New Business Setup: A Comprehensive Guide to Registration

If you are evaluating Private vs public company in Nepal, your choice will shape your capital structure, compliance burden, governance model, and long-term exit strategy.

For foreign companies entering Nepal, this decision is not just administrative. It determines control, fundraising flexibility, and regulatory exposure under the Companies Act 2006, Foreign Investment and Technology Transfer Act 2019 (FITTA), and the Income Tax Act 2002.

In this comprehensive guide, we break down:

• Legal differences
• Capital requirements
• Governance obligations
• Tax treatment
• Registration steps
• Strategic use cases for foreign investors

If you're planning a Nepal entry strategy, this article will help you make the right structural decision.

Understanding the Legal Framework in Nepal

Nepal’s corporate structure is primarily governed by:

• Companies Act 2006
• Foreign Investment and Technology Transfer Act 2019
• Industrial Enterprises Act 2020
• Income Tax Act 2002

All companies must register with the Office of the Company Registrar (OCR).

Foreign investors must also obtain approval from the Department of Industry under FITTA 2019 before incorporating.

What Is a Private Company in Nepal?

A private company is the most common structure used by foreign investors.

Key Features

• Minimum 1 shareholder
• Maximum 101 shareholders
• Cannot issue shares to the public
• Shares restricted from free transfer
• Limited liability structure

Under the Companies Act 2006, most FDI projects choose this structure because it allows tight ownership control.

When Foreign Investors Choose Private Companies

Foreign companies typically use a private company in Nepal when:

• Entering as a wholly owned subsidiary
• Creating a joint venture with a local partner
• Establishing a back-office support operation
• Testing market entry before expansion

Private companies offer operational flexibility and lower regulatory scrutiny compared to public companies.

What Is a Public Company in Nepal?

A public company is designed for large-scale operations and capital raising.

Key Features

• Minimum 7 shareholders
• No maximum shareholder limit
• Can issue shares to the public
• Can be listed on the stock exchange
• Higher compliance obligations

Public companies are often used for:

• Banking and financial institutions
• Hydropower and infrastructure
• Large manufacturing projects
• Capital-intensive industries

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

Here is a strategic comparison tailored for foreign companies:

Strategic Insight:
For 90% of foreign investors entering Nepal, a private company structure is more practical during the first phase of market entry.

Registration Process in Nepal (Step-by-Step)

Whether private or public, the incorporation process involves several stages.

1. Name Reservation

File application with the Office of the Company Registrar.

2. Draft Constitutional Documents

• Memorandum of Association
• Articles of Association

3. FDI Approval (For Foreign Investors)

Approval required under Foreign Investment and Technology Transfer Act 2019.

4. Company Registration Certificate

Issued by OCR after document verification.

5. Tax Registration

Register for PAN under the Income Tax Act 2002.

6. Industry Registration (If Applicable)

Under Industrial Enterprises Act 2020.

7. Bank Account & Capital Injection

Foreign currency must be remitted through formal banking channels.

Capital Requirements

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

• Certain sectors have minimum thresholds.
• FDI projects must meet minimum investment criteria under FITTA.

Public companies typically require larger paid-up capital, especially if planning stock exchange listing.

Governance and Compliance Obligations

Private Company Compliance

• Annual General Meeting
• Annual financial statements
• Annual return filing with OCR
• Corporate tax filing

Public Company Additional Requirements

• Audit committee
• Independent directors
• Prospectus disclosure (if raising capital)
• Stricter reporting obligations

Public companies face heavier scrutiny.

Taxation: Is There a Difference?

From a corporate income tax perspective:

• Both structures are taxed under the Income Tax Act 2002.
• Standard corporate tax rate: generally 25% (subject to sector variations).
• Special incentives may apply under the Industrial Enterprises Act 2020.

The structure does not automatically change tax rates.

However, public companies may have additional compliance exposure.

Strategic Decision Matrix for Foreign Companies

When choosing between private and public company structures, ask:

1. Are you raising capital from the public?
2. Do you require listing visibility?
3. Is your project capital intensive?
4. Do you need full ownership control?
5. Is regulatory simplicity a priority?

If most answers favor control and simplicity, private company wins.

Practical Scenarios

Scenario 1: Technology Back-Office Operation

Best Structure: Private Company
Reason: No need for public capital. Full foreign ownership preferred.

Scenario 2: Hydropower Infrastructure Project

Best Structure: Public Company
Reason: Large capital requirement and potential public share offering.

Scenario 3: Manufacturing Export Unit

Best Structure: Usually Private Company initially
Reason: Operational efficiency. Public conversion possible later.

Advantages of Private Companies for FDI

• Faster incorporation
• Lower compliance cost
• Simpler governance
• Better control for parent company
• Flexible shareholder agreements

Advantages of Public Companies

• Access to capital markets
• Brand credibility
• Broader ownership base
• Easier expansion funding

Compliance Risks to Consider

Foreign companies must also evaluate:

• Permanent establishment risk
• FX repatriation compliance
• Record retention (minimum 6 years under tax rules)
• Dividend distribution tax implications

Proper structuring avoids regulatory friction later.

Long-Term Conversion Possibility

A private company can later convert into a public company.

This is common when:

• Business scales significantly
• Capital market access becomes necessary
• Institutional investors require listing

This phased strategy reduces early compliance burden.

Private vs Public Company in Nepal: Which Should You Choose?

For most foreign companies entering Nepal:

• Start with a private company
• Scale operations
• Convert to public if capital markets become relevant

This reduces complexity while maintaining flexibility.

The decision should align with:

• Investment size
• Risk appetite
• Growth trajectory
• Capital strategy

Frequently Asked Questions (People Also Ask)

1. What is the main difference between private and public companies in Nepal?

A private company cannot offer shares to the public and has shareholder limits. A public company can issue shares publicly and has stricter governance rules.

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

Yes. Under FITTA 2019, 100% foreign ownership is allowed in permitted sectors.

3. Is there a minimum capital requirement?

Generally no fixed minimum, but certain regulated sectors require thresholds.

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

Yes. Conversion is allowed under the Companies Act 2006 with procedural compliance.

5. Which structure is better for startups?

Private companies are better due to flexibility and lower compliance.

Why Structural Choice Determines Market Success

Choosing between Private vs public company in Nepal is not a paperwork exercise.

It determines:

• Control
• Cost
• Compliance exposure
• Capital flexibility
• Long-term scalability

For foreign companies, the optimal entry strategy often begins with a private company structure.