Incorporating Your Startup: The Complete Guide to Firm Registration

If you are evaluating private vs public company in Nepal, you are already asking the right question. The structure you choose will shape ownership, compliance, fundraising, taxation, and exit options. For foreign companies, this decision also affects foreign direct investment (FDI) approval, profit repatriation, and governance control.

Nepal’s legal framework is stable and increasingly investor-friendly. The key laws include the Companies Act 2006, the Foreign Investment and Technology Transfer Act 2019 (FITTA), the Industrial Enterprises Act 2020, and the Income Tax Act 2002. Registration is handled by the Office of the Company Registrar (OCR).

In this complete guide, you will learn:

• The real difference between a private and public company in Nepal
• Legal, tax, and compliance implications
• FDI considerations for foreign shareholders
• Step-by-step registration process
• Practical recommendations for startups and foreign investors

Let’s break it down clearly.

Understanding Private vs Public Company in Nepal

Under the Companies Act 2006, Nepal recognizes two primary corporate structures:

1. Private Limited Company
2. Public Limited Company

Both provide limited liability. But they differ significantly in ownership rules, compliance burden, and capital raising flexibility.

What Is a Private Limited Company in Nepal?

A private company in Nepal:

• Restricts share transfer
• Cannot invite the public to subscribe to shares
• Limits shareholders (minimum 1, maximum 101)
• Requires at least 1 director

This structure is common for startups, SMEs, subsidiaries, and FDI projects.

What Is a Public Limited Company in Nepal?

A public company in Nepal:

• Can issue shares to the public
• Requires minimum 7 shareholders
• Requires minimum 3 directors
• Has higher compliance and disclosure standards

Public companies are typically used for large industrial projects, banks, insurance firms, hydropower projects, or companies seeking listing on Nepal Stock Exchange (NEPSE).

Key Differences at a Glance

Original Insight:
For foreign investors, 90% of initial market entries use a private limited structure. Public conversion happens only after scale, regulatory maturity, and capital expansion needs arise.

Legal Framework Governing Company Registration

1. Companies Act 2006

Defines incorporation, share capital, director duties, annual filings, and governance standards.

2. Foreign Investment and Technology Transfer Act 2019 (FITTA)

Regulates foreign equity participation and repatriation rights.

3. Income Tax Act 2002

Corporate tax is generally 25%, with sector-specific rates for banks and special industries.

4. Industrial Enterprises Act 2020

Provides classification and incentives for industries.

Which Structure Is Better for Foreign Companies?

For most foreign companies entering Nepal, a private limited company is preferable because:

• It allows 100% foreign ownership (in permitted sectors).
• It has lower compliance costs.
• It provides operational flexibility.
• It is faster to incorporate.

A public company is advisable when:

• Large capital raising is required.
• Public listing is planned.
• Regulatory requirements mandate it (e.g., banking).

Step-by-Step: How to Register a Company in Nepal

Here is a simplified roadmap.

Step 1: Name Reservation

Submit name reservation application through OCR’s online portal.

Step 2: Draft Constitutional Documents

Prepare:

• Memorandum of Association (MOA)
• Articles of Association (AOA)

Step 3: FDI Approval (If Foreign-Owned)

Foreign investors must obtain approval from the Department of Industry or Investment Board (depending on sector and size).

Step 4: Submit Incorporation Documents

File documents at OCR, including:

• Shareholder details
• Director details
• Capital structure
• Registered office address

Step 5: Obtain Registration Certificate

OCR issues Certificate of Incorporation.

Step 6: Tax and Regulatory Registrations

After incorporation:

1. Obtain PAN from Inland Revenue Department
2. Register for VAT (if applicable)
3. Enroll in Social Security Fund
4. Open bank account
5. Apply for industry license (if required)

Compliance Obligations: Private vs Public

Annual Requirements for Private Companies

• Annual General Meeting (AGM)
• Annual return filing
• Tax return submission
• Audit (if threshold met)

Additional Requirements for Public Companies

• Statutory disclosures
• Board committees
• Prospectus compliance
• Securities regulation reporting

Public companies face stronger governance obligations and regulatory scrutiny.

Capital Requirements and Share Structure

Nepal does not impose a strict minimum paid-up capital for most private companies. However, FDI minimum thresholds may apply depending on sector.

For public companies:

• Higher authorized capital is expected.
• Regulatory minimum capital may apply for financial institutions.

Governance and Control Considerations

Private companies offer tighter control.

• Share transfer restrictions
• Fewer directors
• Simplified reporting

Public companies dilute control.

• Wider shareholder base
• Greater disclosure
• External oversight

Foreign parent companies often prefer private subsidiaries to maintain strategic control.

Taxation Differences

Under the Income Tax Act 2002:

• Standard corporate tax: 25%
• Withholding tax on dividends applies
• Sector-specific incentives available

There is no fundamental tax rate difference between private and public companies. The difference lies in compliance intensity.

Advantages and Disadvantages

Advantages of a Private Company

• Faster setup
• Lower compliance cost
• Strong ownership control
• Suitable for FDI

Disadvantages

• Cannot raise capital from public
• Limited scalability through equity markets

Advantages of a Public Company

• Access to public capital
• Enhanced credibility
• IPO opportunity

Disadvantages

• Expensive compliance
• Governance complexity
• Public scrutiny

When Should a Startup Convert to Public?

A company may convert from private to public when:

• Revenue stabilizes
• Capital expansion required
• Corporate governance systems mature
• Public offering strategy defined

Conversion requires restructuring and regulatory approval.

Risk Management for Foreign Investors

Foreign companies should consider:

• Sectoral restrictions
• Repatriation rules under FITTA
• Permanent establishment risk
• Transfer pricing compliance
• Board structure design

A poorly structured entity may create tax inefficiencies and operational bottlenecks.

Strategic Recommendation

If you are:

• Testing the Nepal market
• Setting up a subsidiary
• Establishing a back-office
• Launching a startup

Choose a private limited company.

If you are:

• Planning large capital mobilization
• Entering regulated industries
• Preparing for IPO

Consider a public company.

FAQ: Private vs Public Company in Nepal

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

A private company restricts share transfer and cannot raise funds from the public. A public company can offer shares publicly and must meet higher compliance standards.

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

Yes, subject to sectoral restrictions and FDI approval under FITTA 2019.

3. Is there a minimum capital requirement?

There is no fixed minimum for most private companies. However, FDI thresholds may apply by sector.

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

Yes. It requires restructuring, updated constitutional documents, and regulatory approval.

5. Which structure is better for startups?

Private companies are better for startups due to flexibility, lower compliance, and ownership control.

Conclusion: Choosing Between Private vs Public Company in Nepal

The decision between a private vs public company in Nepal is not just legal. It is strategic. It affects governance, fundraising, compliance, and long-term scalability.

For most foreign investors and startups, the private limited model offers speed, control, and lower regulatory burden. Public companies are ideal for large-scale capital strategies and listing ambitions.

If you are planning to incorporate in Nepal and want a compliant, risk-optimized structure tailored to your business model, now is the time to act.

Ready to register your company in Nepal?
Contact our advisory team for a structure assessment and step-by-step incorporation roadmap customized for foreign investors.