Navigating Nepal's Investment Landscape: What You Need to Know

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

Your entry structure determines ownership control, capital raising ability, tax exposure, compliance burden, and long-term exit options. It shapes everything.

For foreign companies exploring Nepal’s growing market, this decision is strategic, not administrative.

Nepal’s legal framework is governed primarily by the Companies Act 2006, the Foreign Investment and Technology Transfer Act 2019 (FITTA), the Industrial Enterprises Act 2020, and the Income Tax Act 2002.

Understanding how these laws interact is critical before committing capital.

This guide breaks down:

• Structural differences
• Ownership limits
• Capital requirements
• Compliance frameworks
• Tax treatment
• Foreign investment considerations
• Strategic decision frameworks

Let’s walk through it clearly and practically.

Understanding Private vs Public Company in Nepal

What Is a Private Company in Nepal?

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

Under the Companies Act 2006, a private limited company:

• Limits shareholders to a maximum of 101
• Restricts share transfer
• Prohibits public share subscription
• Operates with fewer disclosure requirements
• Cannot list on the stock exchange

It is typically structured as “Pvt. Ltd.”

This structure is ideal for:

• Wholly foreign-owned subsidiaries
• Joint ventures
• Technology back-office operations
• Manufacturing FDI projects
• Service sector investments

What Is a Public Company in Nepal?

A public limited company:

• Requires a minimum of 7 shareholders
• Can invite public subscription
• May list on the Nepal Stock Exchange (NEPSE)
• Must comply with stricter disclosure rules
• Is regulated by the Securities Board of Nepal (SEBON)

Public companies are generally used for:

• Large infrastructure projects
• Banking and financial institutions
• Insurance companies
• Hydropower development
• Capital-intensive industries

Private vs Public Company in Nepal: Detailed Comparison

Legal Framework Governing Company Types in Nepal

Foreign investors must understand how Nepal’s regulatory system overlaps.

1. Companies Act 2006

This legislation defines:

• Incorporation requirements
• Share capital structure
• Director responsibilities
• Corporate governance
• Annual compliance

2. Foreign Investment and Technology Transfer Act 2019 (FITTA)

FITTA governs:

• Foreign equity investment
• Repatriation of profits
• Technology transfer agreements
• Approval thresholds
• Investment guarantees

FDI must obtain approval from the Department of Industry or Investment Board Nepal depending on project size.

3. Income Tax Act 2002

Corporate tax rate in Nepal is generally 25%, subject to sector-specific incentives.

Certain industries may qualify for:

• Tax holidays
• Reduced rates
• Customs incentives

When Should a Foreign Company Choose a Private Company?

For most foreign investors, a private limited company is the preferred route.

Advantages of a Private Company

• 100% foreign ownership possible (sector permitting)
• Lower regulatory burden
• Faster incorporation
• Simpler governance
• Confidential ownership structure
• Flexible capital structuring

Ideal Scenarios

1. Technology outsourcing operations
2. Shared service centers
3. Manufacturing FDI
4. Consulting and advisory firms
5. Subsidiary setup for regional expansion

For foreign SMEs and mid-sized enterprises, private companies offer agility and control.

When Is a Public Company More Suitable?

A public company becomes relevant when:

• Capital needs exceed private funding
• Public participation is strategic
• Infrastructure scale is large
• Listing improves credibility

Public Company Advantages

• Access to public capital
• Broader ownership base
• Enhanced brand visibility
• Liquidity through listing

However, the compliance intensity is significantly higher.

Compliance Requirements: What Foreign Investors Must Prepare For

Private Company Compliance

• Annual general meeting
• Annual return filing
• Corporate tax filing
• Statutory audit
• Social Security Fund compliance
• Labor law compliance

Public Company Additional Requirements

• Prospectus approval
• Quarterly financial disclosure
• SEBON reporting
• Corporate governance disclosures
• Public audit transparency

Compliance costs are materially higher for public companies.

Capital Requirements in Nepal

The Companies Act does not prescribe a high minimum capital for private companies.

However, under FITTA:

• A minimum foreign investment threshold applies
• Capital must be remitted through banking channels
• Approval is required before incorporation

Public companies intending to list must meet NEPSE and SEBON capital criteria.

Tax Implications: Private vs Public Company in Nepal

Tax treatment under the Income Tax Act 2002 is largely similar.

However:

• Listed companies may qualify for certain incentives
• Dividend tax applies to both structures
• Capital gains tax differs depending on share type
• VAT registration may be mandatory depending on turnover

Foreign investors must structure profit repatriation carefully.

Governance Differences

Private Company Governance

• Fewer mandatory directors
• Limited shareholder meetings
• Restricted share transfers
• Private shareholder agreements

Public Company Governance

• Board committees
• Independent director requirements (sector dependent)
• Mandatory disclosures
• Investor protection standards

For foreign parent companies, governance control is easier under private structures.

Strategic Decision Matrix for Foreign Investors

Ask yourself:

1. Do we need access to public capital?
2. Will we raise equity locally?
3. Is listing part of the exit strategy?
4. Is control more important than scale?
5. Can we handle high compliance obligations?

Most foreign investors prioritize control and flexibility.

That typically points toward a private company.

Common Mistakes Foreign Investors Make

• Choosing a public structure too early
• Ignoring FDI approval sequencing
• Underestimating compliance costs
• Failing to structure shareholder agreements
• Mismanaging tax planning

Structure determines long-term efficiency.

Frequently Asked Questions

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

Yes. FITTA 2019 permits 100% foreign ownership in many sectors, subject to government approval and sectoral restrictions.

2. Is there a minimum capital requirement for public companies in Nepal?

Capital requirements vary by sector. Public companies intending to list must meet SEBON and NEPSE thresholds.

3. Which structure allows easier profit repatriation?

Both private and public companies allow repatriation under FITTA. Private companies generally involve simpler dividend procedures.

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

Yes. Conversion is permitted under the Companies Act 2006, subject to regulatory compliance and shareholder approval.

5. Which structure is best for SMEs entering Nepal?

A private limited company is generally best due to lower compliance costs and operational flexibility.

Final Verdict: Private vs Public Company in Nepal

When analyzing Private vs public company in Nepal, the right structure depends on capital strategy and risk appetite.

For most foreign companies entering Nepal:

• A private limited company is more efficient
• It offers flexibility
• It reduces regulatory exposure
• It protects ownership control

Public companies are powerful but heavy structures. They suit large capital markets and infrastructure projects.

Choosing correctly at the beginning avoids restructuring costs later.