Why Most Startups in Nepal Choose Private Companies Over Public

When evaluating Private vs public company in Nepal, most foreign founders arrive with the same question: Why do nearly all startups in Nepal register as private companies instead of public ones?

The answer is not ideological. It is structural, regulatory, and commercial.

Nepal’s corporate framework strongly favours private limited companies for early-stage ventures, foreign subsidiaries, and market-entry operations. Public companies serve a different purpose entirely. Understanding this distinction is essential before committing capital, timelines, or governance structures.

This guide provides the most authoritative, practical explanation available, written specifically for foreign companies planning to enter Nepal.

Nepal’s Corporate Landscape at a Glance

Nepal legally recognizes two main company structures under the Companies Act, 2006:

• Private Limited Company

• Public Limited Company

Both are valid. Both offer limited liability. But they are designed for very different stages of business maturity.

From an investor’s perspective, choosing incorrectly can add unnecessary cost, delay approvals, and expose founders to avoidable compliance risk.

What Is a Private Company in Nepal?

A private limited company in Nepal is the default structure for:

• Startups

• Foreign-owned subsidiaries

• Market-entry vehicles

• Operating companies with a limited shareholder base

Core characteristics

• Minimum shareholders: 1

• Maximum shareholders: 50

• No public share issuance

• Shares are not freely transferable

• Lower disclosure and reporting burden

Private companies dominate Nepal’s startup ecosystem because they are designed for operational efficiency, not capital markets.

What Is a Public Company in Nepal?

A public limited company is designed for businesses that intend to:

• Raise capital from the public

• List shares in the future

• Operate at national or infrastructure scale

Core characteristics

• Minimum shareholders: 7

• No maximum shareholder limit

• Mandatory public disclosures

• Stricter governance and audit requirements

• Higher regulatory oversight

Public companies are rare among startups because they impose obligations that make sense only at scale.

Private vs Public Company Nepal: Structural Comparison

This structural reality explains why foreign founders overwhelmingly choose private companies when comparing private vs public company Nepal.

Why Startups in Nepal Prefer Private Companies

1. Faster incorporation and approvals

Private companies can be incorporated in weeks. Public companies often take months due to layered approvals and compliance reviews.

For foreign investors operating under fixed launch timelines, speed matters.

2. Lower compliance cost

Public companies must comply with:

• Enhanced audits

• Public disclosures

• Shareholder reporting

• Governance committees

Private companies avoid most of these obligations during early growth.

3. Founder control and flexibility

Private structures allow:

• Shareholder agreements tailored to founders

• Controlled equity transfers

• Easier restructuring

This flexibility is essential for startups that expect pivots or phased capital injection.

Foreign Investment Perspective: What Really Matters

For foreign companies, the private vs public company Nepal decision is not academic. It directly affects:

• Foreign Direct Investment (FDI) approval timelines

• Capital repatriation planning

• Tax compliance

• Exit optionality

Most FDI approvals in Nepal are issued for private limited companies, not public ones.

Regulatory Reality: Disclosure and Transparency

Public companies must publish:

• Financial statements

• Annual reports

• Shareholding changes

Private companies submit filings to regulators but do not disclose them publicly.

For foreign founders concerned about competitive confidentiality, private companies provide a clear advantage.

Governance Requirements Compared

Private company governance

• Board as defined in Articles

• No mandatory independent directors

• Internal decision-making autonomy

Public company governance

• Mandatory board composition rules

• External audits with expanded scope

• Statutory meetings and disclosures

Governance overhead is one of the strongest arguments against public registration at the startup stage.

Capital Raising: A Common Misconception

Many founders assume public companies are necessary to raise capital. In Nepal, this is rarely true for startups.

Private companies can raise funds through:

• Private equity

• Strategic investors

• Intercompany funding

• Shareholder loans

Public capital markets are typically relevant only after years of stable operations.

Taxation: No Advantage to Going Public Early

Corporate tax rates apply equally to private and public companies. There is no startup tax advantage to public registration.

What differs is compliance cost, not tax exposure.

When a Public Company Actually Makes Sense

A public company may be appropriate if:

1. The business plans public fundraising within Nepal

2. Shareholder count will exceed 50

3. Regulatory visibility is strategically beneficial

For most foreign startups, none of these apply in the first several years.

Conversion Is Possible Later

Importantly, Nepal allows conversion from private to public when business maturity justifies it.

This means founders can:

• Start private

• Scale operations

• Convert only when required

This phased approach minimizes early-stage risk.

Private vs Public Company Nepal: Decision Framework for Foreign Founders

Ask these questions:

1. Are you raising money from the public now?

2. Do you need more than 50 shareholders?

3. Are you prepared for public disclosures?

If the answer is no, a private company is almost always the correct choice.

Key Advantages Summarized

Why private companies dominate Nepal’s startup ecosystem

• Faster setup

• Lower regulatory friction

• Founder-friendly governance

• Better suited for foreign ownership

• Easier compliance management

Common Mistakes Foreign Companies Make

• Over-structuring too early

• Choosing public status “for credibility”

• Underestimating compliance cost

• Ignoring conversion flexibility

Each of these mistakes increases operational risk without commercial benefit.

The Strategic Bottom Line

When evaluating private vs public company Nepal, the conclusion is clear.

Private companies are not a compromise. They are the strategic default for startups and foreign investors.

Public companies are tools for capital markets. Startups need tools for execution.

Frequently Asked Questions

Is a private company legal for foreign ownership in Nepal?

Yes. Foreign investors commonly register private limited companies for FDI-approved operations.

Can a private company later become public in Nepal?

Yes. Conversion is permitted once regulatory and shareholder requirements are met.

Does a public company give more credibility in Nepal?

Not for startups. Credibility comes from compliance and execution, not public status.

Are compliance costs higher for public companies?

Significantly higher due to audits, disclosures, and governance obligations.

Which structure is recommended for foreign startups?

A private limited company is almost always recommended at entry stage.