The Role of Foreign Direct Investment in Nepal's Development

Foreign investors evaluating Private vs public company in Nepal often ask one core question: which structure best supports long-term growth and Foreign Direct Investment (FDI)?

The answer shapes governance, capital access, compliance exposure, and exit strategy. It also directly affects how your investment contributes to Nepal’s economic development.

Nepal is positioning itself as a competitive South Asian investment destination. The government actively promotes FDI through policy reforms and sectoral incentives. Yet the legal vehicle you choose determines how smoothly you can operate.

This guide breaks down the structural, regulatory, and strategic differences between private and public companies in Nepal. It is designed specifically for foreign companies entering the market.

We will cover:

• Legal framework under the Companies Act 2006
• FDI approval under the Foreign Investment and Technology Transfer Act 2019
• Tax treatment under the Income Tax Act 2058
• Capital raising via the Nepal Stock Exchange

Let’s start with the fundamentals.

Understanding the Legal Framework for Company Formation in Nepal

Foreign investors must structure their operations under Nepal’s corporate and investment laws.

Key governing laws include:

• Companies Act 2006
• Foreign Investment and Technology Transfer Act 2019
• Industrial Enterprises Act 2020
• Income Tax Act 2058

All companies are registered with the Office of the Company Registrar.

FDI approval is obtained from the Department of Industry or the Investment Board Nepal, depending on project size.

Nepal Rastra Bank regulates foreign currency inflows and profit repatriation.

Understanding this framework is critical before comparing private and public company structures.

What Is a Private Company in Nepal?

Under the Companies Act 2006, a private limited company:

• Limits share transferability
• Restricts public share offerings
• Has a maximum of 101 shareholders
• Requires at least 1 director
• Cannot invite the public to subscribe to shares

This structure is the most common vehicle for foreign direct investment in Nepal.

Why Foreign Investors Prefer Private Companies

1. Faster incorporation process
2. Lower compliance burden
3. Greater ownership control
4. Simpler governance structure
5. Flexible decision-making

Private companies are ideal for:

• Wholly owned subsidiaries
• Joint ventures
• Back-office operations
• Technology companies
• Manufacturing units

They are particularly suitable for early-stage market entry.

What Is a Public Company in Nepal?

A public limited company in Nepal:

• Can offer shares to the public
• Requires a minimum of 7 shareholders
• Has no upper shareholder limit
• Requires at least 3 directors
• Must comply with securities regulations

Public companies are regulated by the Securities Board of Nepal.

If listed, they trade shares on the Nepal Stock Exchange.

Public companies are used for:

• Large infrastructure projects
• Banking and financial institutions
• Hydropower investments
• Large-scale industrial operations

They are appropriate for capital-intensive projects seeking local capital participation.

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

Original Insight:
Private companies maximize control and operational agility. Public companies maximize capital access and national integration.

Your choice signals your strategic intent in Nepal.

How Company Structure Impacts Foreign Direct Investment in Nepal

FDI is a critical pillar of Nepal’s economic development.

According to government data, Nepal continues to attract FDI in hydropower, ICT, tourism, and manufacturing.

Contribution of FDI to Nepal’s Development

Foreign investment supports:

• Infrastructure development
• Employment generation
• Technology transfer
• Export growth
• Financial market deepening

Public companies contribute more directly to capital market development.

Private companies contribute through operational efficiency and employment creation.

Both are essential. The choice depends on your investment model.

Governance and Compliance Differences

Private Company Governance

• Fewer reporting obligations
• Simplified board structure
• Limited mandatory disclosures
• Lower audit complexity

Public Company Governance

• Mandatory independent directors
• Annual public disclosures
• SEBON reporting compliance
• Prospectus requirements
• Shareholder meeting transparency

Foreign investors must assess governance appetite carefully.

Higher transparency increases credibility but also regulatory exposure.

Capital Raising Strategy: Private vs Public

Capital access is often the defining factor.

Private Company Capital Options

• Parent company funding
• Private equity
• Debt financing
• Strategic investors

Public Company Capital Options

• Initial Public Offering (IPO)
• Rights issue
• Debenture issuance
• Secondary market liquidity

Public companies improve domestic capital mobilization.

However, IPO timelines and compliance costs are significant.

Taxation and Profit Repatriation

Corporate tax is governed by the Income Tax Act 2058.

Standard corporate tax rate in Nepal is generally 25% for most industries. Certain sectors may have different rates.

Dividend distribution is subject to withholding tax.

Profit repatriation requires approval from Nepal Rastra Bank.

Both private and public companies can repatriate profits under FDI regulations.

There is no structural disadvantage in repatriation between the two.

The difference lies primarily in disclosure and reporting obligations.

When Should a Foreign Investor Choose a Private Company?

Choose a private limited company if:

• You want full ownership control
• You are testing the Nepal market
• Capital needs are manageable
• Confidentiality is important
• You prefer streamlined compliance

This is the most common entry structure for foreign subsidiaries.

When Should a Foreign Investor Choose a Public Company?

Choose a public company if:

• Your project exceeds large capital thresholds
• You want to involve Nepali investors
• You plan long-term infrastructure operations
• You require public financing
• You aim to list on Nepal Stock Exchange

Hydropower and banking investors often follow this model.

Strategic Decision Framework for Foreign Companies

Before deciding between private vs public company in Nepal, evaluate:

1. Investment size
2. Capital raising needs
3. Governance tolerance
4. Exit strategy
5. Sector regulations
6. Market positioning

If your model is operational efficiency-focused, private is better.

If your model is capital-intensive and market-integrated, public is stronger.

Risk Assessment Matrix

Public companies reduce funding risk.

Private companies reduce governance risk.

How the Right Structure Supports Nepal’s Development Goals

Nepal’s development strategy prioritizes:

• Industrialization
• Infrastructure expansion
• Export growth
• Technology adoption

Private companies accelerate operational growth.

Public companies strengthen capital markets and investor participation.

Both structures support FDI inflows under FITTA 2019.

Choosing wisely ensures compliance while contributing to Nepal’s economic transformation.

Conclusion: Private vs Public Company in Nepal for Foreign Investors

The debate around Private vs public company in Nepal is not about which is better.

It is about alignment.

Private companies offer control, speed, and confidentiality.

Public companies offer scale, capital depth, and national integration.

Foreign companies entering Nepal must align structure with strategy.

The correct vehicle protects governance, simplifies compliance, and enhances returns.

If you are considering foreign direct investment in Nepal, structuring correctly from day one is critical.

Strategic legal structuring reduces risk and maximizes long-term value.

FAQs – People Also Ask

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

Yes. Under FITTA 2019, 100% foreign ownership is allowed in most sectors, except restricted industries.

2. Is IPO mandatory for public companies in Nepal?

No. A public company can exist without listing, but public offering requires SEBON approval.

3. Which company type is faster to incorporate?

Private companies are faster due to fewer regulatory approvals and documentation requirements.

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

Yes. Conversion is allowed under the Companies Act 2006 subject to regulatory compliance.

5. Which structure is better for large infrastructure projects?

Public companies are preferred for capital-intensive infrastructure investments.