The Entrepreneur’s Guide to Starting a Business in Nepal

If you are evaluating private vs public company in Nepal, you are already thinking strategically. The structure you choose will affect ownership control, compliance costs, tax exposure, fundraising options, and regulatory approvals.

For foreign companies, this decision is even more critical. Nepal’s corporate regime, governed by the Companies Act 2006, the Foreign Investment and Technology Transfer Act 2019 (FITTA), and the Nepal Rastra Bank, creates specific obligations for foreign shareholders.

This guide explains the real differences between a private and public company in Nepal. Not just textbook theory. But what it means for capital, control, compliance, and repatriation.

If your goal is sustainable market entry, this article will help you decide correctly.

Why Company Structure Matters for Foreign Investors

Choosing between a private and public company in Nepal affects:

• Minimum shareholder requirements
• Board composition
• Capital raising flexibility
• Ongoing compliance burden
• Regulatory scrutiny
• Foreign exchange approvals
• Exit strategy

Most foreign investors entering Nepal choose a private limited company. But that is not always the optimal solution.

Let’s break it down.

Private vs Public Company in Nepal: Legal Framework Explained

Under the Companies Act 2006, Nepal recognizes:

1. Private Limited Company
2. Public Limited Company

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

What Is a Private Company in Nepal?

A private company in Nepal:

• Requires minimum 1 shareholder
• Maximum 101 shareholders
• Cannot invite the public to subscribe to shares
• Restricts share transferability
• Requires minimum 1 director

It is the most common vehicle for:

• Foreign direct investment (FDI)
• Subsidiaries of foreign companies
• Joint ventures
• SME operations

Foreign investors must also comply with the Foreign Investment and Technology Transfer Act 2019, which governs equity injection, profit repatriation, and technology transfer.

What Is a Public Company in Nepal?

A public company in Nepal:

• Requires minimum 7 shareholders
• Requires minimum 3 directors
• Can issue shares to the public
• Can list on the Nepal Stock Exchange (NEPSE)
• Faces stricter disclosure requirements

Public companies are often used by:

• Banks
• Hydropower developers
• Insurance companies
• Large infrastructure projects

They are regulated by the Securities Board of Nepal (SEBON).

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

Original Insight:
If your strategy depends on structured foreign capital repatriation and tight shareholder control, a private company reduces governance friction. If your strategy depends on raising local capital and brand legitimacy, a public company may be justified.

Capital Requirements and FDI Considerations

Nepal does not impose a uniform minimum capital for private companies under the Companies Act. However:

• FITTA sets minimum foreign investment thresholds.
• Sector-specific regulations may apply.
• Banking and financial sectors require significantly higher capital.

All foreign equity must be approved by:

• Department of Industry (DOI) or Investment Board Nepal (IBN)
• Nepal Rastra Bank for foreign currency inflow

Dividend repatriation requires NRB approval and tax clearance under the Income Tax Act 2002.

Governance and Compliance Differences

Public companies face significantly higher governance requirements.

Public Company Compliance Includes:

• Mandatory independent directors
• Audit committee
• Annual general meetings with public disclosures
• SEBON reporting
• Prospectus filing for IPO

Private Company Compliance Includes:

• Annual return filing with Office of Company Registrar
• Board resolutions
• Statutory audit
• Tax compliance under Income Tax Act

For most foreign investors, compliance cost matters. Public company governance can be 2–3 times more expensive annually.

When Should a Foreign Investor Choose a Private Company?

Choose a private company if:

• You want full ownership control
• You do not plan to list on NEPSE
• You prefer restricted share transfer
• You want lower compliance costs
• You are entering as a subsidiary

Most foreign companies entering Nepal’s IT, BPO, consulting, trading, or manufacturing sectors choose this model.

It offers operational flexibility and clean dividend repatriation structure

When Does a Public Company Make Strategic Sense?

A public company may be suitable if:

1. You require large domestic capital raising.
2. You plan a hydropower or infrastructure IPO.
3. You need regulatory credibility.
4. You intend to scale nationally.
5. You want diversified shareholder base.

Hydropower companies frequently list on NEPSE to fund development. Banks are legally required to operate as public companies.

Taxation Considerations

Corporate tax rates apply equally unless sector-specific exemptions apply.

Under the Income Tax Act:

• Standard corporate tax: 25%
• Certain industries: 20% or 30%
• SEZ incentives may apply

Dividend withholding tax applies upon repatriation.

Foreign investors must also comply with:

• Transfer pricing regulations
• Permanent establishment rules
• Double Tax Avoidance Agreements (where applicable)

Risk Management for Foreign Companies

From a strategic advisory perspective, the key risks are:

• Regulatory delays
• Foreign exchange approvals
• Governance disputes
• Shareholder dilution
• Tax leakage

Private companies reduce dilution risk. Public companies increase transparency but also scrutiny.

Market Entry Strategy: Practical Recommendation

If you are a foreign SME entering Nepal:

Start with a private limited company.

You can later convert into a public company if capital markets become relevant.

This phased approach reduces upfront complexity.

Step-by-Step: Incorporating a Private Company in Nepal

1. Reserve company name
2. Draft Memorandum and Articles of Association
3. Register with Office of Company Registrar
4. Obtain PAN registration
5. Apply for FDI approval (if foreign investor)
6. Open bank account
7. Inject capital
8. Obtain industry-specific licenses

This process typically takes 4–8 weeks depending on documentation quality.

Frequently Asked Questions

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

Yes. FITTA allows 100% foreign ownership in most sectors. Some industries are restricted. Approval is required before capital injection.

2. Can a private company convert into a public company in Nepal?

Yes. Conversion is allowed under the Companies Act. It requires compliance restructuring and shareholder approval.

3. Is there a minimum capital requirement for a public company?

Yes. Public companies must meet prescribed capital thresholds. Sector-specific laws may impose higher requirements.

4. Can a private company issue shares to the public?

No. A private company cannot invite public subscription.

5. Which structure is better for FDI in Nepal?

For most foreign investors, a private limited company is more efficient and flexible.

Final Verdict: Private vs Public Company in Nepal

When analyzing private vs public company in Nepal, the answer depends on your capital strategy, control requirements, and regulatory appetite.

For most foreign companies entering Nepal for operational expansion, a private limited company offers:

• Lower compliance cost
• Strong control structure
• Efficient repatriation process
• Simplified governance

Public companies are powerful vehicles. But they are best suited for capital-intensive projects.

If you want a strategic, compliant, and tax-efficient Nepal entry structure, start with clarity.