Sector-Specific Foreign Investment Restrictions in Nepal​​.

If you are evaluating private vs public company in Nepal, the real decision is not just corporate form. It is whether your sector is even open to foreign investment, and if so, which structure protects capital, control, and exit.

Many foreign companies enter Nepal assuming private and public companies are interchangeable. They are not. Sector-specific foreign investment restrictions, capital rules, and regulatory oversight make this choice strategic, not procedural.

This guide is written for foreign companies. It explains how Nepal’s FDI framework treats private and public companies differently, which sectors are restricted, and how to avoid structural mistakes that quietly block repatriation, scaling, or exit.

Why “Private vs Public Company in Nepal” Is an FDI Question

In Nepal, company law and foreign investment law intersect tightly. Your sector eligibility, ownership percentage, and regulatory approvals dictate whether a private or public company is viable.

Foreign investors must navigate:

• Company law under the Companies Act 2006
• Foreign investment rules under the Foreign Investment and Technology Transfer Act 2019
• Sector licensing via the Department of Industry and approvals from the Nepal Rastra Bank

This is why private vs public company in Nepal must be evaluated sector-first, not form-first.

Private Company in Nepal for Foreign Investors

A private company is the default structure for most foreign-owned businesses in Nepal.

Key Characteristics

• Limited to maximum 101 shareholders
• Cannot publicly issue shares
• Faster incorporation and approvals
• Lower compliance burden
• Widely accepted for FDI-eligible sectors

Why Foreign Investors Prefer Private Companies

Private companies offer control and flexibility, especially in regulated environments.

Typical use cases include:

• IT services and software development
• Outsourced back-office operations
• Manufacturing and processing
• Consulting and professional services
• Export-oriented businesses

For most open sectors, a private company satisfies both FDI rules and commercial objectives.

Public Company in Nepal for Foreign Investors

A public company is structurally different and rarely optimal for first-time foreign entrants.

Key Characteristics

• Minimum 7 shareholders
• Eligible to issue shares publicly
• Heavier regulatory scrutiny
• Mandatory compliance with securities laws
• Often subject to ownership caps by sector

When a Public Company Makes Sense

Public companies are typically relevant only when:

1. The sector requires large capital pooling
2. The business plans a future IPO in Nepal
3. Regulators expect broader ownership
4. Infrastructure or utility projects demand it

For most foreign companies, this structure adds compliance without strategic upside.

Sector-Specific Foreign Investment Restrictions in Nepal

Nepal does not apply a blanket FDI policy. Instead, it uses a negative list approach.

Fully Restricted Sectors for Foreign Investment

Foreign ownership is not permitted in the following sectors:

• Retail trading (excluding export-only businesses)
• Personal services such as hair salons and tailoring
• Local courier and delivery services
• Domestic tourism agencies and trekking operations
• Small-scale industries reserved for locals
• Real estate trading (non-development)

These sectors are closed regardless of private vs public company in Nepal.

Partially Restricted or Conditional Sectors

Some sectors allow foreign investment only under conditions.

• Media and mass communication
• Aviation services
• Financial services
• Security-related industries
• Natural resource-linked activities

Conditions may include:

• Nepalese majority ownership
• Minimum capital thresholds
• Prior sector-specific approvals
• Local partner requirements

Open Sectors for Foreign Investment

Most foreign investment flows into open sectors, including:

• Information technology
• Manufacturing
• Energy and hydropower
• Export-oriented services
• Education and training
• Healthcare services
• Infrastructure development

In these sectors, a private company is usually the optimal choice.

Private vs Public Company in Nepal: Sector Impact Table

This comparison shows why private vs public company in Nepal is usually decided by sector openness, not investor preference.

How Sector Restrictions Shape Ownership and Control

Foreign investors often underestimate how sector classification affects control.

Common structural constraints include:

• Maximum foreign equity caps
• Mandatory local directors
• Restricted voting rights
• Sector-specific licensing conditions
• Ongoing reporting obligations

These constraints apply after incorporation, which is why structure selection must be proactive.

Approval Flow for Foreign Companies by Sector

Foreign companies must follow a sector-aligned approval process.

Typical sequence:

1. Company incorporation with the Office of Company Registrar
2. FDI approval from the Department of Industry
3. Capital inflow approval through Nepal Rastra Bank
4. Sector-specific licensing, if required
5. Tax and labor registrations

Choosing the wrong structure early can delay or derail this entire flow.

Risks of Choosing the Wrong Structure

Selecting the wrong company type in a restricted or sensitive sector can cause:

• Delayed capital repatriation
• Banking and FX approval issues
• Forced restructuring
• Compliance penalties
• Exit friction

These risks rarely appear in incorporation checklists but emerge years later.

Strategic Guidance for Foreign Companies

When advising foreign investors, we follow three principles:

1. Sector eligibility comes first
2. Private company by default
3. Public company only with a clear capital or regulatory reason

This mindset avoids structural lock-ins that are expensive to reverse.

Frequently Asked Questions

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

Yes. For most sectors open to FDI, a private company offers lower compliance, faster setup, and better control for foreign investors.

Can foreigners own 100 percent of a private company in Nepal?

Yes, in most open sectors. Ownership caps apply only in restricted or conditional industries.

Are public companies required for large foreign investments?

No. Large investments can be made through private companies unless the sector or regulator requires public ownership.

Can a private company convert into a public company later?

Yes. Conversion is permitted under the Companies Act, subject to approvals and compliance upgrades.

Do sector restrictions override company law in Nepal?

Yes. Foreign investment law and sector regulations override general company law provisions.

Conclusion

Understanding private vs public company in Nepal requires more than comparing legal forms. For foreign companies, the decisive factor is sector-specific foreign investment restrictions.

In most cases, a private company aligned with an open sector provides the safest path to market entry, control, and exit. Public companies remain niche tools, not default solutions.

If you are planning to enter Nepal, start with sector eligibility, then structure. That single decision determines everything that follows.