Key Considerations for Foreign Investors Incorporating in Nepal

For foreign companies entering Nepal, one decision shapes everything: private vs public company structure. It may look like a legal checkbox. In reality, it affects FDI approval timelines, capital requirements, reporting obligations, investor credibility, and long-term scalability.

Whether you're an Australian services firm, an Indian manufacturer, or a Chinese technology investor, your incorporation model determines how regulators, banks, and partners view you.

In this post, we’ll explain what private vs public company means under Nepal’s legal framework, outline the step-by-step incorporation process for foreign investors, and share practical insights from real cross-border setups. By the end, you’ll know exactly which structure fits your entry strategy and how to move forward confidently.

What Is Private vs Public Company, and Why Does It Matter?

Under Nepal’s Companies Act, 2063 (2006), businesses are primarily registered as either:

• Private Limited Company
• Public Limited Company

The distinction is not cosmetic. It defines:

• Shareholder limits
• Share transfer restrictions
• Minimum capital expectations
• Reporting requirements
• Governance structure
• Public fund-raising ability

Private Company in Nepal

A private company:

• Limits shareholders (typically up to 101)
• Restricts public share offerings
• Has simpler governance
• Is ideal for closely held foreign subsidiaries

Most foreign investors entering Nepal choose this model.

Public Company in Nepal

A public company:

• Can offer shares to the public
• Requires higher compliance
• Has stricter governance requirements
• Is necessary for large capital-intensive or listed entities

If you plan to raise capital locally or scale via public investment, this structure may be relevant.

Why This Decision Matters for Foreign Investors

Choosing incorrectly can result in:

• Delays in FDI approval
• Regulatory restructuring later
• Additional tax exposure
• Governance inefficiencies

Choosing correctly accelerates:

• Approval from the Department of Industry (DOI)
• Bank account opening
• Repatriation approvals
• Long-term scalability

Structure equals strategy.

How to Decide Between Private vs Public Company in Nepal

Below is a practical framework we use with international clients.

Step 1: Define Your Capital and Growth Strategy

Ask:

• Are you self-funding?
• Will you raise capital in Nepal?
• Do you plan to list in the future?

If capital is coming from the foreign parent only, a private company is usually sufficient.

If local public fundraising is required, consider a public company.

Step 2: Evaluate FDI Approval Requirements

Foreign investment requires approval under Nepal’s Foreign Investment and Technology Transfer Act (FITTA).

Key authorities:

• Department of Industry (DOI)
• Investment Board Nepal (for large projects)
• Nepal Rastra Bank (for capital inflow verification)

Both private and public companies can receive FDI approval. However, private companies are simpler to structure during initial entry.

Step 3: Consider Governance and Compliance Burden

Public companies require:

• Larger board structures
• Higher transparency standards
• Increased disclosure obligations
• Potential regulatory scrutiny

Private companies offer:

• Faster decision-making
• Simplified board resolutions
• Lower annual compliance cost

For service companies and foreign subsidiaries, governance simplicity matters.

Step 4: Assess Industry and Licensing Requirements

Certain sectors may require:

• Specific capital thresholds
• Sectoral approval
• Additional reporting

For example:

• Banking and financial institutions require public structures.
• Manufacturing and services typically operate comfortably as private companies.

Industry dictates structure.

Step 5: Plan for Repatriation and Exit

Foreign investors should plan early for:

• Dividend repatriation
• Royalty payments
• Management service fees
• Future share transfer

Private companies offer cleaner exit structures for group reorganizations.

Public companies may complicate ownership restructuring.

Key Legal Considerations for Foreign Investors

When incorporating in Nepal, foreign companies must address:

1. Minimum Capital Requirements

Nepal does not impose excessive minimum capital for private companies, but sector-specific rules may apply.

2. Director Requirements

• At least one director required.
• Foreign directors allowed.
• Local compliance officer recommended.

3. Registered Office

A physical registered office in Nepal is mandatory.

4. Tax Registration

After incorporation:

• PAN registration
• VAT registration (if applicable)
• Income tax compliance

Corporate tax currently stands at approximately 25% (sector dependent).

5. Labor and Social Security Compliance

If hiring employees:

• Labor Act compliance
• Social Security Fund (SSF) registration
• Employment contracts aligned with Nepali law

Practical Example: Service Company vs Manufacturing Investor

Let’s compare two hypothetical foreign investors.

Most investors start private and convert later if required.

Flexibility is strategic.

Tips and Reminders for Foreign Investors

1. Do not over-structure early. Simplicity reduces delays.
2. Align structure with exit strategy. Think five years ahead.
3. Engage compliance advisors early. Documentation errors delay FDI approval.
4. Understand repatriation rules before capital injection.
5. Choose directors carefully. Governance signals credibility.

Common Mistakes Foreign Investors Make

• Choosing public structure without capital necessity
• Ignoring sector-specific licensing
• Underestimating compliance cost
• Delaying tax registration
• Structuring ownership inefficiently for dividend repatriation

These mistakes cost time and money.

FAQ - People Also Ask

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

A private company restricts share transfers and cannot offer shares to the public. A public company can raise capital from the public and has stricter governance requirements.

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

Yes. In most sectors, foreign investors can own 100% equity, subject to FDI approval and sectoral restrictions.

3. Is a public company required for foreign investment in Nepal?

No. Most foreign investors register private companies. Public companies are only required in regulated sectors or for public fundraising.

4. How long does company incorporation take in Nepal?

Incorporation typically takes 7–21 days, depending on documentation and FDI approval complexity.

5. Can a private company later convert into a public company?

Yes. Conversion is permitted under the Companies Act, subject to compliance and regulatory approval.

Final Verdict- Private V.s Public Company

Incorporating in Nepal is not just a registration exercise. The private vs public company decision determines your regulatory pathway, governance model, and long-term flexibility.

Most foreign companies benefit from starting with a private structure and scaling strategically. The right structure reduces friction, accelerates approvals, and protects your investment.

The goal is not complexity. The goal is clarity.

Call to Action

Planning to incorporate in Nepal?

Our team advises foreign investors on:

• Private vs public company structuring
• FDI approval documentation
• Tax and compliance setup
• Director and governance framework
• Repatriation planning

Book a strategic consultation today and ensure your Nepal entry is structured correctly from day one.