Legal Requirements for Company Formation in Nepal

If you are a foreign company planning to enter Nepal, one of your first strategic decisions is choosing between a private vs public company structure. It may seem like a technical legal step. In reality, it shapes your regulatory exposure, capital flexibility, governance model, and long-term growth.

This topic matters because Nepal’s corporate framework is governed by the Companies Act, 2063 (2006) and foreign investment laws that require careful alignment with regulatory authorities such as the Department of Industry (DOI) and Nepal Rastra Bank (NRB). A misstep here can delay approvals for months.

This guide is designed for foreign investors, multinational groups, technology firms, manufacturers, and service companies entering Nepal.

In this post, we’ll explain:

• What private vs public company means in Nepal
• The full legal requirements for incorporation
• FDI approval steps
• Compliance obligations after registration
• Practical insights from real cross-border setups

Let’s simplify it.

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

What Is a Private Company in Nepal?

A private limited company:

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

Most foreign investors choose this structure.

It offers flexibility, faster decision-making, and fewer disclosure requirements.

What Is a Public Company in Nepal?

A public limited company:

• Can invite public share subscription
• Requires at least 7 shareholders
• Requires minimum 3 directors
• Has stricter governance and disclosure rules

This structure is common for large-scale projects, infrastructure, banking, and companies planning to list on the Nepal Stock Exchange (NEPSE).

Why the Choice Matters for Foreign Companies

Choosing between a private vs public company affects:

• FDI approval thresholds
• Capital requirements
• Board structure
• Reporting obligations
• Exit and share transfer mechanisms
• Public perception and credibility

In our experience advising cross-border investors, 90% of foreign entrants start as private companies and convert later if expansion requires public funding.

How to Form a Company in Nepal (Step-by-Step Legal Process)

Let’s break this down into clear, actionable steps.

Step 1: Decide the Legal Structure (Private vs Public Company)

Before filing any document, determine:

• Ownership structure
• Number of shareholders
• Capital investment size
• Long-term growth strategy

Example:
If an Australian tech company is setting up a back-office development center in Kathmandu, a private company is usually sufficient.

If a foreign infrastructure investor plans a hydropower project with public capital raising, a public company may be required.

Step 2: Obtain FDI Approval (For Foreign Investors)

Foreign investors must obtain approval under Nepal’s Foreign Investment framework.

Authorities involved:

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

Key Documents Required:

• Project proposal
• Parent company registration documents
• Board resolution approving Nepal investment
• Financial statements
• Passport/company identification of investors

Without FDI approval, capital cannot be legally injected.

Step 3: Reserve Company Name

Apply through the Office of the Company Registrar (OCR) online portal.

The name must:

• Not conflict with existing registered names
• Reflect company objectives
• Include “Private Limited” or “Limited”

Approval typically takes 1–3 working days.

Step 4: Draft Memorandum and Articles of Association

These documents define:

• Business objectives
• Shareholding structure
• Capital structure
• Director powers
• Governance rules

For public companies, drafting must comply strictly with public offering provisions under the Companies Act.

Precision matters here. Errors cause rejection.

Step 5: Register with Office of Company Registrar (OCR)

Submit:

• Approved name
• Memorandum & Articles
• Director details
• Shareholder details
• FDI approval (if applicable)
• Payment of registration fees

Upon approval, you receive:

• Certificate of Incorporation
• Company Registration Number

Now your company legally exists.

Step 6: Tax Registration (PAN & VAT)

Register with Inland Revenue Department for:

• PAN (Permanent Account Number)
• VAT (if annual turnover exceeds threshold)

Tax compliance begins immediately.

Step 7: Capital Injection Through Banking Channel

Foreign capital must:

• Enter via formal banking system
• Be recorded by Nepal Rastra Bank
• Receive foreign investment recording certificate

Improper routing creates repatriation issues later.

Step 8: Post-Registration Compliance

After incorporation:

• Register employees with Social Security Fund (SSF)
• Obtain local ward registration
• Secure industry-specific licenses (if required)
• Maintain statutory books
• File annual returns

Public companies face heavier audit and disclosure obligations.

Legal Requirements Comparison: Private vs Public Company

For most foreign companies entering Nepal, the private structure is simpler and cost-effective.

Tips and Reminders for Foreign Investors

1. Don’t Delay FDI Approval

Registering first without approval causes compliance issues.

2. Draft Objectives Carefully

Future expansion is limited to approved objectives in your Memorandum.

3. Think About Exit Early

Private companies offer easier share transfer control.

4. Plan for Repatriation

Dividend repatriation requires audited financials and tax clearance.

5. Align Structure With Long-Term Vision

Switching from private to public later involves regulatory procedures.

Common Mistakes Foreign Companies Make

• Choosing public structure unnecessarily
• Underestimating compliance costs
• Injecting capital before approval
• Ignoring sectoral restrictions
• Poorly drafted shareholder agreements

We’ve seen projects delayed six months due to documentation errors. Getting it right upfront saves time and money.

FAQ: Legal Requirements for Company Formation in Nepal

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

A private company limits shareholders and cannot offer shares to the public. A public company can raise capital publicly and has stricter governance requirements. Most foreign subsidiaries choose private companies for flexibility.

2. Is FDI approval mandatory before registering a company?

Yes. Foreign investors must obtain approval from the Department of Industry or Investment Board Nepal before capital injection and incorporation.

3. How long does company formation take in Nepal?

If documents are prepared correctly, incorporation can take 2–4 weeks including FDI approval. Complex projects may take longer.

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

Yes. Conversion is possible under the Companies Act but requires regulatory approval and structural changes.

5. What are the minimum capital requirements?

Nepal currently does not impose a fixed minimum capital for most private companies. However, FDI minimum investment thresholds may apply depending on sector.

Final Verdict: Private v.s Public Company

Understanding the legal requirements for company formation in Nepal starts with choosing the right structure private vs public company. This decision influences compliance, governance, funding, and long-term scalability.

For most foreign investors, a private limited company provides operational flexibility and regulatory efficiency. But every project is different.

The right structure is not just about incorporation. It’s about strategic alignment.

Call to Action

If you’re planning to enter Nepal and want a compliant, efficient setup without regulatory surprises:

Book a consultation with our Nepal market entry specialists.

We’ll help you:

• Choose the right structure
• Secure FDI approval
• Draft compliant documents
• Complete registration end-to-end

Entering Nepal is an opportunity. Let’s make sure you do it right from day one.