Company registration in Nepal is often the first strategic decision foreign companies must make before entering the market. One of the most common questions we hear from international founders, consultants, and investors is simple but critical:
Should we start with a sole proprietorship or a private limited company in Nepal?
The answer depends on ownership rules, liability exposure, tax efficiency, compliance obligations, and long-term plans. This guide provides a clear, legally grounded comparison designed specifically for foreign companies and foreign founders considering Nepal as a destination.
We draw on Nepal’s Companies Act 2006, Income Tax Act 2002, and practical regulatory experience to help you choose the right path with confidence.
Before comparing options, it is important to understand how Nepal legally defines these two structures.
A sole proprietorship is the simplest form of business registration in Nepal. It is governed primarily by:
Private Firm Registration Act 2014 (1958)
Local municipality and tax office regulations
The business and the owner are legally the same entity.
Key characteristic: Unlimited personal liability.
A private limited company is a separate legal entity governed by:
Companies Act 2006
Foreign Investment and Technology Transfer Act (FITTA) 2019, if foreign-owned
It can be owned by Nepali nationals, foreign individuals, or foreign companies (subject to FDI approval).
Key characteristic: Limited liability and corporate legal personality.
This is where many foreign founders face confusion.
❌ Foreigners cannot register a sole proprietorship in Nepal
Restricted to Nepali citizens only
Not eligible for Foreign Direct Investment (FDI)
✅ Foreign individuals and companies allowed
Requires FDI approval from:
Department of Industry or
Investment Board Nepal (large projects)
Insight: For foreign companies, a private limited company is not optional. It is mandatory.
Simple and fast registration
Low setup and renewal costs
Minimal compliance burden
Full control by owner
Unlimited personal liability
No foreign ownership allowed
Difficult to raise capital
Limited credibility with banks and partners
Not scalable
Limited liability protection
Eligible for FDI and foreign ownership
Separate legal identity
Easier access to banking and contracts
Better brand credibility
Scalable structure
Higher setup cost
Ongoing compliance obligations
Annual audit requirements
Corporate tax filings mandatory
| Factor | Sole Proprietorship | Private Limited Company |
|---|---|---|
| Governing Law | Private Firm Act | Companies Act 2006 |
| Foreign Ownership | ❌ Not allowed | ✅ Allowed with FDI |
| Legal Entity | No | Yes |
| Liability | Unlimited | Limited |
| Tax Rate | Personal slab | Corporate tax |
| Compliance | Low | Moderate to high |
| Scalability | Very limited | High |
| Investor Friendly | No | Yes |
Sole Proprietorship
NPR 2,000–5,000
Municipality and PAN registration
Annual renewal required
Private Limited Company
NPR 25,000–50,000 (local)
Higher for foreign-owned companies
Includes:
Name approval
MOA and AOA drafting
FDI approval
Company registrar filing
Taxed under personal income tax slabs
Progressive rates apply
Owner and business income combined
Corporate tax typically 25%
Withholding tax on dividends
Transfer pricing rules apply for foreign shareholders
Statutory reference: Income Tax Act 2002 (Nepal)
Annual renewal at municipality
PAN renewal
Basic tax filing
Annual audit by licensed auditor
Annual return filing with OCR
Board resolutions and statutory registers
FDI reporting to Nepal Rastra Bank (for foreign companies)
Choosing the wrong structure can expose foreign founders to:
Personal liability risks
Regulatory penalties
Rejection of bank accounts
FDI non-compliance
Repatriation delays
From a risk-management standpoint, private limited company registration in Nepal is the safest and most compliant route for foreign businesses.
You are a Nepali citizen
Business is small and local
No external funding planned
Low risk operations
You are a foreign company or founder
You plan to hire staff
You want long-term scalability
You need legal protection
You want profit repatriation
Attempting sole proprietorship through local proxies
Ignoring FDI approval timelines
Underestimating compliance requirements
Mixing personal and business finances
Not planning repatriation structure early
When it comes to company registration in Nepal, the decision between a sole proprietorship and a private limited company is straightforward for foreign companies.
A sole proprietorship is not legally available to foreigners. A private limited company is the only compliant, scalable, and investor-friendly structure.
Choosing the right structure from day one saves time, cost, and regulatory headaches later.
Thinking about company registration in Nepal as a foreign company?
👉 Book a free consultation with our Nepal market entry specialists.
We handle FDI approval, company registration, compliance, and ongoing support.
No. Sole proprietorships in Nepal are restricted to Nepali citizens. Foreigners must register a private limited company under FDI rules.
Yes. Foreign individuals and companies can only operate through a private limited company, branch, or liaison office with FDI approval.
A sole proprietorship is cheaper, but it is not available to foreigners. Private limited companies have higher setup and compliance costs.
Local companies take 7–14 days. Foreign-owned private limited companies typically take 4–8 weeks due to FDI approvals.
Yes. Profit and capital repatriation is allowed under FITTA 2019, subject to tax clearance and Nepal Rastra Bank approval.