Legal Essentials: What You Need to Know to Register a New Firm

If you are comparing a Private vs public company in Nepal, you are already asking the right question.

Your choice determines ownership limits, capital structure, compliance burden, fundraising options, and even exit strategy. For foreign companies entering Nepal, the wrong structure can create long-term regulatory friction.

Nepal’s corporate framework is governed primarily by the Companies Act 2006, alongside the Foreign Investment and Technology Transfer Act 2019 (FITTA), the Income Tax Act 2002, and related regulations.

This guide explains everything you need to know.
Clear. Practical. Investor-focused.

Understanding the Private vs Public Company in Nepal

Under the Companies Act 2006, companies in Nepal are broadly classified into:

• Private Limited Company
• Public Limited Company

Both structures offer limited liability.
Both are separate legal entities.
But they operate very differently.

Let’s break it down.

What Is a Private Company in Nepal?

A private company is the most common business vehicle for startups, SMEs, subsidiaries, and foreign-owned entities.

Key Legal Features

Under Section 3 and related provisions of the Companies Act 2006:

• Minimum 1 shareholder
• Maximum 101 shareholders
• Restriction on share transfer
• Cannot invite the public to subscribe shares
• “Private Limited” must appear in the company name

This structure is ideal for closely held businesses.

Why Foreign Companies Prefer Private Companies

Foreign investors often choose this model because:

• It allows 100% foreign ownership (subject to FITTA approval).
• It has lower compliance than a public company.
• It provides flexibility in shareholder agreements.
• It avoids public disclosure requirements.

For most FDI-backed companies in Nepal, the private limited company is the default structure.

What Is a Public Company in Nepal?

A public company is designed for larger enterprises intending to raise capital from the public.

Legal Characteristics

Under the Companies Act 2006:

• Minimum 7 shareholders
• No maximum limit
• Shares can be publicly offered
• Must appoint at least 3 directors
• Subject to stricter disclosure requirements

If listed, it is regulated by the Securities Board of Nepal (SEBON).

Public companies are typically used by:

• Banks and financial institutions
• Hydropower companies
• Insurance companies
• Large infrastructure projects

Private vs Public Company in Nepal: Side-by-Side Comparison

Here’s a structured comparison for decision-makers:

Insight for Foreign Companies

If your Nepal entry strategy involves:

• Controlled ownership
• Cost-center operations
• Back-office support
• Technology or services

A private company is almost always the optimal structure.

If you are planning:

• IPO
• Public capital raising
• Institutional investment
• Large infrastructure funding

Then a public company may be appropriate.

Registration Process: Step-by-Step Guide

Regardless of structure, registration happens through the Office of the Company Registrar (OCR).

Here’s the simplified process:

1. Name Reservation

Submit proposed company name online to OCR.

2. Draft Constitutional Documents

Prepare:

• Memorandum of Association
• Articles of Association

3. Submit Incorporation Documents

File:

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

4. Obtain Certificate of Incorporation

Issued by OCR upon approval.

5. Tax Registration

Register for:

• PAN
• VAT (if applicable)

Under the Income Tax Act 2002, corporate tax is generally 25%, with sector-specific variations.

Compliance Requirements: Private vs Public

Compliance is where the real difference appears.

Private Company Compliance

• Annual General Meeting (AGM)
• Annual return filing
• Financial statements
• Tax filings

Public Company Compliance

In addition to private company requirements:

• Mandatory board committees
• Public disclosure requirements
• SEBON reporting (if listed)
• More frequent financial reporting

This significantly increases governance cost.

Capital Raising and Investment Strategy

If you are entering Nepal with FDI, FITTA 2019 governs:

• Minimum foreign investment threshold
• Repatriation of dividends
• Approval from Department of Industry (DOI)

Private companies allow foreign investors to maintain tight capital control.

Public companies enable broader investor participation but increase regulatory oversight.

Governance Structure Differences

Private Company Governance

• Flexible board structure
• Shareholder agreements dominate control
• Less public scrutiny

Public Company Governance

• Statutory minimum directors
• Independent director requirements (if listed)
• Formal governance framework

For multinational groups setting up subsidiaries, flexibility is usually more important than public fundraising access.

When Should You Choose a Public Company?

Choose a public company if:

1. You plan to raise capital from the general public.
2. Your project requires large-scale financing.
3. You aim for stock exchange listing.
4. You operate in regulated sectors requiring public structure.

Otherwise, a private company is usually more efficient.

Common Mistakes Foreign Investors Make

Let’s address practical realities.

• Choosing public structure unnecessarily.
• Ignoring share transfer restrictions in private companies.
• Failing to structure capital correctly at incorporation.
• Overlooking compliance cost projections.
• Not aligning structure with exit strategy.

Structure determines long-term flexibility.

Tax Considerations

Under the Income Tax Act 2002:

• Standard corporate tax: 25%
• Banking and financial institutions: higher rates
• Export-oriented industries may receive incentives

Both private and public companies are taxed similarly.
The difference lies in compliance complexity, not tax rate.

Regulatory Authorities Involved

Depending on structure and industry, you may interact with:

• Office of Company Registrar
• Department of Industry
• Nepal Rastra Bank (for repatriation approvals)
• Securities Board of Nepal

Understanding regulatory mapping is critical.

Strategic Decision Framework for Foreign Companies

Before choosing between private vs public company in Nepal, ask:

• Are we raising public capital?
• What is our long-term exit strategy?
• Do we need public credibility for fundraising?
• What compliance budget do we allocate annually?
• Is control or capital access our priority?

For 90% of foreign entrants, private limited is optimal

Advantages and Disadvantages Summary

Private Company – Pros

• Lower compliance cost
• Full ownership control
• Flexible management
• Easier restructuring

Private Company – Cons

• Limited capital raising
• Restricted share transfer

Public Company – Pros

• Access to public funding
• Higher market visibility
• Institutional investor access

Public Company – Cons

• Higher governance cost
• Mandatory disclosures
• Complex reporting

Final Verdict: Private vs Public Company in Nepal

When evaluating Private vs public company in Nepal, foreign companies should focus on long-term strategy rather than short-term optics.

If you need control, operational efficiency, and regulatory simplicity, choose private.

If you need large-scale capital and public fundraising, choose public.

Structure is not just legal paperwork.
It is strategic architecture.

Frequently Asked Questions (FAQ)

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

Yes. Under FITTA 2019, 100% foreign ownership is permitted in most sectors, subject to approval.

2. Is a public company mandatory for large projects?

Not always. Only certain regulated sectors require public structure. Many large projects operate as private companies.

3. Are tax rates different for private and public companies?

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

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

Yes. Conversion is allowed under the Companies Act 2006, subject to compliance requirements.

5. Is compliance significantly higher for public companies?

Yes. Public companies have stricter reporting, governance, and disclosure obligations.