Strategic IP Planning in Nepal: Best Practices for Businesses

If you are evaluating a private vs public company in Nepal, you are making one of the most important strategic decisions for your market entry. The choice affects control, taxation, disclosure, fundraising, and exit flexibility.

For foreign companies entering Nepal, this is not just a structural choice. It is a long-term governance decision governed primarily by the Companies Act 2006 and the Securities Act 2007.

This guide provides a complete breakdown of:

• Legal differences
• Capital raising options
• Foreign investment implications
• Tax considerations
• Compliance burden
• IPO pathway
• Risk and governance strategy

If you are planning FDI under the Foreign Investment and Technology Transfer Act 2019 (FITTA), this article will help you choose the right vehicle.

Understanding Company Structures Under Nepalese Law

Nepal recognizes two primary corporate forms for commercial enterprises:

1. Private Limited Company
2. Public Limited Company

Both are incorporated through the Office of the Company Registrar (OCR).

However, their governance, capital structure, and disclosure requirements differ significantly.

Private vs Public Company in Nepal: Core Legal Differences

Definition Under the Companies Act 2006

Under the Companies Act 2006:

Private Limited Company

• Minimum 1 shareholder
• Maximum 101 shareholders
• Cannot invite public subscription
• Shares are restricted in transfer
• “Private Limited” suffix required

Public Limited Company

• Minimum 7 shareholders
• No maximum limit
• Can issue shares to the public
• Eligible for IPO
• Must comply with securities regulations

At-a-Glance Comparison Table

This structural difference defines long-term flexibility.

Why Most Foreign Investors Choose Private Companies

Over 90% of foreign direct investments in Nepal use the private limited structure.

Why?

Because it provides:

• Ownership control
• Faster incorporation
• Lower disclosure burden
• Simpler governance
• Easier dividend management

For wholly owned subsidiaries, a private company is typically optimal.

When a Public Company Makes Strategic Sense

A public limited company is ideal when:

1. You plan to raise capital locally.
2. You aim to list shares on the Nepal Stock Exchange (NEPSE).
3. You want institutional investment.
4. Your sector requires public shareholding (e.g., banking, insurance).
5. You are building a large-scale infrastructure or manufacturing project.

Public companies operate under oversight from the Securities Board of Nepal (SEBON).

Share Capital Requirements

There is no universal minimum capital for private companies except sector-specific rules.

However, public companies issuing shares must comply with capital thresholds prescribed by regulators.

For IPO listing, minimum paid-up capital is mandated under NEPSE rules.

Governance and Board Structure Differences

Private Company Governance

• No mandatory independent directors
• Flexible board composition
• Shareholder agreements dominate governance
• Lower regulatory audits

Public Company Governance

• Mandatory board structure
• Independent directors required
• Audit committee required
• Disclosure to regulators
• Annual reporting to SEBON

Governance sophistication is significantly higher.

Disclosure and Compliance Burden

Public companies must:

• Publish audited financial statements
• Comply with quarterly reporting
• Hold statutory AGMs with disclosure
• File securities reports
• Meet public disclosure obligations

Private companies have fewer mandatory disclosures.

Tax Treatment: Is There a Difference?

Under the Income Tax Act 2002, corporate tax rates apply equally.

Standard corporate tax: 25% (subject to sectoral variation).

Dividend distribution tax currently applies to both forms.

However, public companies may benefit from:

• Broader capital access
• Market valuation premiums
• Institutional investor confidence

Taxation itself does not determine structure.

Foreign Direct Investment (FDI) Implications

Under FITTA 2019:

• Both private and public companies may receive FDI.
• Approval required from Department of Industry or Investment Board depending on size.
• Repatriation of dividends permitted under NRB directives.

However, foreign investors usually prefer private structures for:

• Ownership concentration
• Simpler exit
• Faster approvals
• Reduced public exposure

Capital Raising Pathways

Private Company Options

• Shareholder equity
• Foreign direct investment
• Private placement
• Debt financing

Public Company Options

• IPO
• FPO
• Rights issue
• Debenture issuance
• Institutional placement

If your long-term strategy includes public fundraising, public conversion may be required.

Conversion: Can a Private Company Become Public?

Yes.

A private company may convert into a public company by:

1. Amending Articles of Association
2. Increasing shareholders beyond 101
3. Meeting capital requirements
4. Complying with securities regulations
5. Approval from OCR

This pathway is common before IPO planning.

Risk Analysis: Strategic Considerations

Control Risk

Public companies dilute ownership.

Regulatory Risk

Public companies face higher scrutiny.

Confidentiality Risk

Financial data becomes public.

Compliance Cost Risk

Ongoing audit and reporting costs increase.

Private companies minimize these exposures.

Which Structure Is Right for Foreign Companies?

Ask yourself:

1. Are you raising local capital?
2. Is IPO a 5-year goal?
3. Is your sector regulated?
4. Do you need public trust visibility?
5. Is ownership control critical?

If control and flexibility matter most, private is ideal.

If scale and capital markets matter, public wins.

Real-World Scenario Analysis

Scenario 1: Australian Tech Firm Setting Up Back Office

Best Structure: Private Company
Reason: 100% ownership, service model, no public funding needed.

Scenario 2: Hydropower Developer Raising NPR 5 Billion

Best Structure: Public Company
Reason: Large capital needs and IPO eligibility.

Scenario 3: Indian Manufacturing Company in SEZ

Best Structure: Private initially
Conversion possible later.

Regulatory Authorities Involved

• Office of the Company Registrar
• Department of Industry
• Securities Board of Nepal
• Nepal Stock Exchange
• Nepal Rastra Bank (for repatriation approval)

Understanding regulator interplay is essential.

Incorporation Timeline Comparison

Timelines vary based on sector.

Advantages and Disadvantages Summary

Private Company Pros

• Full ownership control
• Lower compliance cost
• Faster incorporation
• Confidential financials
• Ideal for subsidiaries

Private Company Cons

• Limited shareholder cap
• Cannot raise public funds

Public Company Pros

• Access to capital markets
• Enhanced credibility
• IPO exit option

Public Company Cons

• High compliance burden
• Reduced ownership control
• Public scrutiny

Strategic Recommendation for Foreign Investors

For most foreign companies entering Nepal, the optimal path is:

Start as a private limited company.

Scale operations.

Then evaluate public conversion only if:

• Capital expansion requires IPO
• Sector regulation mandates public structure
• Institutional investors demand transparency

This staged approach reduces risk.

Conclusion: Making the Right Decision on Private vs Public Company in Nepal

Choosing between a private vs public company in Nepal is not simply legal compliance. It is strategic architecture.

Private companies offer control, flexibility, and efficiency.
Public companies offer scale, capital, and visibility.

For foreign investors under FITTA, private limited remains the dominant structure.

However, long-term capital strategy should guide the final decision.

If you are planning market entry, IPO preparation, or FDI structuring in Nepal, professional advisory support is critical.

Frequently Asked Questions (FAQ)

1. What is the main difference between a private and public company in Nepal?

A private company cannot invite public investment and is limited to 101 shareholders. A public company can issue shares to the public and list on NEPSE.

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

Yes, subject to sector restrictions under FITTA 2019 and approval from the Department of Industry.

3. Is corporate tax different for public companies?

No. Both are generally taxed at 25% under the Income Tax Act 2002.

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

Yes. By amending constitutional documents and meeting regulatory requirements.

5. Is IPO mandatory for public companies?

No. A company may register as public without immediately issuing shares publicly.