Understanding the Business Landscape: Public and Private Companies in Nepal

Choosing between a private vs public company in Nepal is one of the first strategic decisions foreign companies must make when entering the Nepalese market. This choice affects ownership control, regulatory exposure, fundraising ability, compliance costs, and long-term scalability. Many investors rush incorporation without understanding these differences, leading to avoidable restructuring, regulatory friction, or capital constraints later.

This guide offers a clear, authoritative breakdown tailored for foreign companies evaluating Nepal as a destination for back-office operations, technology teams, service delivery, or long-term market entry.

Nepal’s Corporate Landscape at a Glance

Nepal has steadily positioned itself as a cost-efficient, talent-rich destination for foreign businesses. Its company law framework allows foreign investors to establish operations primarily through private companies, public companies, or branches.

While both private and public companies are governed under the Companies Act, their strategic purpose and regulatory expectations differ significantly.

What Is a Private Company in Nepal?

A private company in Nepal is the most common structure chosen by foreign investors. It is designed for closely held ownership, operational flexibility, and controlled governance.

Key Characteristics of a Private Company

• Minimum shareholders: 1

• Maximum shareholders: 101

• Share transfer is restricted

• Cannot invite the public to subscribe shares

• Ideal for subsidiaries, joint ventures, and FDI-backed operations

Why Foreign Companies Prefer Private Companies

Private companies offer agility. Decision-making is faster. Compliance obligations are manageable. Ownership remains tightly controlled by the parent company or founders.

For foreign companies establishing back-office, IT, consulting, or outsourcing operations, this structure aligns well with commercial reality.

What Is a Public Company in Nepal?

A public company in Nepal is designed for large-scale capital formation and broader ownership participation. It is heavily regulated and disclosure-driven.

Key Characteristics of a Public Company

• Minimum shareholders: 7

• No maximum shareholder limit

• Can issue shares to the public

• Subject to strict disclosure and reporting rules

• Often regulated by the securities regulator

When a Public Company Makes Sense

Public companies are typically suitable for:

• Large infrastructure projects

• Banks and financial institutions

• Hydropower and energy projects

• Businesses planning IPOs or public fundraising

For most foreign SMEs or service-oriented companies, this structure is excessive and costly.

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

Insight: Over 90 percent of foreign direct investment entities in Nepal are structured as private companies due to lower friction and better control.

Legal Framework Governing Companies in Nepal

Both private and public companies operate under Nepal’s corporate and investment laws.

Core Legislations Foreign Investors Must Know

• Companies Act 2006

• Foreign Investment and Technology Transfer Act 2019

• Industrial Enterprises Act 2020

• Income Tax Act 2002

• Labor Act 2017

These laws collectively govern incorporation, foreign ownership, taxation, labor compliance, and profit repatriation.

Compliance Differences That Matter to Foreign Companies

Private Company Compliance Snapshot

• Annual general meeting

• Annual returns filing

• Basic financial statements

• Tax filings and audits

Public Company Compliance Snapshot

• Mandatory public disclosures

• Regulator reporting

• Enhanced audit standards

• Board committees and governance rules

For foreign companies without a public fundraising mandate, public company compliance often adds cost without value.

Capital Requirements and Shareholding Flexibility

Private Companies

Private companies allow flexible capital structuring. Foreign investors can inject capital progressively and restructure shareholding through internal approvals.

Public Companies

Public companies require more rigid capital structuring. Any change often triggers regulatory approvals and disclosures.

This difference becomes critical when scaling operations or onboarding strategic investors.

Taxation Considerations for Foreign Investors

Tax treatment is broadly similar for both structures, but compliance execution differs.

Key Tax Points

• Corporate income tax applies equally

• Withholding tax obligations exist in both

• Dividend distribution tax applies

• Transfer pricing rules apply for foreign shareholders

Public companies face higher scrutiny and reporting expectations from tax authorities.

Operational Control and Governance

Control is where private companies shine.

Private Company Advantages

• Parent company retains decision power

• Board structure can remain lean

• Faster operational pivots

Public Company Limitations

• Shareholder approvals required

• Regulatory oversight on decisions

• Slower execution

Foreign companies prioritizing operational efficiency almost always prefer private entities.

Fundraising Strategy and Long-Term Vision

Your fundraising roadmap should influence your choice.

Choose a private company if you plan to:

• Operate as a captive subsidiary

• Fund operations internally

• Maintain long-term control

Choose a public company if you plan to:

• Raise capital locally

• List shares

• Engage public investors

For most foreign service companies, public fundraising in Nepal is unnecessary.

Common Mistakes Foreign Companies Make

1. Choosing a public company “for credibility”

2. Underestimating compliance costs

3. Ignoring future exit and repatriation planning

4. Misaligning structure with business scale

These mistakes often result in restructuring within two to three years.

How Regulators View Private vs Public Companies

Regulators generally encourage private companies for foreign investment due to easier monitoring and lower systemic risk.

Public companies are scrutinized more closely due to their impact on public investors and financial markets.

Which Structure Is Right for You?

The answer depends on your objectives, not assumptions.

Private companies are ideal for:

• Back-office operations

• IT and tech delivery

• Consulting and professional services

• Regional hubs

Public companies are ideal for:

• Capital intensive projects

• Regulated industries

• Public investment models

Conclusion

When evaluating private vs public company in Nepal, foreign companies should prioritize control, compliance efficiency, and strategic alignment. For most foreign investors, private companies offer the optimal balance of flexibility, cost-efficiency, and regulatory clarity.

Choosing the right structure from day one saves time, money, and future restructuring headaches.