Exploring the Boundaries of Foreign Investment in Nepal

Private vs public company in Nepal is one of the first and most decisive questions foreign investors face. The choice quietly determines ownership flexibility, compliance depth, capital strategy, and even exit options. Within the first 100 days of entry, this decision shapes how regulators see you, how banks treat you, and how scalable your Nepal operation becomes. In this guide, we break down the differences clearly, practically, and from a foreign-investor lens.

Why Nepal Attracts Foreign Companies

Nepal has emerged as a strategic South Asian entry point. It offers cost-efficient talent, improving infrastructure, and preferential access to regional markets.

Key macro signals foreign companies track include:

• Stable FDI policy under Foreign Investment and Technology Transfer Act
• Liberalized sectors under the Industrial Enterprises Act
• Clear corporate structures under the Companies Act

But structure matters more than opportunity.

Understanding Company Structures in Nepal

Nepal primarily recognizes two company types for commercial operations:

• Private Limited Company
• Public Limited Company

Both can receive foreign investment. Their risk, cost, and governance profiles differ sharply.

What Is a Private Company in Nepal

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

Core Characteristics

• 1 to 101 shareholders
• Share transfer restricted
• Cannot invite public investment
• Lower regulatory exposure

Private companies are governed by the Companies Act 2006 and commonly used for:

• Wholly foreign-owned subsidiaries
• Joint ventures with defined partners
• Operational or cost-center entities

What Is a Public Company in Nepal

A public company is designed for capital aggregation and public participation.

Core Characteristics

• Minimum 7 shareholders
• Shares freely transferable
• Can issue public shares
• Mandatory higher disclosures

Public companies face heavier scrutiny from:

• Securities Board of Nepal
• Office of the Company Registrar
• Sector-specific regulators

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

This comparison explains why over 90 percent of foreign entrants choose private companies initially.

Foreign Ownership Rules Explained

Foreigners can own:

• Up to 100 percent in most permitted sectors
• Minority stakes in restricted or sensitive industries
• No stake in prohibited sectors

Foreign investment approval flows through:

• Department of Industry
• Nepal Rastra Bank for capital inflow
• Line ministries when applicable

Sectors Restricted or Prohibited for Foreign Investors

Nepal maintains a negative list for foreign investment.

Foreigners cannot invest in:

• Small retail and local trading
• Personal services like barbering
• Cottage industries below capital thresholds

Sectors open with conditions include:

• Media
• Education
• Tourism transport

These restrictions apply equally to private and public companies.

Why Private Companies Dominate Foreign Entry

For foreign firms, private companies win on control and speed.

Strategic Advantages

1. Faster incorporation and approvals
2. Lower capital lock-in
3. Clear governance and exit pathways
4. Reduced public disclosure

This makes private companies ideal for:

• Market testing
• Offshore service delivery
• Regional headquarters

When a Public Company Makes Sense

Public companies suit large-scale or regulated plays.

Typical use cases include:

• Hydropower projects
• Banking and insurance
• Telecom infrastructure

They allow capital pooling but reduce founder control.

Taxation Differences That Matter

Both private and public companies face:

• Corporate income tax
• VAT where applicable
• Withholding taxes

However, public companies often face:

• Additional audit scrutiny
• Market disclosure-driven tax reviews

Tax laws are governed by the Income Tax Act.

Repatriation and Exit Considerations

Foreign investors care about exits early.

Private companies offer:

• Share sale flexibility
• Cleaner dissolution
• Easier profit repatriation

Public companies face:

• Market valuation risk
• Regulatory approval layers
• Share liquidity constraints

Compliance Burden Comparison

Private companies file:

• Annual returns
• Financial statements
• Standard audits

Public companies must also:

• Publish disclosures
• Hold statutory general meetings
• Report to securities regulators

Compliance costs can be 2–3 times higher for public companies.

Common Mistakes Foreign Investors Make

• Choosing a public company for credibility rather than necessity
• Ignoring sector-specific FDI caps
• Underestimating ongoing compliance costs

These mistakes are structural, not procedural.

Decision Framework for Foreign Companies

Ask three questions:

• Do we need public capital in Nepal
• Do we need unrestricted share transfers
• Do we accept higher compliance exposure

If the answer is no, private company is usually correct.

Conclusion

Private vs public company in Nepal is not a legal formality. It is a strategic commitment that defines risk, flexibility, and long-term returns. For most foreign companies, a private company offers speed, control, and compliance efficiency. Public companies serve niche, capital-intensive ambitions. Choose deliberately, not defensively.

Frequently Asked Questions

Is a private company better than a public company in Nepal for foreigners?

Yes, in most cases. Private companies offer faster setup, lower compliance, and greater control for foreign investors.

Can foreigners own 100 percent of a Nepalese public company?

Yes, unless the sector has ownership caps or restrictions under FDI policy.

Is it easier to repatriate profits from a private company?

Generally yes. Private companies face fewer regulatory layers during repatriation.

Do public companies get tax benefits in Nepal?

No automatic tax benefits exist. Incentives depend on sector and location, not company type.

Can a private company convert into a public company later?

Yes. Conversion is allowed with regulatory approvals and restructuring.