Private Gain vs Public Good: Corporate Governance in Nepal

Choosing between a private vs. public company in Nepal is not a technical formality. It is a strategic decision that shapes governance, compliance burden, capital access, and long-term exit options.

For foreign companies entering Nepal, this choice determines how much control you retain, how transparently you must operate, and how easily you can raise capital later. Nepal’s regulatory environment rewards clarity of purpose. Companies that choose the wrong structure often face unnecessary compliance costs or limited growth flexibility.

This guide gives you the most authoritative, practical, and up-to-date comparison so you can decide with confidence.

Understanding Company Structures Under Nepal Law

Nepal’s corporate framework is primarily governed by the Companies Act 2006, with foreign investment further regulated by the Foreign Investment and Technology Transfer Act (FITTA) 2019 and sector-specific directives.

At a high level, Nepal recognizes two main incorporated company types for operating businesses:

• Private Limited Company

• Public Limited Company

Both are separate legal persons. Both can accept foreign investment in permitted sectors. But they differ significantly in governance, disclosure, and strategic use.

What Is a Private Limited Company in Nepal?

A private limited company is designed for closely held ownership and operational control.

Core characteristics

• Minimum 1 shareholder, maximum 101 shareholders

• Share transfer is restricted

• Cannot issue shares to the public

• Lower compliance and reporting obligations

• Common choice for foreign subsidiaries and joint ventures

For most foreign investors entering Nepal for operations rather than capital markets, this is the default structure.

Why foreign companies prefer private companies

Private companies in Nepal offer:

• Predictable governance

• Faster decision-making

• Lower regulatory exposure

• Strong control over shareholding and IP

This makes them ideal for back-office operations, IT services, manufacturing units, and regional hubs.

What Is a Public Limited Company in Nepal?

A public limited company is designed for scale, public participation, and capital formation.

Core characteristics

• Minimum 7 shareholders

• No maximum shareholder limit

• Can issue shares to the public

• Subject to higher disclosure and audit requirements

• Required for listing on the Nepal Stock Exchange (NEPSE)

Public companies are heavily regulated because they raise money from the public.

When public companies make sense

Public companies in Nepal are typically used when:

• Large-scale capital is required

• Public trust and transparency are critical

• Long-term listing on NEPSE is planned

Banks, insurance companies, hydropower firms, and telecom operators usually fall into this category.

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

Insight:
For foreign companies, the private company is an execution vehicle, while the public company is a capital-raising vehicle.

Corporate Governance: Private Gain vs Public Good

The real difference between a private vs public company in Nepal lies in corporate governance philosophy.

Governance in private companies

Private companies prioritize:

• Shareholder control

• Confidentiality

• Operational efficiency

Board structures are lean. Reporting is inward-facing. Decisions reflect owner priorities rather than public scrutiny.

Governance in public companies

Public companies emphasize:

• Transparency

• Accountability to minority shareholders

• Regulatory oversight

They must publish audited financials, comply with securities regulations, and follow stricter board governance norms.

This distinction explains the article’s theme: private gain vs public good.

Capital Raising and Ownership Flexibility

Private company capital structure

Private companies raise capital through:

• Parent company funding

• Strategic investors

• Internal accruals

They are excellent for controlled growth but limited for large capital infusions.

Public company capital structure

Public companies can:

• Issue IPOs

• Raise funds from institutional and retail investors

• Use shares as acquisition currency

However, this comes at the cost of dilution and regulatory compliance.

Compliance and Regulatory Burden

Compliance is where many foreign companies miscalculate.

Private company compliance includes

• Annual return filing

• Annual audited financial statements

• Tax compliance

• Basic corporate governance reporting

Public company compliance includes

• Enhanced audit standards

• Quarterly and annual disclosures

• Shareholder meeting formalities

• Securities market compliance

Practical takeaway:
Unless public fundraising is essential, private companies offer far better compliance efficiency.

Foreign Investment Rules: What Changes?

Under FITTA 2019, foreign investors can invest in both private and public companies, subject to sectoral caps.

Key considerations:

• Certain sectors require minimum paid-up capital

• Strategic industries may require prior approvals

• Public companies with foreign shareholding face higher scrutiny

In practice, most foreign direct investment into Nepal flows through private limited companies.

Taxation Differences: Are They Significant?

Tax rates for private vs public companies in Nepal are broadly similar. However:

• Public companies may qualify for certain incentives if listed

• Compliance costs are higher for public companies

• Tax audits tend to be more detailed for public entities

Tax efficiency alone rarely justifies choosing a public structure.

Which Structure Is Right for You? A Decision Framework

Ask yourself these questions:

1. Do you need to raise capital from the public in Nepal?

2. Is NEPSE listing a strategic goal?

3. Are you prepared for ongoing public disclosure?

4. Is operational control more important than visibility?

General guidance for foreign companies

• Private limited company → Best for 90% of foreign entrants

• Public limited company → Suitable for capital-intensive, regulated sectors

Common Use Cases by Industry

Private companies are ideal for

• IT and software development

• BPO and back-office operations

• Manufacturing and trading

• Regional service hubs

Public companies are ideal for

• Hydropower projects

• Banking and financial institutions

• Insurance companies

• Large infrastructure ventures

Step-by-Step: Incorporating a Private Company in Nepal

A simplified overview:

1. Name reservation

2. Preparation of constitutional documents

3. Company registration

4. Tax and statutory registrations

5. Foreign investment approval (if applicable)

6. Bank account and capitalization

This process is significantly faster than public company incorporation.

Risks of Choosing the Wrong Structure

Choosing incorrectly can result in:

• Over-compliance costs

• Delayed approvals

• Governance inefficiencies

• Investor disputes

Many foreign companies later restructure from public to private or vice versa, but this involves time and regulatory cost.

Expert Insight: Start Private, Convert Public Later

A common and effective strategy in Nepal is:

• Start as a private limited company

• Build operations and compliance track record

• Convert to a public company only when capital markets access is required

Nepalese law permits such conversion with regulatory approval.

Frequently Asked Questions 

Is a private company better than a public company in Nepal?

For most foreign companies, yes. Private companies offer more control, lower compliance, and faster operations.

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

Yes, in sectors open to foreign investment under FITTA 2019.

Is a public company mandatory to operate in Nepal?

No. Public companies are only mandatory for specific regulated sectors.

Can a private company later become public in Nepal?

Yes. Conversion is allowed with regulatory approvals and compliance upgrades.

Do public companies pay lower tax in Nepal?

Not significantly. Tax advantages are limited and rarely decisive.

Conclusion: Private vs. Public Company in Nepal: Choose Strategy Over Hype

The private vs. public company in Nepal decision should never be driven by perception or prestige. It must align with your business model, risk tolerance, and long-term goals.

For foreign companies, private limited companies deliver speed, control, and compliance efficiency. Public companies serve a distinct purpose: capital markets and public participation.

Choose wisely. Structure follows strategy.