Cross-Border Investment: How to Successfully Invest in Nepal

If you are evaluating Private vs public company in Nepal, you are already asking the right strategic question.

Your entry structure determines governance, capital flexibility, compliance burden, and exit options. It also affects regulatory approvals under Nepal’s foreign investment regime.

For foreign companies exploring Nepal’s fast-growing sectors, understanding this distinction is critical. This guide provides a clear, legally grounded, and commercially practical comparison. It is written for international investors who want certainty, scalability, and compliance from day one.

We will reference:

• Companies Act 2006
• Foreign Investment and Technology Transfer Act 2019 (FITTA)
• Industrial Enterprises Act 2020
• Office of the Company Registrar
• Department of Industry
• Nepal Rastra Bank
• Nepal Stock Exchange

Let’s break it down in a way that aligns with how global investors actually make decisions.

Why Structure Matters in Cross-Border Investment

When entering Nepal, foreign investors must align structure with:

1. Capital strategy
2. Governance model
3. Risk exposure
4. Exit planning
5. Regulatory complexity

Under FITTA 2019, foreign investors can establish a company in Nepal with approval from the Department of Industry or relevant authority. However, whether that entity should be private or public depends on your long-term objectives.

Legal Framework Governing Companies in Nepal

Companies Act 2006

The Companies Act 2006 defines and regulates:

• Private limited companies
• Public limited companies
• Corporate governance requirements
• Share transfer restrictions
• Board and compliance obligations

FITTA 2019

The Foreign Investment and Technology Transfer Act 2019 governs:

• Minimum FDI thresholds
• Approval procedures
• Repatriation of dividends
• Technology transfer agreements

Industrial Enterprises Act 2020

This Act classifies industries and determines:

• Licensing requirements
• Sector restrictions
• Incentives and tax holidays

Foreign investors must comply with all three frameworks simultaneously.

Private vs Public Company in Nepal: A Strategic Comparison

This is the core decision foreign companies must make.

Below is a structured comparison tailored specifically for cross-border investors.

Now let’s analyze each structure in depth.

What Is a Private Company in Nepal?

A private company is the most common structure used by foreign investors.

Key Features

• Limited liability protection
• Maximum 101 shareholders
• Shares not offered to the public
• Restricted share transfer
• Minimum 1 director

Registration is completed through the Office of the Company Registrar.

Foreign investors require FDI approval under FITTA before incorporation is finalized.

Why Foreign Investors Prefer Private Companies

For most cross-border entries, private companies provide:

• Strong ownership control
• Faster incorporation
• Lower compliance cost
• Reduced disclosure burden
• Simpler governance

This structure is ideal for:

• Manufacturing units
• IT outsourcing operations
• Consulting subsidiaries
• Back-office hubs
• Joint ventures with limited partners

If your strategy focuses on operational control rather than public fundraising, a private company is typically optimal.

What Is a Public Company in Nepal?

A public company is designed for large-scale operations that intend to raise capital from the public.

Key Characteristics

• Minimum 7 shareholders
• No maximum shareholder limit
• Must appoint at least 3 directors
• Can issue shares to the public
• Eligible for listing on Nepal Stock Exchange

Public companies are subject to stricter corporate governance norms.

They also require compliance with securities regulations and reporting standards.

When Should a Foreign Company Choose a Public Company?

A public company makes sense if:

1. You plan to raise capital through IPO.
2. You want broader shareholder participation.
3. You aim for long-term local capital market integration.
4. You are entering large infrastructure or hydropower projects.

Hydropower, banking, and infrastructure sectors frequently use public company structures in Nepal.

However, regulatory oversight increases significantly.

Regulatory and Compliance Differences

Private Company Compliance

• Annual general meeting
• Annual return filing
• Audit requirement
• Tax filings
• FDI reporting to Department of Industry
• Repatriation compliance with Nepal Rastra Bank

Public Company Compliance

All private company obligations plus:

• Public disclosures
• Securities compliance
• Prospectus approval
• Share registry transparency
• Enhanced corporate governance norms

The compliance cost difference is material.

Foreign investors should factor this into financial projections.

Capital Raising Considerations

Capital structure influences scalability.

Private Company

Capital sources include:

• Parent company funding
• Strategic investors
• Venture capital
• Private equity
• Debt financing

No IPO option.

Public Company

Capital sources include:

• Initial public offering
• Follow-on public offering
• Retail investor participation
• Institutional investment

If your five-year plan includes listing, public structure may be necessary.

Foreign Direct Investment Thresholds

Under FITTA 2019:

• Foreign investment is allowed in most sectors.
• Certain industries remain restricted.
• Minimum investment thresholds apply (subject to periodic amendment).

All foreign capital inflow must be:

• Routed through banking channels
• Recorded with Nepal Rastra Bank
• Certified for repatriation eligibility

Whether private or public, FDI compliance remains mandatory.

Tax Implications

Corporate tax in Nepal is governed by the Income Tax Act 2002.

General corporate tax rate: approximately 25% (sector dependent).

Certain sectors like hydropower enjoy incentives.

Tax treatment does not significantly differ between private and public companies.

However, public companies may access capital market-driven benefits and broader equity structuring.

Risk Architecture: What Foreign Investors Often Overlook

Choosing the wrong structure can create:

• Governance rigidity
• Unnecessary disclosure obligations
• Higher audit costs
• Slower decision-making
• Share dilution risk

Many foreign companies overestimate their need for a public structure.

For controlled expansion, private companies usually provide better risk containment.

Share Transfer and Exit Strategy

Private Company

• Shares transferred through board approval
• Ideal for strategic exits
• Controlled ownership changes

Public Company

• Shares freely tradable
• Liquidity via stock exchange
• Suitable for investor exit planning

If your exit involves IPO or large-scale equity participation, public structure is strategic.

Decision Framework for Foreign Companies

Use this simplified evaluation checklist:

Choose a Private Company If:

• You want 100% foreign ownership
• You prefer centralized governance
• You do not require public capital
• You are testing market viability

Choose a Public Company If:

• You plan IPO within 3–5 years
• You require large capital pools
• You operate in capital-intensive sectors
• You want strong public visibility

Most mid-sized foreign investors start with a private company and convert later if needed.

Sector-Specific Insights

Manufacturing

Private company preferred for operational control.

Hydropower

Public company often used due to project scale and IPO route.

IT and Outsourcing

Private company dominant structure.

Banking and Financial Services

Public structure frequently mandatory under sector regulation.

Common Mistakes Foreign Investors Make

1. Choosing public structure too early
2. Ignoring repatriation documentation
3. Underestimating compliance costs
4. Not aligning structure with exit strategy
5. Failing to model governance scalability

Structure is not a formality. It is strategic architecture.

Frequently Asked Questions

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

Yes. Under FITTA 2019, foreign investors can own 100% in permitted sectors with approval from the Department of Industry.

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

Yes. Conversion is allowed under the Companies Act 2006, subject to compliance and shareholder approval.

3. Is IPO mandatory for public companies?

No. But public companies are eligible to issue shares to the public and list on Nepal Stock Exchange.

4. Which structure is faster to incorporate?

Private companies are generally faster and involve fewer regulatory steps.

5. Is tax different for private vs public companies?

Corporate tax rates are generally similar. Sector incentives may apply separately.

Final Thoughts: Choosing Between Private vs Public Company in Nepal

The debate around Private vs public company in Nepal is not theoretical. It is strategic.

For most foreign companies entering Nepal, a private company provides:

• Flexibility
• Cost efficiency
• Governance control
• Lower compliance burden

Public companies are powerful tools. But they are best reserved for capital-intensive, market-facing strategies.

If your goal is structured cross-border expansion into Nepal with regulatory certainty and long-term scalability, structure must align with strategy.

Choosing correctly at entry prevents expensive restructuring later.