International Business Ventures: Investing in Nepal’s Economy

Foreign investors exploring Private vs public company in Nepal often ask one core question.
Which structure protects capital, simplifies compliance, and supports long term growth?

Nepal’s economy is evolving fast. Reforms under the Foreign Investment and Technology Transfer Act and the Industrial Enterprises Act have strengthened investor protection. Company registration is governed by the Companies Act and regulated through the Office of the Company Registrar.

But structure determines outcomes.

A private company offers flexibility and control.
A public company enables capital raising and broader ownership.

In this guide, we break down the legal, tax, compliance, and strategic implications. This is written specifically for foreign companies considering market entry, FDI, or joint ventures in Nepal.

Nepal’s Corporate Landscape at a Glance

Nepal operates under a codified corporate regime. The legal backbone includes:

• Companies Act
• Foreign Investment and Technology Transfer Act
• Industrial Enterprises Act
• Income Tax Act
• Labour Act

Public companies may list on the Nepal Stock Exchange (NEPSE).

Foreign direct investment must meet sectoral thresholds set by the Department of Industry under FITTA 2019.

Private vs Public Company in Nepal: Legal Definitions

Understanding statutory definitions is critical before incorporation.

What Is a Private Company in Nepal?

Under the Companies Act 2006, a private limited company:

• Restricts share transfer
• Limits shareholders to 1–101
• Cannot invite public subscription
• Uses “Pvt. Ltd.” in its name

Foreign investors commonly choose this model for:

• Wholly owned subsidiaries
• Joint ventures
• Technology companies
• Back office operations
• Manufacturing units

Minimum capital depends on FDI thresholds under FITTA.

What Is a Public Company in Nepal?

A public limited company:

• Requires minimum 7 shareholders
• Can invite public subscription
• May list on NEPSE
• Must appoint at least 3 directors

Public companies are common in:

• Banking and finance
• Hydropower
• Insurance
• Large infrastructure projects

They are subject to stricter governance and disclosure requirements.

Key Differences: Private vs Public Company in Nepal

Below is a strategic comparison for foreign investors.

Strategic Insight

If your goal is operational control and risk containment, private structure is usually optimal.

If your goal is capital mobilization and market credibility, public structure may be better.

Regulatory Approvals for Foreign Companies

Foreign investors must secure:

1. DOI approval under FITTA
2. Company registration at OCR
3. PAN registration under the Income Tax Act
4. Sector specific licenses if applicable
5. Local bank account and capital injection

The regulatory path differs slightly for public companies if IPO planning is involved.

Capital Requirements and FDI Thresholds

Nepal’s minimum FDI threshold is NPR 20 million in most sectors under FITTA 2019.

Private companies meet this easily.

Public companies often require substantially higher paid up capital due to listing norms.

Governance and Compliance Obligations

Private Company Compliance

• Annual General Meeting
• Annual return filing
• Tax audit (if applicable)
• Board meetings
• Social Security Fund compliance

Public Company Compliance

In addition to the above:

• Quarterly reporting
• Securities disclosure requirements
• Audit committee
• Independent directors
• Prospectus filing for IPO

The compliance burden is significantly higher.

Taxation Comparison

Under the Income Tax Act, corporate tax rates generally apply equally to private and public companies.

Standard corporate tax rate: 25%

Certain industries such as hydropower enjoy concessions.

Public companies do not automatically receive tax advantages. Incentives depend on industry classification under the Industrial Enterprises Act.

Foreign Repatriation Rules

Both structures allow profit repatriation, subject to:

• Audited financial statements
• Tax clearance
• Nepal Rastra Bank approval

Private companies typically process repatriation faster due to fewer shareholder complexities.

Risk, Control, and Strategic Considerations

Foreign investors should evaluate four factors:

1. Control

Private companies allow tighter shareholder agreements and ring fenced governance.

2. Fundraising Needs

Public companies provide IPO access and institutional capital.

3. Disclosure Risk

Public entities require transparency that may expose sensitive financial data.

4. Exit Strategy

Private companies offer structured share transfer options.
Public companies allow market based exit post listing.

When Should a Foreign Company Choose Private Structure?

A private company is ideal when:

• You are testing the Nepal market
• You want 100% ownership
• You are setting up a technology subsidiary
• You are creating a cost center or liaison structure
• You need faster incorporation

This model minimizes regulatory exposure.

When Does Public Structure Make Sense?

Public incorporation works best if:

• You need large scale capital
• You plan infrastructure projects
• You want brand credibility
• You operate in regulated financial sectors

Banks and insurance companies must be public under sectoral laws.

Incorporation Timeline Comparison

Cost Comparison Overview

Private company setup costs include:

• Registration fees
• Legal drafting
• FDI approval
• Tax registration
• Compliance advisory

Public company costs additionally include:

• Prospectus drafting
• Securities advisor
• Underwriter fees
• Listing fees
• Public audit reporting

Public setup costs are significantly higher.

Industry Examples

Technology Company

Foreign SaaS company enters Nepal.
Chooses private subsidiary.
Retains IP ownership offshore.

Hydropower Developer

Large infrastructure consortium.
Registers public company.
Raises capital through IPO.

Governance Under the Companies Act 2006

The Companies Act mandates:

• Memorandum and Articles of Association
• Board structure
• Annual reporting
• Shareholder rights protection

Public companies face additional securities regulations.

Common Mistakes Foreign Investors Make

• Choosing public structure prematurely
• Underestimating compliance cost
• Ignoring sectoral licensing
• Poor shareholder agreement drafting
• Not planning repatriation structure

Avoiding these errors protects long term ROI.

FAQ: Private vs Public Company in Nepal

1. Can a foreign investor own 100% of a private company in Nepal?

Yes. FITTA allows 100% foreign ownership in most sectors except restricted industries.

2. Is public company mandatory for foreign investors?

No. It is required only in specific sectors like banking or insurance.

3. Which structure is easier to manage?

Private companies have lower compliance and governance requirements.

4. Can a private company convert into public later?

Yes. Conversion is permitted under the Companies Act 2006 subject to approval.

5. Does a public company pay lower tax?

No. Corporate tax rates are generally identical under the Income Tax Act 2002.

Final Verdict: Private vs Public Company in Nepal

When evaluating Private vs public company in Nepal, most foreign companies begin with a private limited structure.

It offers control.
It reduces compliance burden.
It protects capital.

Public companies are powerful but complex. They are suitable for capital intensive ventures.

If you are entering Nepal for the first time, structure determines everything. It impacts taxation, governance, repatriation, and exit.