The Foreign Investor's Roadmap to Nepal's Market

If you are evaluating Private vs public company in Nepal, you are already asking the right question. Your choice of structure determines your capital flexibility, compliance exposure, reporting burden, and long-term exit strategy.

Nepal is positioning itself as a competitive FDI destination in South Asia. But foreign investors must align structure with strategy from day one. This guide provides a board-ready breakdown based on the Companies Act 2063 (2006), the Foreign Investment and Technology Transfer Act 2019 (FITTA), the Income Tax Act 2002, and current regulatory practice.

Let’s build your roadmap.

Why Nepal Is on Foreign Investors’ Radar in 2026

Nepal’s economy is driven by hydropower, tourism, ICT, manufacturing, and infrastructure. The government has prioritized FDI reforms through:

• Streamlined foreign investment approvals under FITTA 2019
• Digital registration through the Office of Company Registrar
• Sectoral incentives and SEZ frameworks
• Repatriation guarantees for approved foreign investments

The regulatory ecosystem includes:

• Office of Company Registrar
• Department of Industry
• Nepal Rastra Bank
• Inland Revenue Department

Each plays a role depending on whether you choose a private or public company.

Private vs Public Company in Nepal – Legal Definitions and Core Differences

Under the Companies Act 2063, companies are broadly categorized as private limited or public limited entities.

What Is a Private Company in Nepal?

A private company:

• Limits share transfers
• Cannot invite the public to subscribe for shares
• Has a minimum of 1 shareholder
• Has a maximum of 101 shareholders
• Requires at least 1 director

Private companies are the most common vehicle for foreign investors.

What Is a Public Company in Nepal?

A public company:

• Can issue shares to the public
• Has no shareholder cap
• Requires minimum 7 shareholders
• Requires at least 3 directors
• Must comply with securities regulations if listed

Public companies are typically used for large infrastructure, banking, insurance, and capital-intensive sectors.

Strategic Comparison: Which Structure Fits Your Investment Model?

Below is a practical comparison foreign boards can use during feasibility discussions.

Insight:
For 90% of foreign investors entering Nepal, a private limited company offers optimal control, faster approvals, and lower compliance complexity.

Regulatory Approval Path for Foreign Investors

Under Foreign Investment and Technology Transfer Act 2019, foreign investors must obtain FDI approval before incorporation.

Step-by-Step Incorporation Roadmap

1. FDI approval from Department of Industry
2. Company registration at Office of Company Registrar
3. PAN and tax registration with Inland Revenue Department
4. Bank account opening and capital injection
5. Approval from Nepal Rastra Bank for foreign currency inflow
6. Sector-specific licensing if required

This process applies to both private and public companies, but public companies require additional regulatory layers.

Capital Structure and Shareholding Rules

Under FITTA 2019:

• 100% foreign ownership is allowed in most sectors
• Certain sectors remain restricted
• Minimum FDI threshold applies (varies by sector)
• Capital repatriation requires compliance documentation

Private companies offer flexibility in structuring:

• Equity
• Preference shares
• Shareholder agreements
• Joint venture frameworks

Public companies require adherence to securities frameworks and capital disclosure standards.

Tax Implications: Private vs Public Company in Nepal

Under the Income Tax Act 2002:

• Standard corporate tax rate: 25%
• Banking and financial institutions: higher sectoral rate
• Capital gains tax applies on share transfers
• Withholding taxes apply on dividends

Dividend distribution rules apply equally to both structures.

However:

• Public companies may face additional reporting and audit standards.
• Listed public entities must comply with securities board regulations.

Governance and Compliance Burden

Private Company Compliance

• Annual general meeting
• Annual return filing
• Audited financial statements
• Tax filings
• Board resolutions for major decisions

Public Company Compliance

• Mandatory independent directors
• Public disclosure obligations
• Enhanced audit scrutiny
• Securities compliance
• Prospectus requirements

Public companies face significantly higher compliance intensity.

Funding Strategy: When Public Structure Makes Sense

A public company may be justified when:

• You plan an IPO
• You require public capital raising
• You operate in regulated sectors like banking
• You need large-scale infrastructure funding

Otherwise, the private structure offers operational simplicity.

Risk Matrix for Foreign Investors

Private Company Risks

• Limited liquidity
• Share transfer restrictions
• Dependence on shareholder agreements

Public Company Risks

• Regulatory scrutiny
• Higher governance exposure
• Market volatility
• Disclosure obligations

For foreign subsidiaries focused on operational delivery rather than capital markets, private companies reduce risk.

Compliance Authorities Involved

Depending on your structure, you may interact with:

• Office of Company Registrar
• Department of Industry
• Nepal Rastra Bank
• Inland Revenue Department

Public companies may also require securities regulator interaction.

Real-World Scenario Analysis

Scenario 1: Australian Mortgage Back-Office in Nepal

Best structure: Private company
Reason: Operational control, lower governance cost, no public capital need.

Scenario 2: Hydropower Infrastructure Project

Best structure: Public company
Reason: Large capital requirement, possible public investment, regulatory framework.

Key Decision Checklist for Foreign Boards

Before selecting private vs public company in Nepal, ask:

1. Do we need public capital access?
2. Is IPO part of our exit plan?
3. What is our compliance appetite?
4. Are we entering a regulated industry?
5. Do we require flexible shareholder control?

If most answers favor control and simplicity, choose private.

Advantages of Private Company for Foreign Investors

• Faster incorporation
• Lower governance burden
• Controlled shareholding
• Cost-efficient compliance
• Suitable for wholly owned subsidiaries
• Strong legal recognition under Companies Act 2063

When to Consider Public Company Formation

• Large infrastructure investment
• Banking or insurance entry
• Multi-stakeholder joint ventures
• Capital market ambitions

Public status signals scale but demands discipline.

Practical 2026 Outlook for Nepal

Nepal continues digitalization reforms. The Office of Company Registrar is modernizing filings. FDI approval processes are improving.

Yet compliance documentation remains essential. Foreign investors must maintain:

• Proper board minutes
• Capital verification documents
• Tax clearance certificates
• Audit compliance

Structure choice determines your compliance architecture.

Frequently Asked Questions

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

Yes. Under FITTA 2019, 100% foreign ownership is permitted in most sectors. Restricted sectors remain listed separately. Approval from the Department of Industry is required.

2. Is a public company mandatory for large investments?

Not always. It depends on sector and capital strategy. Infrastructure and banking often require public structure. Many large manufacturing entities still operate privately.

3. What is the minimum capital requirement?

Minimum capital varies by sector and FDI threshold rules. FITTA sets minimum FDI investment requirements that must be met.

4. Are compliance costs significantly higher for public companies?

Yes. Public companies face stricter governance, disclosure, and securities compliance obligations. Audit intensity is higher.

5. Can a private company later convert into a public company?

Yes. Conversion is allowed under Companies Act 2063, subject to regulatory compliance and shareholder approval.

Final Recommendation: Private vs Public Company in Nepal

For most foreign subsidiaries entering Nepal, a private limited company offers flexibility, control, and lower compliance complexity.

A public company is justified when capital markets access is strategic.

Choosing correctly at incorporation prevents restructuring costs later. If you are evaluating Private vs public company in Nepal, align your structure with long-term capital strategy, regulatory exposure tolerance, and exit plan.