Incorporating Your Business in Nepal: What You Need to Know

If you are evaluating private vs public company in Nepal, you are already thinking like a serious foreign investor. Structure determines control, capital access, tax exposure, compliance burden, and exit flexibility.

Choosing the wrong model can slow approvals, increase regulatory friction, or complicate dividend repatriation. Choosing the right one can accelerate your Nepal market entry and protect long-term value.

This guide explains everything foreign companies need to know before incorporating in Nepal. It draws on the Companies Act 2063 (2006), the Foreign Investment and Technology Transfer Act (FITTA) 2019, and guidance from the Office of Company Registrar (OCR) and Nepal Rastra Bank (NRB).

Let’s break it down clearly.

Why Structure Matters When Incorporating in Nepal

Foreign companies typically evaluate Nepal for:

• Manufacturing and export
• IT and BPO operations
• Infrastructure and energy
• Hospitality and tourism
• Strategic regional expansion

Nepal allows foreign direct investment under FITTA 2019 in most sectors. But the corporate vehicle you choose determines:

• Shareholding flexibility
• Capital raising options
• Governance obligations
• Reporting requirements
• Public disclosure exposure
• Exit and listing pathways

The most common vehicles are:

1. Private Limited Company
2. Public Limited Company

Other options exist, such as branch offices or liaison offices, but this article focuses on private vs public company in Nepal for incorporation purposes.

What Is a Private Limited Company in Nepal?

Under the Companies Act 2063 (2006), a private company is a limited liability entity with restrictions on share transfer and a limited number of shareholders.

Key Characteristics

• Minimum 1 shareholder
• Maximum 101 shareholders
• Cannot invite public subscription of shares
• Shares cannot be freely traded
• “Private Limited” or “Pvt. Ltd.” in name

Private companies are the most common structure for foreign investors.

Why Foreign Investors Prefer Private Companies

• Greater control over ownership
• Lower regulatory burden
• No mandatory public disclosures
• Faster incorporation timeline
• Simpler governance structure

For example, a foreign IT company setting up a development center in Kathmandu typically chooses a private limited structure.

What Is a Public Limited Company in Nepal?

A public company under the Companies Act:

• Requires minimum 7 shareholders
• Has no maximum shareholder limit
• May invite public subscription
• Can list on the Nepal Stock Exchange

Public companies are regulated more strictly.

Regulatory Oversight

Public companies are supervised by:

• Office of Company Registrar (OCR)
• Securities Board of Nepal (SEBON)
• Nepal Stock Exchange (NEPSE), if listed

They must publish audited financials and comply with public reporting standards.

Private vs Public Company in Nepal: Core Differences

Here is a practical comparison tailored for foreign companies.

Strategic Insight
For most foreign investors entering Nepal, private companies provide better governance control and lower friction during early-stage market entry.

Capital Requirements in Nepal

Nepal does not impose a universal minimum paid-up capital for all sectors. However:

• Certain sectors have prescribed minimum capital.
• Foreign investment minimum thresholds may apply under FITTA.
• Banks and financial institutions are regulated separately.

Capital must be injected through formal banking channels and approved by Nepal Rastra Bank (NRB).

Repatriation of dividends is allowed under FITTA 2019, subject to tax clearance and NRB approval.

Governance and Compliance Differences

Private Company Governance

Private companies require:

• At least one director
• Annual General Meeting (AGM)
• Annual filing with OCR
• Audit by licensed auditor

Compliance is manageable.

Public Company Governance

Public companies require:

• Minimum three directors
• Independent directors (in many cases)
• Audit committee
• More frequent disclosures
• SEBON compliance
• Prospectus requirements for IPO

This adds cost and operational complexity.

Incorporation Process in Nepal (Step-by-Step)

Whether private or public, incorporation generally follows these steps:

1. Name reservation with OCR
2. Drafting Memorandum and Articles of Association
3. Filing incorporation documents
4. Obtaining company registration certificate
5. PAN and VAT registration
6. Foreign investment approval (if applicable)
7. Capital injection via NRB-approved banking channel

Foreign investors must obtain approval under FITTA before capital remittance.

When Should a Foreign Company Choose a Private Company?

A private company is ideal if:

• You want full ownership control
• You are setting up a subsidiary
• You are testing the market
• You plan long-term but controlled growth
• You do not need public capital

Typical examples:

• BPO operations
• Manufacturing export units
• Technology companies
• Professional service firms

Private companies reduce unnecessary exposure and compliance costs.

When Does a Public Company Make Sense?

A public company is suitable if:

• You need large capital funding
• You plan IPO listing
• You are executing infrastructure or hydropower projects
• You want broader investor participation

Hydropower companies in Nepal frequently adopt public structures to raise capital domestically.

Tax Considerations

Corporate tax in Nepal generally ranges around 25%, depending on sector. Special industries may receive concessions.

Dividend tax applies upon distribution.

Public and private companies are both subject to:

• Corporate income tax
• VAT (if applicable)
• Withholding taxes
• Social Security Fund obligations

There is no inherent corporate tax advantage between private and public companies.

Foreign Direct Investment Legal Framework

Foreign investment is governed by:

• Foreign Investment and Technology Transfer Act (FITTA) 2019
• Companies Act 2063 (2006)
• Income Tax Act 2058 (2002)
• Industrial Enterprises Act 2020

FITTA guarantees:

• Repatriation of profits
• Repatriation of capital
• Repatriation of technology fees

However, procedural compliance is essential.

Risk Factors Foreign Investors Should Evaluate

When comparing private vs public company in Nepal, consider:

• Regulatory exposure
• Shareholder disputes
• Capital lock-in
• Board control structure
• Exit timeline
• Political and policy changes

Public companies face greater scrutiny.

Private companies offer stronger founder-level governance protection.

Strategic Decision Matrix for Foreign Investors

Below is a simplified strategic framework:

Choose Private If:

• You want controlled expansion.
• You are entering Nepal for operations, not capital markets.
• You prioritize speed.

Choose Public If:

• You need domestic capital mobilization.
• You are operating in energy or infrastructure.
• You anticipate IPO.

Common Misconceptions

“Public companies are more credible.”

Credibility depends on compliance and governance, not just structure.

“Private companies limit growth.”

Not necessarily. Many multinational subsidiaries operate as private companies globally.

“Public structure makes repatriation easier.”

Repatriation depends on regulatory compliance, not listing status.

Key Advantages and Disadvantages

Private Company Advantages

• Simpler governance
• Lower cost
• Faster setup
• Stronger ownership control

Private Company Disadvantages

• Limited shareholder pool
• No public capital access

Public Company Advantages

• Access to broader capital
• Enhanced transparency
• Market valuation mechanism

Public Company Disadvantages

• High compliance cost
• Regulatory complexity
• Public scrutiny

Which Structure Is Right for You?

For most foreign companies entering Nepal, a private limited company is the recommended starting structure.

It balances:

• Legal protection
• Operational flexibility
• Compliance efficiency
• Repatriation rights under FITTA

Public companies are strategic tools, not default structures.

Final Thoughts: Private vs Public Company in Nepal

Choosing between a private vs public company in Nepal is not just a legal decision. It is a strategic one.

For foreign investors, the private model offers speed, control, and manageable compliance. Public companies are suitable for capital-intensive sectors requiring broad investor participation.

Before incorporating, align your corporate structure with:

• Capital strategy
• Exit plan
• Governance model
• Risk tolerance
• Regulatory capacity

Nepal is increasingly attractive for foreign direct investment. But success depends on making the right structural decision from day one.

If you are planning to incorporate in Nepal and want a tailored structuring roadmap aligned with your industry and risk profile, professional advisory support can significantly reduce friction and accelerate approvals.

FAQs (People Also Ask)

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

A private company restricts share transfer and cannot invite public subscription. A public company can raise funds from the public and list on NEPSE. Public companies face higher compliance requirements.

2. Can a foreigner fully own a private company in Nepal?

Yes. Under FITTA 2019, foreign investors may fully own companies in permitted sectors, subject to approval and compliance with capital requirements.

3. Is there a minimum capital requirement for foreign investors?

Minimum capital requirements vary by sector. FITTA and sector-specific regulations may prescribe thresholds. Capital must be routed through NRB-approved banking channels.

4. Can a private company convert into a public company in Nepal?

Yes. Conversion is allowed under the Companies Act, subject to meeting shareholder and regulatory requirements.

5. Which structure is better for long-term investment?

For most operational businesses, private companies are more efficient. Public companies are suitable for large-scale capital projects.