies Act, 2063 (2006). Buyers prefer structured records and clear cap tables.
Annual general meeting and board meetings.
Annual audit of financial statements.
Annual return filings to OCR.
Tax filings (advance tax, TDS, VAT, and year-end return).
FITTA/NRB reporting for foreign-invested companies.
Labour registers and SSF contributions.
Companies Act, 2063 (2006) — incorporation, governance, audit, and filings.
Partnership Act, 2020 (B.S.) — registration, partner rights, and liability.
FITTA, 2019 — FDI approvals, technology transfer, and negative list.
Income Tax Act, 2058 (2002) — income tax base, rates, withholding.
VAT Act, 2052 (1996) — standard 13% VAT and invoicing.
Labour Act, 2074 (2017) and rules — employment terms and compliance.
Social Security Act, 2017 — SSF enrolment and contributions.
Always confirm the latest fiscal changes and sector notices before filing.
Map your clients and contract sizes.
Check FDI needs and the negative list.
Decide your risk appetite for personal liability.
Plan funding and ESOP needs.
Estimate banking facilities and trade instruments.
Forecast tax and audit readiness.
Confirm sector licenses.
Choose private limited if you will scale or raise capital.
Choose partnership for a lean, local pilot with low risk.
Build a 12-month compliance calendar on day one.
Clean incorporation and PAN/VAT.
Audited financial statements.
Board resolutions for key contracts.
Clear IP ownership and confidentiality agreements.
Evidence of SSF and labour compliance.
Bank comfort letters or facility history.
These expectations align better with a private limited company.
1) Which is better for foreign investors: private limited or partnership?
A private limited. FITTA 2019 enables equity investment into companies, not general partnerships. You also gain limited liability and cleaner exits.
2) Can I convert my partnership into a private limited later?
Yes. You can transfer assets, contracts, and employees to a new company, subject to tax and legal steps. Plan the conversion early to avoid disruptions.
3) What is the VAT rate in Nepal?
The standard VAT rate is 13% under the VAT Act, 2052 (1996). Many B2B buyers expect VAT invoices and input credit compliance.
4) Do companies need annual audits?
Yes. The Companies Act, 2063 (2006) requires annual audits by a qualified auditor. Audits improve bankability and buyer confidence.
5) Can a partnership receive foreign equity?
In practice, no. Foreign equity follows **FITTA 201