Starting Your Business: How to Register a New Firm Successfully

If you are evaluating Private vs public company in Nepal, you are already making one of the most important strategic decisions in your market entry journey.

For foreign companies, the legal structure you choose determines ownership flexibility, capital raising ability, compliance exposure, and long-term scalability. It also affects foreign investment approvals under the Foreign Investment and Technology Transfer Act and corporate governance obligations under the Companies Act.

Nepal’s investment framework has evolved significantly in recent years. The government has prioritized FDI, industrial expansion, and export-oriented manufacturing under the Industrial Enterprises Act.

But structure still matters.

In this comprehensive guide, we break down:

• Private vs public company in Nepal — legal differences
• Registration procedures and regulatory approvals
• Capital and shareholder rules
• Tax implications under the Income Tax Act
• When foreign investors should choose each model
• Practical compliance insights for board-level decision makers

Let’s begin with clarity.

Understanding Private vs Public Company in Nepal

Under the Companies Act, companies in Nepal are primarily categorized as:

1. Private Limited Company (Pvt. Ltd.)
2. Public Limited Company (Ltd.)

Both are separate legal entities.
Both offer limited liability protection.
But their governance structure and regulatory exposure differ significantly.

Private Company in Nepal: Structure and Key Features

A Private Limited Company is the most common structure for:

• Foreign subsidiaries
• Joint ventures
• Tech and IT companies
• Service providers
• Manufacturing SMEs

Legal Characteristics

Under Section 2 of the Companies Act 2006:

• Shareholders: Minimum 1, maximum 101
• Shares cannot be offered to the public
• Restrictions on share transfer
• “Private Limited” must be included in the name

Why Foreign Investors Prefer Private Companies

For most foreign investors entering Nepal, private companies provide:

• Controlled ownership structure
• Simplified governance
• Faster incorporation
• Lower compliance burden
• No mandatory public disclosure

If you are setting up a wholly owned subsidiary under FITTA 2019, a private company is typically the default structure.

Public Company in Nepal: Structure and Capital Market Access

A Public Limited Company is structured for:

• Large infrastructure projects
• Banking and financial institutions
• Insurance companies
• Large manufacturing operations
• Companies planning IPO listing

Legal Characteristics

Under the Companies Act 2006:

• Minimum 7 shareholders
• No maximum limit
• Shares can be offered to the public
• Mandatory compliance with securities regulation
• Subject to oversight by Securities Board of Nepal

If listed, the company must comply with the rules of Nepal Stock Exchange.

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

Strategic Insight:
If your objective is operational control and cost efficiency, choose private.
If your objective is capital market access and scale, consider public.

Registration Process: Step-by-Step for Foreign Companies

Regardless of structure, incorporation involves regulatory coordination.

Step 1: Name Reservation

Apply through the Office of Company Registrar (OCR).

Step 2: Prepare Constitutional Documents

• Memorandum of Association
• Articles of Association
• Board resolution (for foreign parent)

Step 3: Foreign Investment Approval (If Applicable)

Submit proposal under FITTA 2019 to the Department of Industry (DOI).

Step 4: Company Registration

Register at the Office of Company Registrar.

Step 5: Tax and Regulatory Registration

• PAN registration
• VAT registration (if applicable)
• Social Security Fund enrollment

Capital Requirements and Financial Structuring

Nepal does not prescribe a uniform minimum capital for all companies.

However:

• Sector-specific regulators may impose minimum paid-up capital.
• Banking and insurance sectors require high capital thresholds.
• FDI minimum threshold under FITTA must be satisfied.

Capital Strategy Considerations

When deciding private vs public company in Nepal, ask:

1. Will we need to raise public equity?
2. Are we planning an IPO within 5 years?
3. Do we require venture funding?
4. Is governance transparency part of our brand strategy?
5. Are we comfortable with quarterly disclosures?

If the answer to most is “no,” private is usually optimal.

Tax Implications Under the Income Tax Act 2002

Under the Income Tax Act:

• Standard corporate tax rate: 25% (general rate)
• Sector-specific variations apply
• Dividend distribution tax applies
• Withholding tax obligations exist

There is no separate corporate tax regime for private vs public companies.

However, listed public companies may enjoy certain investor perception advantages.

Governance and Compliance Differences

Private Company Compliance

• Annual General Meeting
• Annual return filing
• Financial statement submission
• Tax filings

Public Company Compliance

• All private obligations plus:
• Securities disclosure filings
• Prospectus compliance (if issuing shares)
• Independent directors
• Audit committee requirements

For foreign investors concerned with regulatory risk, private companies offer lower compliance exposure.

When Should a Foreign Company Choose a Public Company?

Public companies make sense when:

• Capital requirement exceeds internal funding
• Public trust and brand visibility are critical
• Government project bidding requires public structure
• Sector regulation mandates public form

Otherwise, private is structurally more efficient.

Risk Architecture: What Most Investors Overlook

In boardroom discussions, the debate about private vs public company in Nepal often ignores hidden risks:

• Share transfer complexity
• Minority shareholder disputes
• Disclosure liability
• Reputational exposure
• Securities law penalties

Public companies operate under higher scrutiny.

Private companies provide stronger control architecture.

Strategic Recommendation for Foreign Investors

For most foreign companies entering Nepal:

• IT & BPO → Private
• Manufacturing SME → Private
• Export-driven SEZ unit → Private
• Infrastructure consortium → Public (if capital pooling required)
• Banking/Insurance → Public (mandatory)

Structure should align with long-term capital strategy, not short-term cost.

Frequently Asked Questions (FAQ)

1. Can a foreign investor fully own a private company in Nepal?

Yes. 100% foreign ownership is permitted in most sectors under FITTA 2019, subject to approval and sectoral restrictions.

2. Is there a minimum capital requirement?

General companies have no universal minimum. Sector regulators may impose thresholds.

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

Yes. Conversion is permitted under the Companies Act 2006, subject to shareholder approval and regulatory compliance.

4. Is corporate tax different for private vs public companies?

No. Both are taxed under the Income Tax Act 2002 at applicable corporate rates.

5. Which structure is easier to manage?

Private companies are simpler, faster, and involve lower regulatory reporting.

Conclusion: Private vs Public Company in Nepal  Making the Right Call

Choosing between private vs public company in Nepal is not just a legal step.

It is a capital strategy decision.
It defines your governance model.
It influences investor perception.
It determines compliance exposure.

For most foreign companies, a private limited company offers optimal control, flexibility, and lower risk during initial entry.

Public companies are powerful tools for capital expansion but require strong governance discipline.

If you are entering Nepal, structure your investment intentionally.