Navigating Nepal's Foreign Trade Market: A Comprehensive Guide for Investors

Entering Nepal’s market starts with one critical decision: Private vs public company in Nepal.

For foreign companies exploring South Asia, Nepal offers strategic access to India and China, competitive labor costs, and improving FDI policies. But your legal structure determines control, compliance burden, capital flexibility, and long-term scalability.

This guide breaks down the differences clearly. It draws from the Companies Act 2063 (2006), the Foreign Investment and Technology Transfer Act 2019 (FITTA), and regulatory guidance from the Department of Industry (DOI) and Nepal Rastra Bank (NRB).

If you are a foreign investor, this decision is not administrative. It is strategic.

Why “Private vs Public Company in Nepal” Matters for Foreign Investors

Choosing between a private limited company and a public limited company affects:

• Foreign ownership eligibility
• Capital raising flexibility
• Governance requirements
• Disclosure obligations
• Exit options
• Repatriation procedures

Under FITTA 2019, foreign investors may hold up to 100% ownership in many sectors. However, sectoral restrictions still apply in areas like media, small retail, and cottage industries.

Your structure must align with your:

• Capital strategy
• Growth timeline
• Risk appetite
• Investor base

Let’s break this down properly.

Understanding Company Structures Under Nepal’s Companies Act 2063

Nepal primarily recognizes two commercial company types for foreign investors:

1. Private Limited Company
2. Public Limited Company

Both are governed by the Companies Act 2063 (2006).

The key difference lies in capital structure and shareholder accessibility.

What Is a Private Limited Company in Nepal?

A private limited company is the most common structure for foreign investors entering Nepal.

Core Features

• Minimum 1 shareholder
• Maximum 101 shareholders
• Cannot issue shares to the public
• Transfer of shares restricted
• Minimum 1 director
• No minimum paid-up capital requirement under law (sector rules may apply)

Foreign investors typically use this structure for:

• IT and outsourcing
• Manufacturing
• Trading
• Consulting
• Service exports

It offers control and operational flexibility.

What Is a Public Limited Company in Nepal?

A public limited company is designed for broader capital raising.

Core Features

• Minimum 7 shareholders
• No maximum shareholder limit
• Can issue shares to the public
• Minimum 3 directors
• Minimum paid-up capital required (as prescribed by law and sectoral regulators)
• Mandatory compliance with Securities Board of Nepal (SEBON) rules if listed

Public companies are typically used by:

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

They allow capital mobilization from the general public.

Private vs Public Company in Nepal: Detailed Comparison

Here is a structured comparison designed for foreign investors:

Strategic Insight:
For 90% of foreign market entries into Nepal, a private limited company is the starting structure.

Public companies are usually conversion-stage entities.

Foreign Direct Investment (FDI) Rules and Ownership

Under the Foreign Investment and Technology Transfer Act 2019:

• Foreign investment must meet the minimum threshold set by the Government of Nepal.
• Approval is obtained via the Department of Industry (DOI).
• Equity capital must be remitted through banking channels.
• NRB reporting is mandatory.

Recent regulatory reforms have streamlined equity inflow processes through commercial banks.

Key FDI Considerations

• Sector eligibility list
• Minimum investment threshold
• Dividend repatriation procedures
• Tax clearance before profit remittance

Structure choice impacts all four.

Taxation Differences: Private vs Public Company in Nepal

Corporate income tax (CIT) applies equally to both company types.

Under the Income Tax Act 2058 (2002):

• Standard corporate tax rate: 25%
• Special rates apply for banks and certain industries
• Withholding tax on dividends: generally 5%

There is no fundamental tax rate difference between private and public companies.

However:

• Public companies face greater audit scrutiny.
• Listed companies must meet stricter disclosure norms.

From a pure tax perspective, structure does not materially change the rate.

Governance and Compliance Obligations

Private Company Governance

• Annual general meeting required
• Annual return filing
• Statutory audit
• Board flexibility

Public Company Governance

• Mandatory board committees
• Independent directors required
• Public disclosure obligations
• SEBON compliance if listed
• Higher transparency standards

Compliance costs are significantly higher for public entities.

Capital Raising Strategy: When Public Structure Makes Sense

You may consider a public limited company if:

1. You need large-scale infrastructure funding
2. You plan an IPO in Nepal
3. You require institutional investor participation
4. Sector regulation mandates it
5. You intend to mobilize domestic retail capital

Otherwise, private structure is simpler and more efficient.

Control Architecture for Foreign Investors

Foreign companies often prioritize:

• Board composition control
• Share transfer restrictions
• Power of Attorney (PoA) clarity
• Banking signatory control
• Dividend repatriation certainty

A private limited company allows tighter shareholder agreements and control structures.

Public companies dilute control more easily.

Cost Comparison

Below is a simplified cost structure insight:

• Incorporation fees
• Legal drafting
• Audit requirements
• Ongoing filing fees
• Compliance management

Public companies typically incur 2–3x higher annual compliance expenses than private companies.

This impacts ROI projections.

Conversion: Private to Public Company

Nepal allows conversion from private to public status under the Companies Act.

Foreign investors often:

• Start as private
• Scale operations
• Convert when capital expansion requires public fundraising

This phased approach reduces early regulatory burden.

Practical Decision Framework for Foreign Companies

Use this checklist:

Choose Private Company If:

• You want full ownership control
• Capital comes from parent company
• You plan gradual growth
• You want lower compliance cost
• You prioritize speed of setup

Choose Public Company If:

• You need mass capital mobilization
• You plan listing
• Sector mandates it
• You seek public investor credibility

Nepal’s Strategic Position in Foreign Trade

Nepal offers:

• Trade treaties with India
• Preferential access benefits
• Emerging manufacturing incentives
• Growing hydropower export capacity

According to the World Bank, Nepal’s GDP growth has averaged moderate recovery post-pandemic.

Strategic positioning matters more than structure alone.

But structure enables strategy.

Risks to Consider

Foreign investors should assess:

• Regulatory changes
• Sectoral restrictions
• Currency fluctuation
• Repatriation timelines
• Compliance penalties

Structure impacts risk mitigation.

Frequently Asked Questions (People Also Ask)

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

Yes, in most sectors under FITTA 2019. Some industries remain restricted. Always check the negative list before applying.

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

No. Most foreign investors use private limited companies. Public companies are mainly for capital market access.

3. What is the corporate tax rate in Nepal?

The standard corporate tax rate is 25% under the Income Tax Act 2058 (2002). Certain sectors have different rates.

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

Yes. Conversion is permitted under the Companies Act 2063, subject to compliance and approval requirements.

5. Which structure is better for foreign investors?

For most foreign companies entering Nepal, a private limited company offers more control and lower compliance burden.

Final Verdict: Private vs Public Company in Nepal

When evaluating Private vs public company in Nepal, foreign companies should prioritize control, flexibility, and cost efficiency in early stages.

For most investors:

• Start with a private limited company.
• Scale strategically.
• Convert to public only when capital demands justify it.

Structure determines governance.
Governance determines stability.
Stability determines investment success.

If you are evaluating market entry into Nepal, professional structuring advice can prevent costly restructuring later.