Overcoming Challenges in Nepal’s Foreign Direct Investment Landscape

If you are evaluating private vs public company in Nepal, you are already thinking like a serious foreign investor. The legal structure you choose will determine your capital flexibility, governance model, compliance exposure, and exit strategy.

Nepal is actively encouraging foreign direct investment (FDI) under the Foreign Investment and Technology Transfer Act (FITTA 2019). Company formation is governed by the Companies Act. Public market activity is regulated by the Securities Board of Nepal (SEBON) and listing takes place at the Nepal Stock Exchange (NEPSE).

But structure is not just a legal formality. It is a strategic decision.

In this comprehensive guide, we break down:

• The legal differences between private and public companies in Nepal
• FDI approval pathways
• Capital raising flexibility
• Governance and compliance burdens
• Tax implications
• When foreign investors should choose each model

If you are a foreign company entering Nepal, this is your blueprint.

Understanding Company Structures Under Nepal Law

Under the Companies Act 2006, Nepal recognizes two primary limited liability structures:

1. Private Limited Company
2. Public Limited Company

Both provide limited liability protection. Both can receive foreign investment (subject to sectoral approval). But their operational flexibility differs significantly.

What Is a Private Limited Company in Nepal?

A private company in Nepal is designed for closely held ownership. It is the most common vehicle for foreign investors.

Key Characteristics

• Minimum 1 shareholder
• Maximum 101 shareholders
• Cannot publicly invite share subscriptions
• Transfer of shares is restricted
• Minimum paid-up capital: No general minimum (sector-specific may apply)

A foreign investor typically incorporates a private limited company after FDI approval from:

• Department of Industry (DOI)
• Investment Board Nepal (IBN) for large projects

FDI repatriation is allowed under FITTA 2019, subject to central bank approval.

What Is a Public Limited Company in Nepal?

A public company is designed for wider capital participation and potential stock exchange listing.

Key Characteristics

• Minimum 7 shareholders
• No maximum shareholder limit
• Can issue shares to the public
• Mandatory board structure
• Higher compliance obligations

Public companies may list on NEPSE after regulatory clearance from SEBON.

For foreign investors, this structure is typically relevant for:

• Infrastructure projects
• Hydropower developments
• Large-scale manufacturing
• Banking and financial institutions

Private vs Public Company in Nepal: Detailed Comparison

Below is a strategic comparison designed specifically for foreign companies.

Strategic Insight:
For 90% of foreign investors entering Nepal, a private limited company is the preferred starting point. A public company is usually a growth-stage transition vehicle.

Regulatory Framework Affecting Foreign Investors

Foreign companies must consider multiple laws:

• Foreign Investment and Technology Transfer Act
• Companies Act
• Income Tax Act
• Industrial Enterprises Act 2020
• NRB foreign exchange regulations

Approval authorities include:

• Department of Industry
• Investment Board Nepal
• Nepal Rastra Bank (for repatriation clearance)

Failure to align structure with regulatory obligations is one of the biggest FDI risks.

Capital Raising: Flexibility vs Regulation

Private Company Capital Pathways

A private company may raise capital through:

• Foreign equity injection
• Shareholder loans
• Private placement
• Joint venture equity

This structure allows control retention. It minimizes disclosure obligations.

Public Company Capital Pathways

Public companies can:

1. Launch an Initial Public Offering (IPO)
2. Issue rights shares
3. Issue debentures
4. Attract institutional investors

However, public offering requires:

• Prospectus approval
• SEBON clearance
• Ongoing public disclosures

For most foreign strategic investors, public listing is a second-phase strategy, not entry-stage.

Governance and Compliance Burden

Private Company Governance

• Annual General Meeting required
• Board meetings required
• Financial audit mandatory
• Limited public disclosure

Compliance is manageable and predictable.

Public Company Governance

Public companies must:

• Form audit committees
• Maintain independent directors
• Submit quarterly financial reports
• Publish material disclosures

This increases administrative cost and reputational exposure.

Tax Implications for Foreign Investors

Under the Income Tax Act 2002:

• Standard corporate tax: 25% (general industries)
• Lower rates apply to hydropower and special sectors
• Dividend tax applies on repatriation

There is no tax difference purely based on private vs public classification.

However:

• Public companies may access capital markets
• Private companies may structure intra-group financing more flexibly

Tax structuring must align with repatriation rules under NRB regulations.

When Should a Foreign Company Choose a Private Company?

A private limited company is ideal when:

• You want full operational control
• You are establishing a subsidiary
• You are testing the market
• Capital needs are internal or institutional
• Confidentiality is important

This is the most common FDI entry model in Nepal.

When Should a Foreign Company Choose a Public Company?

A public limited company may be preferable if:

• You require large public capital
• You are in infrastructure or hydropower
• Government policy mandates public shareholding
• You aim for IPO exit

For example, hydropower projects often convert to public companies before IPO.

Challenges in Nepal’s FDI Landscape

Foreign investors face several challenges regardless of structure.

1. Regulatory Coordination

Multiple authorities may require parallel approvals.

2. Foreign Exchange Control

Repatriation requires documentation and central bank clearance.

3. Sectoral Restrictions

Some sectors remain restricted or capped for FDI.

4. Compliance Complexity for Public Companies

Disclosure and governance standards are significantly higher.

Choosing the wrong structure amplifies these challenges.

Decision Framework for Foreign Companies

Use this strategic filter:

1. What is your capital requirement over 5 years?
2. Do you need public capital?
3. Is IPO part of your exit strategy?
4. Do you require tight shareholder control?
5. Are you operating in regulated infrastructure sectors?

If most answers favor control and flexibility → Private Limited Company

If most answers favor public fundraising → Public Limited Company

Practical Example: Foreign Tech Company Entry

A foreign SaaS company entering Nepal typically:

• Registers as private limited company
• Injects FDI equity
• Operates under service export model
• Repatriates dividends

Public company structure would add unnecessary complexity.

Private vs Public Company in Nepal: Risk Matrix

This matrix helps foreign boards evaluate structural exposure.

Strategic Recommendation for Foreign Investors

If your objective is:

• Market entry
• Operational setup
• Controlled scaling
• Predictable compliance

Start with a private limited company.

Transition to public company only if capital market access becomes strategic.

Frequently Asked Questions (People Also Ask)

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

Yes. FITTA 2019 permits 100% foreign ownership in most open sectors, subject to approval and minimum investment thresholds.

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

Yes. A private company may convert by amending its memorandum, increasing shareholders, and meeting public company requirements.

3. Is there a minimum capital requirement for public companies?

Sector-specific minimum capital may apply. For listed companies, SEBON and NEPSE impose additional thresholds.

4. Are public companies taxed differently than private companies?

No. Corporate tax rates generally apply equally under the Income Tax Act 2002.

5. Can foreign investors list on NEPSE?

Yes, if the company qualifies as a public limited company and receives regulatory approval.

Conclusion: Private vs Public Company in Nepal

Choosing between a private vs public company in Nepal is not just administrative. It defines your governance exposure, capital flexibility, and regulatory footprint.

For most foreign investors entering Nepal, a private limited company offers:

• Operational control
• Lower compliance burden
• Flexible capital structure
• Easier regulatory navigation

A public limited company is powerful. But it is a strategic capital-market vehicle, not an entry-level structure.

If you are planning market entry, expansion, or restructuring in Nepal, professional structuring advice is critical. The wrong choice can increase compliance costs and delay repatriation.

The right choice accelerates growth.