Uncovering Investment Opportunities in Nepal's Growing Economy

Nepal is entering a decisive growth phase. Hydropower, IT outsourcing, tourism, manufacturing, and fintech are expanding fast. But before you invest, you must decide on structure. The debate around private vs public company in Nepal is not academic. It determines control, compliance burden, fundraising options, and exit strategy.

Foreign companies exploring Nepal under the Foreign Investment and Technology Transfer Act 2019 (FITTA) or the Companies Act 2006 must understand this distinction clearly.

This guide breaks it down in plain English. It is written for foreign investors, CFOs, and strategy teams evaluating Nepal as a market entry destination.

Why Nepal Is Attracting Foreign Investors

Nepal’s GDP growth has remained steady in recent years. The government is actively encouraging foreign direct investment. Priority sectors include:

• Hydropower and renewable energy
• Information technology and BPO
• Tourism and hospitality
• Agro-processing and manufacturing
• Infrastructure and logistics

The Department of Industry (DOI) facilitates foreign investment approvals. The Office of the Company Registrar (OCR) handles incorporation.

For large-scale projects, the Investment Board Nepal may be involved.

But incorporation structure is your first strategic decision.

Private vs Public Company in Nepal: Legal Foundations

Under the Companies Act 2006, companies in Nepal are primarily categorized as:

1. Private Limited Company
2. Public Limited Company

Both can be used for foreign investment, subject to sectoral restrictions and minimum capital rules under the Foreign Investment and Technology Transfer Act 2019.

Let’s break down what truly differentiates them.

What Is a Private Company in Nepal?

A private limited company is the most common structure for foreign investors entering Nepal.

Key Characteristics

• Minimum 1 shareholder
• Maximum 101 shareholders
• Cannot publicly invite share subscription
• Shares are restricted in transfer
• Lower compliance burden than public companies

Private companies are ideal for:

• Subsidiaries of foreign corporations
• Joint ventures
• Technology and service businesses
• Cost-center or support offices

Most FDI projects in Nepal begin as private limited companies.

What Is a Public Company in Nepal?

A public limited company is designed for larger capital structures.

Key Characteristics

• Minimum 7 shareholders
• No maximum limit
• Can issue shares to the public
• Must comply with additional disclosure rules
• Often required for large infrastructure projects

Public companies may list on the Nepal Stock Exchange (NEPSE) after regulatory approvals.

They are typically used for:

• Hydropower projects
• Large infrastructure ventures
• Banking and financial institutions
• Insurance companies

Comparison Table: Private vs Public Company in Nepal

Below is a strategic comparison tailored for foreign investors.

Strategic Insight:
If your objective is operational control and streamlined compliance, a private company is usually optimal. If your goal is large capital mobilization or eventual IPO, public company status becomes necessary.

Capital Requirements for Foreign Investors

Foreign investment capital must comply with FITTA thresholds.

While capital minimums vary by sector, investors must:

• Obtain DOI approval
• Inject capital via banking channels
• Secure NRB (central bank) reporting compliance

The Nepal Rastra Bank regulates foreign currency inflows and repatriation.

Private and public companies both require capital documentation. However, public companies often require higher paid-up capital.

Compliance Obligations: What Foreign Companies Must Know

Compliance intensity differs significantly.

Private Company Compliance

• Annual general meeting
• Annual return filing at OCR
• Tax filings under Income Tax Act 2002
• VAT (if applicable)
• Social Security contributions

Public Company Compliance

In addition to the above:

• Mandatory board committees
• Enhanced financial disclosure
• Securities Board oversight
• Audit rotation requirements
• Public reporting standards

If compliance simplicity matters, private companies offer flexibility.

Taxation Considerations

Corporate tax in Nepal is governed by the Income Tax Act 2002.

Standard corporate tax rate: typically 25% (subject to sector incentives).

Hydropower, SEZ manufacturing, and export businesses may enjoy tax holidays.

Both private and public companies are taxed similarly at corporate level. The difference lies in dividend distribution structure and reporting transparency.

When Should a Foreign Investor Choose a Private Company?

Choose a private company if:

• You want 100% foreign ownership.
• You want tighter shareholder control.
• You do not plan immediate public fundraising.
• You prefer lower regulatory exposure.
• You are testing the Nepal market first.

This structure is commonly used by:

• Australian mortgage outsourcing firms
• Indian garment manufacturers entering SEZ
• Technology startups setting up back-office hubs

It provides speed and operational control.

When Is a Public Company Strategically Better?

A public company makes sense if:

1. You require large infrastructure financing.
2. You plan to raise funds domestically.
3. You need regulatory credibility.
4. You aim for stock exchange listing.

Hydropower projects often require public structure due to financing scale.

Investment Scenario Analysis

Let’s examine three investor profiles.

Scenario 1: IT Outsourcing Company

Best Structure: Private Company
Reason: Control, lean compliance, operational flexibility.

Scenario 2: 200 MW Hydropower Project

Best Structure: Public Company
Reason: Capital mobilization and public subscription.

Scenario 3: Manufacturing Unit in SEZ

Best Structure: Private Company (initially)
Later conversion to public possible if expansion requires capital.

Can a Private Company Convert into a Public Company?

Yes.

The Companies Act 2006 allows conversion subject to compliance.

This provides flexibility. Many investors start private and convert later.

Risk Management and Governance Considerations

Foreign investors must think beyond structure.

Key risk areas:

• Permanent establishment exposure
• Dividend repatriation compliance
• Director liability
• Minority shareholder protection
• Regulatory reporting discipline

Public companies face greater scrutiny. Private companies offer more confidentiality.

How Incorporation Works (Step-by-Step Overview)

1. Name reservation at OCR
2. Draft Memorandum and Articles
3. Obtain DOI approval (for FDI)
4. Capital injection via bank
5. PAN registration
6. VAT registration (if required)
7. Social Security enrollment
8. Sector licenses (if applicable)

The process typically takes 4–8 weeks, depending on sector approvals.

Strategic Insight for Foreign Boards

The private vs public company in Nepal decision should align with:

• Capital strategy
• Exit plan
• Risk appetite
• Governance structure
• Investor relations vision

Do not choose structure based on cost alone.

Choose based on long-term control and capital architecture.

Frequently Asked Questions (FAQ)

1. Can a foreigner fully own a private company in Nepal?

Yes. FITTA allows 100% foreign ownership in most sectors. Some sectors remain restricted.

2. Is a public company mandatory for hydropower?

Often yes for large-scale projects. Financing models typically require public participation.

3. Which structure has lower compliance costs?

Private companies generally have lower compliance and disclosure obligations.

4. Can profits be repatriated?

Yes, subject to Nepal Rastra Bank approval and tax clearance.

5. How long does incorporation take?

Usually 4–8 weeks, depending on FDI approval and documentation completeness.

Final Thoughts: Choosing the Right Structure for Nepal

Nepal offers serious growth potential. But structure determines outcome.

The debate around private vs public company in Nepal is about control versus capital scale.

Private companies provide flexibility and confidentiality. Public companies unlock large capital pools.

For most foreign companies entering Nepal, starting private is strategic. You can always scale later.

If you are evaluating market entry, capital structuring, or regulatory compliance, now is the time to build a compliant foundation.

Ready to structure your Nepal investment correctly?
Speak with our advisory team to receive a tailored incorporation roadmap and compliance blueprint aligned with your sector.