Company Act Nepal: Comparison Between Private and Public Entities

If you are evaluating private vs public company in Nepal, the decision is more than a legal formality.
It determines ownership control, compliance burden, fundraising flexibility, and long-term exit options.

Under the Companies Act 2006, Nepal clearly distinguishes private and public companies.
For foreign companies entering Nepal, this distinction directly affects cost, speed, risk, and scalability.

This guide provides the most authoritative, practical comparison available.
It is written specifically for foreign founders, investors, and boards planning operations in Nepal.

Why the Company Act Matters for Foreign Companies in Nepal

Nepal’s corporate landscape is governed primarily by the Companies Act 2006, administered by the Office of the Company Registrar.

The Act defines how companies are formed, governed, funded, and dissolved.
It also draws a strict legal line between private companies and public companies.

For foreign businesses, this choice affects:

• Regulatory exposure

• Capital structuring

• Disclosure obligations

• Exit readiness

Understanding this early avoids costly restructuring later.

What Is a Private Company Under Nepal Company Law?

A private company in Nepal is designed for closely held ownership.
It is the most common structure used by foreign investors entering Nepal.

Key Legal Characteristics

Under the Companies Act:

• Shareholders are capped at 101

• Shares cannot be offered to the public

• Transfer of shares is restricted

• Minimum paid-up capital is flexible

Private companies prioritize control and confidentiality.

Why Foreign Companies Prefer Private Entities

Foreign investors often choose private companies because they:

• Offer faster incorporation

• Require fewer disclosures

• Allow tight ownership control

• Reduce regulatory interaction

For market entry, this simplicity is critical.

What Is a Public Company in Nepal?

A public company in Nepal is built for capital raising at scale.
It is subject to higher governance and disclosure standards.

Core Legal Features

A public company must:

• Have at least 7 shareholders

• Allow free transfer of shares

• Comply with enhanced reporting rules

• Meet higher capital thresholds

If listed, it also falls under Securities Board of Nepal regulations.

When Public Companies Make Sense

Public companies are suitable when:

• Large capital raises are planned

• Public listing is a strategic goal

• Institutional investors are involved

• Long-term visibility is required

They are rarely used for initial market entry.

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

Legal and Operational Differences

This comparison highlights why private companies dominate foreign registrations.

Ownership Control and Share Transferability

Private Company Control Advantages

Private companies allow founders to:

• Restrict share transfers

• Maintain voting control

• Prevent hostile ownership changes

This is crucial for foreign parent companies protecting IP and strategy.

Public Company Liquidity Trade-Off

Public companies provide:

• Easier share transfers

• Investor liquidity

• Broader ownership base

However, this comes at the cost of control dilution.

Capital Raising: How Funding Differs in Nepal

How Private Companies Raise Capital

Private companies raise funds through:

• Parent company equity

• Strategic investors

• Intercompany loans

They rely heavily on foreign direct investment approvals.

Public Company Capital Access

Public companies can:

• Issue shares to the public

• Raise funds via IPOs

• Attract institutional capital

This flexibility explains their role in large infrastructure and banking projects.

Regulatory Burden and Compliance Expectations

Compliance for Private Companies

Private companies must:

• File annual returns

• Maintain statutory registers

• Submit audited financials

Regulatory oversight remains manageable.

Compliance for Public Companies

Public companies face:

• Enhanced audit standards

• Ongoing disclosures

• Shareholder reporting obligations

The cost of compliance is significantly higher.

Tax Treatment: Is There a Difference?

From an income tax perspective, Nepal generally applies:

• 25 percent corporate tax to most companies

• Sector-specific incentives in limited cases

The difference lies not in rates but in audit scrutiny and reporting depth.

Public companies face higher transparency expectations from tax authorities.

Governance and Board Structure Requirements

Private Company Governance

Private companies enjoy flexibility:

• Smaller boards

• Simplified decision-making

• Faster approvals

This suits foreign subsidiaries.

Public Company Governance

Public companies require:

• Formal board committees

• Independent directors

• Structured shareholder meetings

Governance rigor increases operational overhead.

Which Structure Is Best for Foreign Companies?

For most foreign entrants, the answer is clear.

Private Company Is Ideal When:

1. Entering Nepal for the first time

2. Testing market viability

3. Running captive operations

4. Protecting parent-company control

Public Company Fits When:

• Large-scale capital is required

• Public listing is planned

• Investor liquidity is a priority

Common Mistakes Foreign Investors Make

Foreign companies often:

• Overestimate the need for public status

• Underestimate compliance costs

• Choose public companies too early

These mistakes slow expansion and increase risk.

Practical Decision Framework

Ask yourself:

• Is public fundraising needed now

• Is control a priority

• Is regulatory simplicity valuable

For most, the private route wins.

FAQ: Private vs Public Company in Nepal

Is a private company allowed to have foreign shareholders in Nepal?

Yes. Private companies can be 100 percent foreign-owned, subject to FDI approval and sectoral rules.

Can a private company convert into a public company later?

Yes. Conversion is allowed under the Companies Act, with shareholder approval and regulatory filings.

Is a public company mandatory for IPOs in Nepal?

Yes. Only public companies can issue shares to the public or list on the stock exchange.

Which structure is faster to register in Nepal?

Private companies are significantly faster due to fewer approvals and disclosures.

Do public companies pay higher taxes in Nepal?

No. Tax rates are generally the same, but compliance scrutiny is higher.

Conclusion: Private vs Public Company in Nepal for Foreign Investors

Choosing between private vs public company in Nepal defines your regulatory exposure, control, and scalability.

For foreign companies, private entities offer speed, flexibility, and lower risk.
Public companies serve long-term capital strategies, not initial entry.

The right structure aligns legal form with commercial reality.