Private vs. Public Limited Companies in Nepal: Which Is Right for You?

Choosing between a Private Limited Company (Pvt. Ltd.) and a Public Limited Company (PLC) in Nepal is a strategic decision that can significantly impact your expansion plans. Under the Companies Act 2006, these two corporate structures differ in capital requirements, governance norms, reporting obligations, and shareholder dynamics. Whether you’re a large foreign investor or an emerging multinational, understanding these distinctions is crucial for a smooth company incorporation in Nepal.

This blog post provides an in-depth comparison of both company types, highlighting legal nuances, practical considerations, and compliance requirements. By the end, you’ll know exactly which structure aligns best with your strategic objectives in Nepal’s evolving business landscape.

1. Overview: Private Limited Companies in Nepal

1.1 Key Features

1. Limited Liability: Shareholders’ liability is restricted to the amount they invest.
2. Share Restrictions: Shares are not freely transferable on public exchanges; instead, transfers typically require approval from the board or existing shareholders.
3. Lower Regulatory Burden: Relatively fewer disclosure obligations and simpler governance structures under the Companies Act 2006.
4. Fewer Shareholders: Can be formed with a minimum of one shareholder (and can have up to 50, excluding employees).

1.2 Suitability

• Close-Knit or Family-Owned Ventures: Ideal for maintaining control and privacy in corporate operations.
• Foreign Direct Investment (FDI) with Limited Partners: Investors seeking restricted public scrutiny often favor a Private Limited structure.
• Start-Ups and SMEs: Lower administrative complexities and overheads facilitate agile market entry.

2. Overview: Public Limited Companies in Nepal

2.1 Key Features

1. Share Transferability: Shares can be offered to the public and listed on stock exchanges, enhancing liquidity.
2. Higher Capital Requirements: Usually must meet greater minimum paid-up capital levels as stipulated by sector-specific regulations or government directives.
3. Stricter Governance: Subject to more rigorous disclosure, auditing, and compliance obligations under the Companies Act 2006 and Securities Board of Nepal (SEBON) guidelines.
4. Potential for Large Shareholder Base: Allows unlimited shareholders, facilitating broader capital-raising.

2.2 Suitability

• Large-Scale Enterprises: Companies aiming to attract significant public investment and expand rapidly.
• High Capital Needs: Ideal for sectors like finance, infrastructure, or energy that require substantial capital injections.
• Listing Aspirations: Firms that plan an Initial Public Offering (IPO) or desire a public listing on the Nepal Stock Exchange (NEPSE).

3. Comparing Key Differences

When deciding between Private and Public Limited Companies in Nepal, consider the following pivotal factors:

3.1 Share Capital & Financing

• Private Limited: Typically lower capital requirements. Financing often relies on private placements or venture capital.
• Public Limited: Demands a higher minimum paid-up capital; can raise funds publicly via share issues or bonds.

3.2 Governance Structure

• Private Limited: Flexible board composition. Fewer compliance hurdles, allowing decisions to be made quickly.
• Public Limited: Requires a more formal board structure, possibly with independent directors. Annual General Meetings (AGMs) and extensive disclosures are mandatory.

3.3 Regulatory Compliance

• Private Limited: Registered primarily under the Companies Act 2006; less stringent reporting to the Office of the Company Registrar (OCR).
• Public Limited: Must comply with additional regulations from SEBON and the Securities Registration and Issue Regulations.

3.4 Shareholder Pool

• Private Limited: Limited number of shareholders (up to 50, excluding employees).
• Public Limited: No cap on the number of shareholders; share allotments can be broad-based.

4. Special Considerations for Foreign Investors

Foreign enterprises must also align with the Foreign Investment and Technology Transfer Act (FITTA) 2019 and Nepal Rastra Bank (NRB) regulations when incorporating a company in Nepal.

4.1 Minimum Investment Threshold

• Generally, USD 50,000 for foreign investors. However, sector-specific laws in banking, insurance, aviation, or telecom may impose higher capital floors.

4.2 Repatriation of Profits

• NRB Approval: Profit repatriation, dividend distribution, and loan repayments to foreign entities require clearance from Nepal Rastra Bank.
• Tax Clearance: Must fulfill Inland Revenue Department (IRD) obligations before capital or dividend outflows.

4.3 Exchange Controls & Loans

• FDI Registration: All foreign equity, whether in a Private or Public Limited Company, must be registered with NRB.
• Loan Approvals: External commercial borrowings may need additional scrutiny and approvals.

5. Which Is Right for You?

Private Limited Company if you:

• Prefer simplicity in governance and decision-making.
• Want to limit public scrutiny and reporting.
• Have fewer shareholders and lower capital requirements.

Public Limited Company if you:

• Seek large-scale funding from the public or institutional investors.
• Plan to expand significantly, potentially listing on the Nepal Stock Exchange.
• Can handle stringent reporting, disclosures, and governance protocols.

Frequently Asked Questions (FAQ)

1. Can a Private Limited Company in Nepal go public later?

Yes. Many Private Limited Companies convert to Public Limited status once they decide to raise capital from the public or meet certain listing requirements.

2. Are foreign investors allowed to fully own a Public Limited Company in Nepal?

In most sectors, 100% foreign ownership is permitted, subject to meeting FITTA 2019 criteria and obtaining relevant government approvals. However, certain regulated industries may enforce ownership caps.

3. How does the tax regime differ between Private and Public Limited Companies?

Both structures typically face a corporate tax rate of 25%, although certain sectors (banking, insurance) may see higher rates. Tax compliance requirements are more extensive for Public Limited Companies due to greater disclosure obligations.

4. What is the minimum paid-up capital for Public Limited Companies in Nepal?

It varies by industry, but often exceeds the USD 50,000 general threshold for foreign investors. Check with Investment Board Nepal (IBN) and OCR for up-to-date figures in your sector.

5. Do both Private and Public Limited Companies need a statutory audit?

Yes. Regardless of company type, annual financial statements must be audited by a licensed auditor in compliance with Nepal Financial Reporting Standards (NFRS).

Conclusion

Deciding between a Private and Public Limited Company in Nepal hinges on your capital strategy, shareholding objectives, and governance preferences. While Public Limited Companies offer expansive opportunities for raising large-scale capital, they demand rigorous compliance and transparency. Conversely, Private Limited Companies deliver operational agility and lower regulatory burdens, making them ideal for businesses aiming for controlled growth.

Before finalising your choice, conduct thorough feasibility assessments and consult Nepalese legal, accounting, and business experts. This ensures you align with local regulations, optimise tax obligations, and position your venture for long-term success.

At Digital Consulting Ventures, our dedicated team offers end-to-end support for foreign enterprises navigating company incorporation in Nepal—helping you determine the ideal business structure, fulfill compliance requirements, and seize local market opportunities.