Navigating Nepal's IP Protection Landscape: Insights and Strategies

If you are evaluating Private vs public company in Nepal, you are already thinking strategically. Structure determines ownership control, compliance exposure, tax planning, and even intellectual property (IP) protection.

For foreign companies entering Nepal, the choice between a private limited company and a public limited company is not just legal. It shapes risk, scalability, investor access, and regulatory obligations under the Companies Act 2006, Foreign Investment and Technology Transfer Act 2019, and Income Tax Act 2002.

In this guide, we break down the structural, regulatory, tax, and IP implications. You will gain clarity. More importantly, you will understand which structure protects your capital and intellectual property in Nepal.

Understanding the Legal Framework for Companies in Nepal

Company incorporation in Nepal is governed primarily by:

• Companies Act 2006
• Foreign Investment and Technology Transfer Act 2019 (FITTA)
• Income Tax Act 2002
• Office of the Company Registrar (OCR)

For foreign investors, FITTA approval is mandatory before capital injection. Company registration follows OCR procedures. Tax registration (PAN/VAT) then proceeds under the Inland Revenue Department.

Your entity choice affects:

1. Shareholding structure
2. Disclosure requirements
3. Capital raising options
4. Governance compliance
5. IP ownership structuring

What Is a Private Company in Nepal?

A private limited company is the most common vehicle for foreign direct investment (FDI).

Key Features

• Minimum 1 shareholder
• Maximum 101 shareholders
• No public share offering
• Restricted share transfer
• Lower disclosure requirements

Under Section 2 of the Companies Act 2006, private companies cannot invite the public to subscribe to shares.

Why Foreign Companies Prefer Private Structures

Foreign investors typically choose private companies because:

• Control remains tightly held
• Decision-making is faster
• Compliance burden is manageable
• IP ownership can be ring-fenced
• Exit via share transfer is simpler

This structure is ideal for wholly owned subsidiaries.

What Is a Public Company in Nepal?

A public limited company allows capital raising from the public.

Core Characteristics

• Minimum 7 shareholders
• No upper shareholder limit
• Can issue shares to the public
• Must meet higher governance standards
• Mandatory board structure and disclosure norms

Public companies intending to list must comply with securities regulations under the Securities Board of Nepal.

Public companies are subject to stricter transparency and reporting rules.

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

Below is a strategic comparison for foreign investors.

Strategic Insight:
For 90% of foreign market entries, private companies offer better risk containment.

How Company Structure Impacts IP Protection in Nepal

Nepal’s IP framework operates under the Patent, Design and Trademark Act 1965.

IP registration is handled by the Department of Industry.

Why Structure Matters for IP

When registering:

• Trademarks
• Industrial designs
• Patents
• Technology transfer agreements

The company name becomes the IP holder.

If structured poorly:

• IP ownership disputes may arise
• Shareholder conflicts can impact licensing
• Repatriation of royalty payments becomes complex

Private companies allow tighter control of IP flow-back to the parent company.

Capital Requirements and Financial Considerations

Nepal does not impose a blanket minimum capital requirement for private companies. However:

• FDI approval often requires justification of investment size
• Certain sectors have minimum thresholds
• Public companies must meet paid-up capital requirements before IPO

Under the Income Tax Act 2002:

• Corporate tax is generally 25%
• Certain industries have concessional rates
• SEZ companies may enjoy tax incentives

Public companies often incur higher compliance costs due to mandatory audits and reporting.

Governance and Compliance Differences

Private Company Compliance

• Annual General Meeting (AGM)
• Annual return filing
• Audit (if thresholds met)
• Board minutes and shareholder resolutions

Public Company Compliance

• Independent directors
• Audit committee
• Quarterly reporting
• Enhanced disclosure obligations

Compliance risk increases significantly with public status.

When Should a Foreign Company Choose a Private Company?

Choose a private company if you:

• Want full ownership control
• Are entering Nepal for back-office operations
• Need IP protection certainty
• Want limited disclosure
• Plan gradual scaling

This applies to:

• IT service companies
• Manufacturing units
• Outsourced service hubs
• Representative investment vehicles

When Is a Public Company Structure Strategic?

A public company may be strategic if:

• You plan to raise large capital domestically
• You want Nepal-based retail investors
• You intend to list shares on NEPSE
• You are building a large infrastructure project

However, foreign entrants rarely begin with a public structure.

Risk Architecture: What Foreign Investors Must Evaluate

Before choosing your structure, assess:

1. Regulatory risk
2. Tax exposure
3. Capital mobility
4. IP ownership clarity
5. Exit strategy

Private companies provide stronger risk containment.

Public companies provide capital expansion flexibility.

IP Protection Strategy by Company Type

Private Company IP Strategy

• Register trademarks immediately
• Execute technology transfer agreements under FITTA
• Structure royalty repatriation carefully
• Centralize IP ownership in subsidiary

Public Company IP Strategy

• Define shareholder IP rights in Articles of Association
• Disclose licensing structures
• Ensure SEBON compliance for IP valuation
• Clarify dividend vs royalty flows

Tax Implications for Foreign Companies

Under the Income Tax Act 2002:

• Corporate income tax: generally 25%
• Withholding tax applies on dividends
• Royalty payments are taxable

Private companies allow simpler structuring of management fees and technical service payments.

Public companies face greater scrutiny on related-party transactions.

Compliance Cost Comparison

Public company compliance can cost 2–3 times more annually.

Common Mistakes Foreign Companies Make

• Choosing public structure too early
• Failing to align IP ownership with parent company
• Ignoring FITTA approval sequencing
• Underestimating compliance costs
• Not structuring exit mechanisms

Avoid these errors by planning structure before capital injection.

Frequently Asked Questions (FAQ)

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

Yes. FITTA allows 100% foreign ownership in most sectors, subject to negative list restrictions.

2. Is there a minimum capital requirement for private companies?

No general minimum exists. However, FDI approval may require sector-specific thresholds.

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

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

4. Which structure is better for IP protection?

Private companies typically offer stronger centralized control over IP ownership.

5. Do public companies pay different corporate tax rates?

No. Corporate tax rates generally remain the same unless sector incentives apply.

Conclusion: Private vs Public Company in Nepal – The Strategic Verdict

When evaluating Private vs public company in Nepal, foreign companies should prioritize control, risk management, and IP protection.

For most foreign investors, a private limited company offers:

• Strong governance control
• Lower compliance burden
• Simplified tax planning
• Clear IP ownership structure

Public companies are suitable for capital-intensive expansion phases.

Choosing the right structure at entry determines long-term success in Nepal.