Essential Tips for Successful Company Formation in Nepal

If you are evaluating private vs public company in Nepal, you are already asking the right question. The structure you choose will shape your tax exposure, compliance burden, capital strategy, and exit options.

For foreign companies entering Nepal, the decision is rarely just legal. It is strategic.

Nepal’s regulatory framework anchored in the Companies Act 2063 (2006), the Foreign Investment and Technology Transfer Act 2075 (2019), and the Income Tax Act 2058 (2002) provides multiple entry routes. But each has implications for control, governance, reporting, and capital raising.

This guide breaks it down clearly and practically. By the end, you will know which structure aligns with your growth plan.

Understanding the Legal Framework for Company Formation in Nepal

Before comparing private vs public company in Nepal, it is critical to understand the regulatory architecture.

Key governing laws:

• Companies Act 2063 (2006) – Governs incorporation, governance, reporting.
• Foreign Investment and Technology Transfer Act (FITTA) 2075 (2019) – Governs FDI approval and repatriation.
• Income Tax Act 2058 (2002) – Governs corporate taxation.
• Industrial Enterprises Act 2076 (2020) – Defines industry classification and incentives.

Primary regulators:

• Office of the Company Registrar (OCR) – Company incorporation.
• Department of Industry (DOI) – FDI approvals (below threshold).
• Investment Board Nepal (IBN) – Large-scale projects.
• Nepal Rastra Bank (NRB) – Forex approval and repatriation.

Foreign investors must secure FDI approval before capital injection. Only then can they incorporate and open a bank account.

This sequencing matters.

Private vs Public Company in Nepal: Core Structural Differences

Let’s compare both structures directly.

1. Private Limited Company (Pvt. Ltd.)

A private company is the most common vehicle for foreign investors.

Under the Companies Act:

• Minimum 1 shareholder.
• Maximum 101 shareholders.
• Cannot invite the public to subscribe to shares.
• Shares are restricted in transfer.

2. Public Limited Company (Ltd.)

A public company is designed for larger capital pools.

Under the Companies Act:

• Minimum 7 shareholders.
• No upper shareholder limit.
• May offer shares to the public.
• Mandatory compliance requirements are heavier.

Comparison Table: Private vs Public Company in Nepal

Strategic Insight:
For 90% of foreign companies entering Nepal for operational purposes (BPO, IT services, manufacturing, trading), a private company is structurally more efficient.

Public companies are usually chosen when:

• Large infrastructure capital is required.
• IPO plans exist.
• Regulatory structure demands it (e.g., banking, insurance).

When Should a Foreign Investor Choose a Private Company?

A private company works best if you:

1. Want full ownership and control.
2. Do not intend to raise public capital.
3. Prefer lower compliance overhead.
4. Are entering Nepal as a subsidiary.
5. Want faster incorporation.

Private companies offer flexibility. They are easier to manage. Governance is simpler.

For most foreign subsidiaries, this is the logical choice.

When Does a Public Company Make Sense?

A public company structure may be suitable if:

• You are launching a capital-intensive industrial project.
• You plan to raise funds via IPO.
• You need broad shareholder participation.
• The industry regulator mandates it.

Examples include:

• Hydropower
• Infrastructure concessions
• Large-scale manufacturing
• Financial institutions

Public companies must comply with stricter reporting and audit obligations.

That adds cost.

Capital Requirements and Shareholding Considerations

Minimum Capital

Nepal does not impose a uniform minimum capital for all companies. However:

• Certain regulated industries require thresholds.
• FDI projects must meet sectoral minimum investment requirements under FITTA.

For foreign investors, the minimum FDI threshold (as per recent regulatory revisions) must be confirmed before application.

Always verify current thresholds before structuring.

Governance and Compliance Obligations

This is where many investors underestimate complexity.

Private Company Compliance

• Annual General Meeting (AGM).
• Annual return filing to OCR.
• Tax filing under the Income Tax Act.
• Audit by a licensed auditor.
• PAN and VAT compliance.

Public Company Additional Obligations

• More detailed disclosures.
• Enhanced board governance.
• Possible Securities Board reporting.
• Prospectus requirements (if raising capital).
• Greater shareholder transparency.

Compliance costs increase significantly.

Taxation: Is There a Difference?

From a corporate income tax perspective:

Both private and public companies are generally taxed at the standard corporate rate under the Income Tax Act 2058.

However:

• Listed public companies may access certain concessions.
• Industry-based incentives apply irrespective of structure.

Tax holidays may apply under:

• Industrial Enterprises Act.
• Special Economic Zones (SEZ) regime.
• Export-oriented manufacturing incentives.

Tax strategy should be industry-driven, not structure-driven.

FDI Approval Process for Foreign Companies

Here is a simplified sequence:

1. Sector confirmation.
2. FDI application to DOI or IBN.
3. Approval issuance.
4. Company incorporation at OCR.
5. Bank account opening.
6. Capital injection.
7. NRB recording.
8. PAN/VAT registration.

The structure (private vs public) must be decided before filing FDI.

Changing later is costly.

Control, Repatriation, and Risk Management

Foreign investors care about:

• Dividend repatriation.
• Capital repatriation.
• Exit flexibility.
• Board control.

Under FITTA 2075:

• Dividends can be repatriated after tax clearance.
• Capital repatriation requires regulatory compliance.
• Royalty and technical fees must follow approval terms.

Private companies provide tighter ownership control. That reduces governance risk.

Key Risks to Consider

Before choosing private vs public company in Nepal, assess:

• Regulatory complexity.
• Capital structure rigidity.
• Audit costs.
• Public disclosure exposure.
• Governance control dilution.

A public company increases reputational and reporting risk.

A private company increases capital-raising limitations.

Choose based on strategy.

Practical Scenario Analysis

Scenario 1: Australian IT Firm Setting Up Delivery Center

• No IPO plan.
• 100% foreign ownership.
• Service export model.

Best fit: Private Limited Company.

Scenario 2: Hydropower Developer Raising Local Capital

• Large capital expenditure.
• Domestic investor participation.
• IPO plan in 3 years.

Best fit: Public Limited Company.

Incorporation Timeline and Cost Expectations

Typical private company timeline:

• FDI approval: 2–4 weeks.
• Incorporation: 5–10 working days.
• Bank & tax registration: 1–2 weeks.

Public company setup may take longer due to documentation and compliance planning.

Budget considerations:

• Legal advisory.
• Regulatory filing.
• Audit appointment.
• FDI compliance documentation.

Do not under-budget compliance.

Common Mistakes Foreign Investors Make

• Choosing structure without exit planning.
• Ignoring sectoral restrictions.
• Underestimating compliance costs.
• Not aligning shareholder agreements with FITTA.
• Assuming public company equals credibility.

Credibility comes from governance, not structure alone.

Strategic Decision Checklist

Before finalizing private vs public company in Nepal, ask:

• What is the five-year capital strategy?
• Will you seek public investment?
• Is sector regulation restrictive?
• How many shareholders will you need?
• What is your compliance appetite?
• How important is board control?

If you answer conservatively, private is usually safer.

Frequently Asked Questions (People Also Ask)

1. What is the main difference between private and public company in Nepal?

A private company cannot invite the public to buy shares and is limited to 101 shareholders. A public company can raise capital from the public and requires at least 7 shareholders.

2. Can a foreign investor own 100% of a Nepali private company?

Yes, subject to sectoral restrictions under FITTA 2075. Certain industries may limit foreign participation.

3. Is a public company required for foreign investment in Nepal?

No. Most foreign investors use private limited companies unless large capital raising is required.

4. Are tax rates different for private and public companies?

Generally no. Corporate tax rates apply similarly unless specific sector incentives apply.

5. How long does it take to incorporate a company in Nepal?

Typically 3–6 weeks including FDI approval and post-incorporation registrations.

Conclusion: Choosing the Right Structure for Long-Term Success

The decision between private vs public company in Nepal is not just legal. It is strategic.

For most foreign companies entering Nepal, a private limited company offers:

• Faster setup.
• Greater control.
• Lower compliance cost.
• Operational flexibility.

Public companies serve capital-intensive projects.

If your goal is operational efficiency and controlled growth, private is usually the superior entry vehicle.

The right structure reduces regulatory friction and protects shareholder value.