How to Capitalize on Foreign Direct Investment Opportunities in Nepal

If you are evaluating Private vs public company in Nepal, you are already thinking like a serious foreign investor. The structure you choose will directly affect regulatory approvals, governance control, capital raising, tax exposure, and exit flexibility.

Nepal is actively positioning itself as an emerging FDI destination. The legal framework has evolved under the Foreign Investment and Technology Transfer Act (FITTA 2019) and the Companies Act. The investment regime is overseen by the Department of Industry (DOI) and the Nepal Rastra Bank (NRB).

But legal permission alone is not strategy.

The real question is:

Should you incorporate a private limited company or a public limited company in Nepal?

This guide breaks it down clearly for foreign companies looking to invest, expand, or structure operations in Nepal.

Nepal’s FDI Landscape: Why Structure Matters

Nepal sits between India and China. It has preferential trade access to regional markets. Labor costs remain competitive. Hydropower, ICT, manufacturing, tourism, and outsourcing sectors are growing.

Under FITTA 2019:

• Most sectors are open to foreign investment.
• Repatriation of dividends is permitted subject to NRB approval.
• Minimum FDI threshold currently applies (subject to periodic updates).
• Technology transfer agreements are formally recognized.

However, your corporate structure determines:

• Who controls the board.
• Whether you can issue public shares.
• The level of disclosure required.
• Your future IPO pathway.
• Investor confidence and governance perception.

That is why understanding private vs public company in Nepal is foundational.

Legal Framework Governing Companies in Nepal

Foreign investors operate under:

• Companies Act 2006
• Foreign Investment and Technology Transfer Act 2019
• Income Tax Act 2058 (2002)
• Industrial Enterprises Act 2020
• NRB Foreign Exchange Regulations

Regulators involved:

• Department of Industry (FDI approval)
• Office of Company Registrar (OCR)
• Nepal Rastra Bank (capital inflow & repatriation approval)
• Inland Revenue Department (tax registration)

Now let’s compare the two company structures.

Private vs Public Company in Nepal: Core Differences

1. Definition and Ownership

Under the Companies Act:

• A Private Limited Company (Pvt. Ltd.)
  • Minimum 1 shareholder.
  • Maximum 101 shareholders.
  • Cannot invite public subscription.
• A Public Limited Company (Ltd.)
  • Minimum 7 shareholders.
  • No maximum limit.
  • Can issue shares to the public.
  • Required for stock exchange listing.

2. Comparative Overview Table

Strategic Insight:
Most foreign investors entering Nepal choose a private limited structure initially. Public companies are typically used for large-scale hydropower, infrastructure, banking, or projects seeking domestic capital participation.

Private vs Public Company in Nepal – Which Is Better for Foreign Investors?

There is no universal answer. The right structure depends on your strategic objective.

Let’s analyze scenarios.

When a Private Limited Company Makes Sense

A private limited company is ideal if you:

1. Want 100% foreign ownership.
2. Need operational control.
3. Do not plan immediate capital market fundraising.
4. Prefer lighter compliance.
5. Are testing the Nepal market.

Most foreign subsidiaries use this model.

It provides:

• Board control.
• Share transfer restrictions.
• Limited disclosure obligations.
• Faster incorporation timeline.

For BPOs, IT services, manufacturing units, or consulting subsidiaries, this is usually optimal.

When a Public Limited Company Makes Sense

A public limited company is suitable if:

• You are raising capital locally.
• You plan an IPO.
• You are developing infrastructure or hydropower.
• Regulatory law mandates public structure (e.g., banks, large financial institutions).

Public companies face:

• Stricter reporting.
• Mandatory annual general meetings.
• Enhanced audit standards.
• Greater regulatory scrutiny.

But they gain:

• Access to Nepal’s capital market.
• Increased credibility.
• Wider investor base.

Governance and Board Structure Differences

Private Company Governance

• Flexible board composition.
• Shareholder agreements play a major role.
• Foreign parent typically appoints directors.
• Fewer mandatory disclosures.

Public Company Governance

• Minimum 3 directors.
• Independent directors may be required in certain sectors.
• Higher audit scrutiny.
• Mandatory compliance with securities regulations.

Governance complexity increases significantly

Compliance Requirements Comparison

Private Limited Company

• Annual audit required.
• Annual return filing to OCR.
• Tax filing under Income Tax Act.
• NRB reporting for dividend repatriation.

Public Limited Company

In addition to above:

• Public disclosures.
• Prospectus approval for share issuance.
• Securities Board compliance.
• Quarterly reporting in many cases.

Compliance costs are materially higher.

Capital Raising Flexibility

This is where the difference becomes structural.

Private Company

• Can raise funds via:
  • Foreign equity
  • Shareholder loans
  • Technology transfer agreements
• Cannot issue shares to public.

Public Company

• Can raise:
  • Public equity
  • Debentures
  • Institutional investments
  • IPO capital

If long-term expansion depends on local capital markets, public structure may be required.

Tax Considerations

Corporate income tax generally applies uniformly under Nepal law.

However:

• Dividend distribution is subject to withholding tax.
• Repatriation requires NRB approval.
• Sector-specific incentives may apply (hydropower, SEZ zones, manufacturing).

Both private and public companies are taxed under the same corporate framework.

Structure does not change tax rate.
But compliance and disclosure obligations differ.

Foreign Ownership Rules

Under FITTA 2019:

• 100% foreign ownership is allowed in most sectors.
• Certain industries remain restricted or require joint ventures.
• Minimum investment threshold applies.

Both private and public companies can receive foreign investment.

However:

Public companies with domestic shareholding introduce governance dilution.

Private companies allow tighter foreign control.

Risk Matrix: Strategic Comparison

Key Insight:
Private companies maximize control.
Public companies maximize capital access.

Sector-Specific Trends in Nepal

Hydropower

Often structured as public limited companies due to large capital requirements.

IT & Outsourcing

Mostly private limited structures.

Manufacturing

Private limited for initial entry. Public if scaling.

Banking & Insurance

Must be public under sectoral regulation.

Understanding sectoral compliance is critical before deciding.

Practical Incorporation Timeline

Private Limited Company

• FDI approval: 2–6 weeks
• Company registration: 1–2 weeks
• NRB capital approval: additional processing
• PAN/VAT registration: post incorporation

Public Limited Company

• Similar initial process.
• Additional securities compliance.
• Longer pre-IPO documentation process.

Expect longer lead time.

Exit Strategy Considerations

If your goal is:

• Eventual IPO → Consider public.
• Strategic sale to foreign buyer → Private works.
• Joint venture buyout → Private preferred.
• Public listing within Nepal → Must be public.

Structure should align with exit vision.

Decision Framework for Foreign Investors

Ask yourself:

1. Do I need public capital?
2. Is regulatory credibility critical?
3. Will governance dilution affect control?
4. What is my 5-year exit strategy?
5. Does my sector mandate public structure?

If most answers lean toward control and flexibility, private is likely correct.

Common Mistakes Foreign Investors Make

• Choosing public structure too early.
• Ignoring compliance costs.
• Underestimating board governance complexity.
• Not aligning structure with repatriation planning.
• Failing to draft strong shareholder agreements.

Structure mistakes are expensive to fix later.

Frequently Asked Questions (People Also Ask)

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

A private company cannot offer shares to the public and has a shareholder cap. A public company can issue shares publicly and has no maximum shareholder limit.

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

Yes. Under FITTA 2019, 100% foreign ownership is permitted in most sectors, subject to minimum investment thresholds.

3. Is a public company mandatory for foreign investors?

No. Most foreign investors use private limited companies unless sector laws require public structure.

4. Which company type is easier to manage?

Private limited companies are easier due to lower compliance and governance obligations.

5. Can a private company convert to public in Nepal?

Yes. Conversion is permitted under the Companies Act, subject to compliance requirements.

Final Recommendation: Private vs Public Company in Nepal

When analyzing Private vs public company in Nepal, foreign investors should not default to complexity.

In most cases:

• Start with a private limited company.
• Retain governance control.
• Optimize compliance cost.
• Convert to public only when capital market access becomes necessary.

Public structure is powerful.
But only when scale demands it.