How to Open a Company in Nepal: Essential Legal Requirements

If you are evaluating private vs public company in Nepal, you are already asking the right strategic question. For foreign companies, the legal structure you choose shapes control, compliance, cost, and future scalability. Nepal offers a clearly defined company law framework, but the practical implications differ significantly between private and public companies. This guide explains how to open a company in Nepal, compares both structures, and highlights the essential legal requirements foreign investors must understand before committing capital.

Understanding the Legal Framework for Company Registration in Nepal

Company formation in Nepal is governed primarily by the Companies Act 2006, administered by the Office of Company Registrar. Foreign investment is further regulated under the Foreign Investment and Technology Transfer Act 2019.

These laws define how companies are formed, owned, governed, and dissolved.

Key authorities involved

• Office of Company Registrar (OCR)

• Department of Industry for foreign investment approvals

• Inland Revenue Department for tax registration

• Nepal Rastra Bank for capital inflow compliance

What Is a Private Company in Nepal?

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

Legal characteristics of a private company

• Minimum shareholders: 1

• Maximum shareholders: 101

• Share transfer is restricted

• Public share issuance is prohibited

• Suitable for FDI and wholly owned subsidiaries

Under the Companies Act 2006, private companies offer flexibility and operational control. This makes them ideal for foreign-owned operating entities, back office centers, and technology subsidiaries.

What Is a Public Company in Nepal?

A public company is designed for large-scale capital raising and public participation.

Legal characteristics of a public company

• Minimum shareholders: 7

• No maximum shareholder limit

• Mandatory public disclosure requirements

• Can issue shares to the public

• Higher compliance and governance burden

Public companies are commonly used by banks, hydropower companies, and infrastructure projects. For most foreign companies entering Nepal operationally, this structure is rarely optimal at the initial stage.

Private vs Public Company in Nepal: Core Differences Explained

Strategic intent matters

The debate around private vs public company in Nepal is not theoretical. It is strategic. Your decision should align with control, funding plans, and regulatory tolerance.

Comparison table: Private vs public company in Nepal

This comparison shows why private companies dominate foreign direct investment structures in Nepal.

Step-by-Step Guide: How to Open a Company in Nepal

Whether you choose a private or public company, the registration process follows defined legal stages.

1. Name reservation

The proposed company name is submitted to the Office of Company Registrar for availability and approval.

2. Document preparation

You will need:

• Memorandum of Association

• Articles of Association

• Shareholder and director details

• Parent company documents for foreign shareholders

3. Registration with OCR

Upon submission, the OCR issues a Certificate of Incorporation. The company becomes a legal entity at this stage.

4. Foreign investment approval

Foreign shareholders must obtain approval under FITTA 2019. Capital must be brought in through formal banking channels.

5. Tax and statutory registrations

After incorporation:

• Permanent Account Number registration

• VAT registration if applicable

• Social Security Fund enrollment

Capital Requirements and Ownership Rules

Nepal does not impose a fixed minimum capital for private companies. However, for foreign investors, the Department of Industry typically expects a minimum investment threshold per project.

Ownership flexibility

Foreign companies can own up to 100 percent equity in most sectors. Restricted sectors require additional scrutiny or are closed to FDI.

Compliance Obligations You Must Know

Once registered, compliance becomes an ongoing responsibility.

Mandatory obligations include

• Annual financial audit

• Annual return filing with OCR

• Tax filings under the Income Tax Act 2002

• Labor compliance under the Labour Act 2017

Failure to comply can result in penalties, suspension, or cancellation of registration.

Why Foreign Companies Prefer Private Companies in Nepal

Foreign investors consistently choose private companies because they offer:

• Faster incorporation timelines

• Lower disclosure requirements

• Full managerial control

• Easier exit and restructuring

From an operational perspective, private companies provide clarity and predictability in Nepal’s regulatory environment.

Common Mistakes Foreign Investors Make

Avoid these pitfalls when deciding between private vs public company in Nepal.

1. Overestimating the need for public status

2. Ignoring foreign investment approval timelines

3. Underestimating compliance obligations

4. Choosing structure before defining business scope

Early legal structuring prevents long-term regulatory friction.

Industry Use Cases

Private companies are commonly used for:

• IT and software development

• Shared service centers

• Professional services

• Outsourced operations

Public companies are typically used for:

• Hydropower projects

• Banking and finance

• Large infrastructure developments

Taxation Overview for Companies in Nepal

Corporate tax rates depend on industry classification. Standard corporate tax applies to most private companies. Certain sectors enjoy incentives or face higher rates.

Dividend repatriation and profit distribution must follow Nepal Rastra Bank guidelines.

Frequently Asked Questions (People Also Ask)

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

For most foreign companies, yes. Private companies offer control, lower compliance, and faster setup. Public companies suit large-scale fundraising only.

Can a foreign company own 100 percent of a Nepal company?

Yes. Full foreign ownership is permitted in most sectors under FITTA 2019.

How long does company registration take in Nepal?

Typically, 2 to 4 weeks, depending on approvals and document readiness.

Is minimum capital required for company registration?

No fixed statutory minimum exists, but foreign investment thresholds apply in practice.

Can a private company convert into a public company later?

Yes. Conversion is legally permitted but requires regulatory approvals and restructuring.

Conclusion: Making the Right Choice for Your Nepal Entry

Choosing between private vs public company in Nepal is a foundational decision. For foreign companies, private companies deliver speed, control, and regulatory efficiency. Public companies serve specialized purposes and demand higher compliance tolerance. Align your structure with your business model, funding strategy, and long-term presence in Nepal.