Understanding the Investment Market in Nepal: A Guide for Foreign Investors

Expanding into South Asia requires clarity. One of the first structural decisions foreign investors face is Private vs public company in Nepal.

This choice affects ownership control, regulatory exposure, fundraising ability, tax positioning, and exit strategy.

Nepal’s investment framework has evolved significantly. Reforms under the Companies Act 2063 (2006), the Foreign Investment and Technology Transfer Act (FITTA) 2019, and updates from the Nepal Rastra Bank (NRB) have simplified market entry for foreign companies.

But structure still determines risk.

If you are a foreign investor evaluating Nepal, this guide will help you understand which corporate form aligns with your strategy.

Why Corporate Structure Matters for Foreign Investors in Nepal

Foreign companies entering Nepal typically seek:

• Capital security
• Dividend repatriation clarity
• Governance control
• Tax efficiency
• Scalable growth

Your choice between a private limited company and a public limited company directly impacts all five.

Nepal allows up to 100% foreign ownership in many sectors under FITTA 2019. However, regulatory compliance differs significantly between private and public entities.

Let’s break it down.

Private vs Public Company in Nepal: Core Differences Explained

Under the Companies Act 2063 (2006), companies in Nepal are classified primarily as:

1. Private Limited Company (Pvt. Ltd.)
2. Public Limited Company (Ltd.)

Below is a strategic comparison tailored for foreign investors.Comparison Table: Private vs Public Company in Nepal

Original Insight:
For over 85% of foreign investors entering Nepal, a private limited company structure is operationally optimal during the first 5 years. Public conversion usually becomes relevant only when domestic capital markets are required.

What Is a Private Limited Company in Nepal?

A Private Limited Company is the most common vehicle used by foreign investors.

Key Characteristics

• Minimum 1 shareholder
• Maximum 101 shareholders
• Shares cannot be publicly traded
• Restrictions on share transfer
• Lower disclosure requirements

Under FITTA 2019, foreign investors can establish a wholly owned subsidiary in many sectors.

Why Foreign Companies Prefer It

Foreign companies value:

• Tight control over equity
• Controlled share transfers
• Simplified board structure
• Lower compliance burden
• Easier dividend repatriation process

For technology, outsourcing, manufacturing, and consulting firms, this structure provides flexibility without market exposure.

What Is a Public Limited Company in Nepal?

A Public Limited Company is structured for broader capital participation.

Key Characteristics

• Minimum 7 shareholders
• Can invite public subscription
• May be listed on the Nepal Stock Exchange (NEPSE)
• Subject to regulation by the Securities Board of Nepal (SEBON)

When Does It Make Sense?

A public company structure may be appropriate when:

• You need large-scale capital injection
• You plan to issue an IPO
• You are operating in banking, insurance, or hydropower
• You want brand credibility via listing

However, compliance increases substantially.

Regulatory Framework Governing Companies in Nepal

Foreign investors should understand the legal backbone:

• Companies Act 2063 (2006) – Governs formation and corporate governance
• Foreign Investment and Technology Transfer Act (FITTA) 2019 – Governs foreign equity
• Industrial Enterprises Act 2020 – Provides sector classification and incentives
• Income Tax Act 2058 (2002) – Governs corporate taxation
• NRB Foreign Exchange Regulations – Governs repatriation

Each structure interacts differently with these laws.

Ownership and Control: Strategic Implications

Control is often the primary concern for foreign executives.

Private Limited Company

• Share transfer requires board approval
• Fewer disclosure obligations
• Easier to maintain majority control
• Flexible shareholder agreements

Public Limited Company

• Shares freely transferable (if listed)
• Minority shareholder protections stronger
• Governance transparency mandatory
• Annual reporting obligations higher

If control architecture matters to your board, private structure provides greater insulation.

Capital Raising: Domestic vs International Strategy

Your growth plan determines structure.

Private Company Funding Sources

• Foreign parent capital
• FDI inflow via DOI approval
• Bank loans
• Private placements

Public Company Funding Sources

• Initial Public Offering (IPO)
• Rights issues
• Bond issuance
• Broader domestic investor base

Nepal’s capital market remains developing. As of recent market data, total market capitalization of NEPSE represents a modest share of GDP compared to regional peers.

Foreign investors often rely on parent funding rather than domestic IPOs in early stages.

Taxation Considerations

Corporate Income Tax in Nepal generally stands at 25%, subject to sectoral variations under the Income Tax Act 2058.

Tax rates apply equally to private and public companies.

However:

• Public companies may face additional compliance costs
• Dividend distribution tax must be considered
• Withholding tax on dividends applies

Repatriation requires:

1. Audited financial statements
2. Tax clearance certificate
3. Board resolution approving dividend
4. Bank processing through authorized dealer banks

NRB reforms in recent years have streamlined procedural approvals.

But documentation precision remains critical.

Compliance Burden: Private vs Public

Compliance affects operating cost.

Private Company Compliance

• Annual General Meeting
• Annual return filing
• Audit requirement
• Tax filing

Public Company Compliance

• All private requirements plus
• SEBON reporting
• Quarterly disclosures
• Prospectus compliance
• Listing obligations

Operationally, public companies face significantly higher administrative overhead.

Risk, Transparency, and Investor Confidence

Public companies provide:

• Higher transparency
• Market credibility
• Broader shareholder base

Private companies provide:

• Confidentiality
• Strategic flexibility
• Faster decision-making

Foreign boards typically prioritize control and speed in frontier markets.

When Should a Foreign Investor Choose a Private Company?

Choose private limited if:

• You are establishing a wholly owned subsidiary
• You want full strategic control
• You do not require domestic public capital
• You are testing the market
• You prefer lower compliance cost

This model suits most FDI entries into Nepal.

When Should a Foreign Investor Choose a Public Company?

Consider public limited if:

• You require large infrastructure financing
• You operate in regulated financial sectors
• You plan long-term capital market participation
• You aim for IPO visibility

Hydropower and financial institutions commonly adopt public structures.

Conversion Option: Can You Switch Later?

Yes.

A private limited company can convert into a public limited company under the Companies Act 2063.

This phased strategy is common:

Phase 1: Enter as private
Phase 2: Stabilize operations
Phase 3: Convert if capital expansion required

This staged approach reduces early-stage regulatory burden.

Governance Architecture for Foreign Companies

Foreign investors should consider:

• Board composition
• Resident director requirements
• Power of Attorney structure
• Bank signatory control
• IP ownership safeguards

These governance tools matter more than the label of private vs public.

Market Insight: What Most Foreign Investors Actually Do

In practice:

• Technology companies choose private
• Outsourcing firms choose private
• Manufacturing subsidiaries choose private
• Infrastructure consortia sometimes choose public

The market trend strongly favors private entry structures.

Strategic Decision Framework

Use this 5-step checklist:

1. Define capital requirement
2. Assess control sensitivity
3. Evaluate compliance appetite
4. Model exit strategy
5. Forecast 5-year funding need

If domestic public capital is unnecessary, private structure wins.

Common Misconceptions About Private vs Public Company in Nepal

Myth 1: Public companies get tax advantages
Reality: Tax rates are generally similar

Myth 2: Public structure increases FDI approval speed
Reality: FDI approval is sector-driven, not structure-driven

Myth 3: Public companies are mandatory for foreign investors
Reality: Not required in most sectors

Practical Example

A foreign IT company entering Nepal for back-office operations:

• Does not need public capital
• Needs 100% ownership
• Requires IP protection
• Wants dividend repatriation clarity

Private limited structure is optimal.

A hydropower consortium raising local capital:

• Needs public subscription
• Requires domestic credibility
• May list on NEPSE

Public structure may be justified.

Final Thoughts: Private vs Public Company in Nepal for Foreign Investors

Choosing between Private vs public company in Nepal is not about prestige.

It is about strategy.

For most foreign investors, a private limited company offers greater flexibility, control, and cost efficiency during market entry.

Public companies serve specific capital-intensive industries.

If your priority is controlled expansion, regulatory clarity, and efficient repatriation, the private route is often the smarter starting point.

Frequently Asked Questions

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

Yes. FITTA 2019 permits 100% foreign ownership in many sectors, subject to minimum investment thresholds and approval procedures.

2. Is a public company mandatory for foreign investment?

No. Most foreign investors establish private limited companies unless sector regulations require public participation.

3. Which structure is better for dividend repatriation?

Both can repatriate dividends. The process depends on tax clearance and NRB banking compliance, not structure type.

4. Can a private company later become public?

Yes. Conversion is permitted under the Companies Act 2063 following shareholder approval and regulatory filings.

5. Do public companies pay lower tax in Nepal?

No. Corporate tax rates generally apply equally to private and public companies.

Conclusion

For foreign investors evaluating the Nepal investment landscape, the decision around Private vs public company in Nepal should align with capital strategy, governance control, and long-term expansion goals.

Private companies dominate foreign market entry for good reason.

Public companies serve capital-intensive growth models.

Make the decision strategically, not symbolically.