The Golden Opportunity: Why Nepal is Attractive for Foreign Investors

If you are evaluating Private vs public company in Nepal, you are already thinking strategically. The legal structure you choose determines control, tax exposure, compliance burden, investor flexibility, and long-term scalability.

Nepal is entering a new phase of economic modernization. Reforms in foreign direct investment (FDI), digitization of the Department of Industry (DOI), and updated regulatory clarity under the Companies Act 2006 and Foreign Investment and Technology Transfer Act 2019 have made the country significantly more attractive for global businesses.

For foreign companies exploring South Asia, Nepal offers:

• Strategic access between India and China
• Competitive labor costs
• Expanding hydropower and infrastructure
• Government-backed FDI incentives
• Growing middle-class consumption

But the real question is simple:

Should you incorporate a private limited company or a public limited company in Nepal?

This guide gives you a clear, executive-level breakdown.

Why Nepal Is Gaining Attention from Foreign Investors

Nepal is no longer viewed as a frontier-only market. It is becoming a controlled-growth opportunity.

Key Economic Indicators

• GDP growth recovering post-pandemic
• Hydropower expansion pipeline exceeding 10,000 MW planned capacity
• Large remittance inflows supporting liquidity
• Expanding IT and outsourcing sector
• FDI reforms under FITTA 2019

According to Nepal Rastra Bank annual reports, foreign investment commitments have steadily increased across energy, tourism, IT, and manufacturing sectors.

For foreign investors, structure matters before capital flows.

Private vs Public Company in Nepal: What Foreign Investors Must Understand

Choosing between a private and public company in Nepal is not merely administrative. It is strategic.

Let us break it down clearly.

Legal Foundation Under Nepal’s Companies Act

Both company types are governed by the Companies Act 2006.

Foreign investment eligibility is governed by the Foreign Investment and Technology Transfer Act 2019 (FITTA).

Regulatory oversight includes:

• Office of Company Registrar (OCR)
• Department of Industry (DOI)
• Nepal Rastra Bank (NRB)
• Inland Revenue Department (IRD)

What Is a Private Limited Company in Nepal?

A private limited company is the most common vehicle for foreign investors.

Core Characteristics

• Minimum 1 shareholder
• Maximum 101 shareholders
• Cannot invite public to subscribe shares
• Shares not freely transferable
• Minimum 1 director
• No minimum paid-up capital requirement (sector-specific FDI thresholds apply)

Why Foreign Investors Prefer It

1. Full ownership possible (100% in permitted sectors)
2. Faster incorporation
3. Lower compliance burden
4. Strong control retention
5. Simplified decision-making

Most foreign investors entering Nepal choose this structure.

What Is a Public Limited Company in Nepal?

A public limited company is designed for larger-scale operations and capital market access.

Core Characteristics

• Minimum 7 shareholders
• No maximum shareholder limit
• Minimum 3 directors
• Can issue shares to the public
• Must comply with securities regulations
• Minimum paid-up capital required (as prescribed)

Public companies intending to list must comply with rules of the Securities Board of Nepal (SEBON).

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

Insight:
For foreign companies entering Nepal for operational control, private limited structure provides efficiency and predictability.

Public company structure makes sense when:

• Raising capital domestically
• Planning large hydropower or infrastructure projects
• Preparing for stock exchange listing

Foreign Direct Investment (FDI) Considerations

Under FITTA 2019:

• Minimum FDI threshold applies
• 100% foreign ownership allowed in many sectors
• Certain sectors remain restricted (e.g., small retail, certain agriculture segments)

Repatriation of profits requires:

• Audited financial statements
• Tax clearance
• Dividend board resolution
• Banking compliance

The Nepal Rastra Bank regulates foreign currency repatriation flows.

When Should a Foreign Company Choose a Private Limited Company?

Choose private limited if:

• You want full ownership and control
• You are testing the Nepal market
• You are establishing a technology or outsourcing unit
• You prefer limited governance exposure
• You plan to retain profits initially

It works well for:

• IT outsourcing
• Back-office operations
• Consulting firms
• Manufacturing units
• Renewable energy SPVs

When Should a Foreign Company Choose a Public Company?

Choose public company if:

• You intend to raise public capital
• You need significant domestic participation
• You are entering infrastructure or banking
• You want public credibility signaling

However, public company compliance is heavier.

It includes:

• Mandatory disclosures
• Shareholder meetings
• SEBON compliance
• Reporting obligations

Compliance Differences in Practice

Private Company Compliance

• Annual general meeting
• Annual return filing
• Tax return filing
• Audit (if applicable)
• Director updates

Public Company Compliance

• All above requirements
• Additional disclosure obligations
• Securities reporting
• Capital market compliance
• Higher transparency standards

The cost difference can be significant.

Taxation Overview

Corporate income tax is governed by the Income Tax Act 2002.

Key points:

• Standard corporate tax rate: 25% (sector variations apply)
• Withholding tax obligations apply
• Dividend distribution tax applies
• VAT registration required where applicable

Both private and public companies are taxed similarly. Structure does not change corporate tax rate.

But governance affects compliance exposure.

Strategic Perspective: Control vs Capital

Foreign companies often underestimate this distinction.

A private company prioritizes:

• Control
• Operational flexibility
• Faster decisions
• Reduced disclosure

A public company prioritizes:

• Capital access
• Public visibility
• Market validation
• Share liquidity

For first-time foreign investors in Nepal, private limited is generally the safest entry vehicle.

Common Mistakes Foreign Investors Make

1. Choosing public structure too early
2. Ignoring sectoral FDI restrictions
3. Underestimating repatriation documentation
4. Not aligning board structure with control strategy
5. Confusing branch office with company incorporation

Structure must align with capital strategy.

Governance & Board Structure

Private companies offer flexible governance.

You can:

• Appoint nominee directors
• Retain shareholder agreements
• Control share transfer restrictions

Public companies require:

• Minimum 3 directors
• Formal board committees
• Enhanced governance framework

For foreign holding companies, control architecture matters more than size.

Real-World Strategic Insight

In practice:

• 80%+ foreign investors in Nepal begin with private limited subsidiaries.
• Public structure is usually second-phase expansion.

The private model allows:

• Gradual scaling
• Capital injection flexibility
• Risk containment

Then, if required, conversion to public structure is possible.

Frequently Asked Questions (FAQ)

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

Yes. Under FITTA 2019, 100% foreign ownership is permitted in most sectors, subject to minimum investment thresholds and restricted industry lists.

2. Is there a minimum capital requirement for private companies?

No general minimum capital under the Companies Act. However, FDI minimum thresholds apply for foreign investors.

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

Yes. Conversion is permitted subject to regulatory compliance and capital restructuring.

4. Which structure is better for IPO plans?

A public limited company is mandatory for listing on Nepal’s stock exchange and issuing shares to the public.

5. Does tax differ between private and public companies?

No. Corporate income tax rates apply equally under the Income Tax Act 2002.

Conclusion: Making the Right Choice

When evaluating Private vs public company in Nepal, foreign investors should begin with strategy, not structure.

For most foreign companies entering Nepal:

Private limited company = control, speed, and flexibility.

Public company = scale, capital markets, and broader ownership.

Nepal presents a real opportunity. But success depends on structuring correctly from day one.

If you are planning market entry, structuring decisions must align with:

• Control architecture
• Repatriation strategy
• Tax planning
• Long-term capital roadmap

Choosing correctly at incorporation stage avoids years of restructuring later.