Choosing a Legal Form in Nepal

Why the form matters

Five legal forms are in practical use in Nepal. Two are companies, two are firms, and one is not a Nepali entity at all.

Most entrants choose between them in the first week, on the advice of whoever is handling the paperwork and on the basis of setup cost. Setup cost is the least important variable. The form fixes who bears the losses, whether outside money can come in without renegotiating everything, which regulator you answer to, and how much administration the business carries every year for the rest of its life.

The five forms

Form	Governing instrument	Owners	Liability	Registering body
Private limited company	Companies Act 2063 (2006)	1 to 101	Limited to unpaid share capital	Office of the Company Registrar
Public limited company	Companies Act 2063 (2006)	7 minimum, no ceiling	Limited to unpaid share capital	Office of the Company Registrar
Private firm (sole proprietorship)	Private Firm Registration Act 2014 (1958)	1	Unlimited, personal	Department of Industry or the relevant commerce office
Partnership firm	Partnership Act 2020 (1964)	2 or more	Joint and personal	Department of Industry or the relevant commerce office
Branch or liaison office	Companies Act 2063, Chapter on foreign companies	Not a separate entity	Falls on the foreign parent	Office of the Company Registrar

A sixth category exists: the company not distributing profit. It is a vehicle for associations and non-governmental activity rather than for trading, and it is barred from distributing dividends or paying money to members.

What the Companies Act requires

The Act allows any person to incorporate a company “either singly or jointly with others”. A one-shareholder private company is therefore ordinary in Nepal, and a single founder may adopt a standard form of articles rather than filing bespoke ones. The ceiling is 101 shareholders, raised from fifty by the First Amendment in 2074 (2017). Cross that line and the company stops being private.

For a public company the Act is prescriptive in a way the private form is not. It requires seven promoters, paid-up capital of at least NPR 10 million, a board of three to eleven directors including independent directors, and a prospectus filed publicly before any offer. Section 12 removes the choice altogether for certain businesses. Banking, financial transactions, insurance, securities business, pension funds and mutual funds must be public companies, as must telecommunications service providers above a stated capital level. For a business on that list the form question is already answered, and the only live decisions are timing and capital.

For a private company the Act leaves governance to the constitution. The appointment and number of directors “shall be as provided in its articles of association”: no statutory minimum, no independent director requirement, no fixed board size. That flexibility is the main reason foreign joint ventures use the private form even where the capital would comfortably support a public one.

Three standing restrictions apply to every private company. It may not sell shares or debentures publicly. It may not pledge or transfer its securities to a non-shareholder without following the procedure in the consensus agreement. And it may not open a partnership or private firm. A company cannot hold a proprietorship as a subsidiary vehicle.

Proprietorships and partnerships

The Private Firm Registration Act 2014 (1958) and the Partnership Act 2020 (1964) are both older than the modern regulatory state and read that way. They are short, cheap to comply with, and they give no liability shield at all.

The Partnership Act repays a closer look, because its sanction is unusual. Section 5 requires registration within six months of the partnership agreement, and provides that any act or business carried on by an unregistered firm “shall not get legal validity”. The Act also fines each partner up to NPR 50 for operating unregistered, a figure untouched in sixty years and now trivial. The fine is not the exposure. An unregistered firm’s contracts sit on uncertain ground, and its partners are jointly and personally liable for everything the firm has done while they were partners.

Firms suit single-operator trading and professional practices where the proprietor is the business. They make a poor container for anything that will take outside investment. There are no shares to issue, no register to record a transfer in, and no way to admit a passive owner without admitting a partner carrying full liability.

Foreign shareholding

Foreign investment in Nepal is approved at the level of the industry, under the Foreign Investment and Technology Transfer Act 2075 (2019), with the Department of Industry or the Investment Board approving depending on the project. The approval attaches to an enterprise that can be registered as an industry and can hold recorded equity. That means a company. The Office of the Company Registrar’s incorporation checklist expects a foreign founder to produce the investment permission issued under the relevant law before the company is registered.

The alternative for a foreign business that does not want a Nepali entity is a branch or liaison office under the foreign companies chapter of the Companies Act. That is a different legal animal with a different tax profile, and it is dealt with separately.

Fees and annual filings

Incorporation fees are one-off and modest. The Registrar’s schedule charges a private company NPR 1,000 up to NPR 100,000 of authorised capital, NPR 9,500 between NPR 500,001 and NPR 2.5 million, NPR 16,000 between NPR 2.5 million and NPR 10 million, and NPR 43,000 at the top of the published band structure, NPR 90 million to NPR 100 million. Above NPR 100 million the charge is NPR 30 per NPR 100,000. A public company starts at NPR 15,000 and reaches NPR 160,000 between NPR 400 million and NPR 500 million.

The fee is calculated on authorised capital, not on money actually subscribed. Registering a large authorised capital because it looks impressive, or to avoid a later increase, is paid for immediately.

The number that matters over a decade is the filing burden. Every company must lay audited accounts before the Registrar within six months of the end of the fiscal year, and file the general meeting return within thirty days of the meeting, both under section 80. Miss either and the fine accrues by paid-up capital band: NPR 1,000 for the first three months for a company under NPR 2.5 million, rising to NPR 5,000 for a company above NPR 10 million, and to NPR 20,000 for each subsequent year. A dormant company accrues them too.

Firms have no equivalent annual return to the Registrar. That is the honest commercial argument in their favour, and the reason a good deal of Nepali business sits in proprietorship form long after it has outgrown it.

Converting between forms

The Act provides for conversion between private and public status in both directions. The traffic runs one way. A private company that crosses the shareholder ceiling, or that decides to raise publicly, converts up. The accounting, board composition and disclosure obligations all ratchet in the same direction and do not comfortably unwind. Conversion is compulsory for a private company that starts doing regulated business, and existing companies in those sectors were given a two-year window when the Act came in.

Converting a firm into a company is not a conversion at all. It is the incorporation of a new entity and the transfer of the business into it, carrying whatever licence, lease, tax and contractual consequences that transfer brings. It is the decision to think hardest about at the outset, because it is the one that gets expensive later.

What is not covered here

It states no tax rates and says nothing about which form is cheaper to run after tax. Those rates are set by the Income Tax Act 2058 (2002) and adjusted annually by the Finance Act, and they belong on the tax pages. It does not say whether a particular activity is open to foreign investment, which is a question about the negative list rather than about legal form. And it leaves aside the local-level and sectoral permissions that sit on top of whichever form is chosen. A company certificate is the beginning of the permissions problem, not the end of it.

Sources

1. Companies Act, 2063 (2006), as amended to 2081.12.17

   Office of the Company Registrar / Government of Nepal · Authenticated 2063.7.24 (November 2006); consolidated text as amended 31 March 2025 · Tier 1 — Primary legal instrument

   Supports: That the Companies Act 2063 is in force in a consolidated version incorporating amendments to 2081.12.17 (31 March 2025).

   Accessed 26 August 2026

2. Companies Act, 2063 (2006) — sections 3, 8, 9, 10, 11 and 12 [unofficial reproduction, actnepal.com]

   Government of Nepal (English translation) · In force, as amended by the Companies (First Amendment) Act 2074 (2017) · Tier 6 — Professional or news source

   Supports: Incorporation singly or jointly; the 101-shareholder ceiling for private companies; seven promoters and NPR 10 million paid-up for public companies; limited liability; the bar on public offers by private companies; and the businesses that must take public company form.

   Accessed 26 August 2026

3. राजश्व / दस्तुर (Revenue and fee schedule)

   Office of the Company Registrar · Current as at 26 August 2026 · Tier 2 — Official publication

   Supports: Registration fee bands by authorised capital for private and public companies, the flat fee for a liaison office, and the late-filing fine bands by paid-up capital.

   Accessed 26 August 2026

4. Partnership Act, 2020 (1964) — sections 5, 26 and 41 [unofficial reproduction, nepalarchives.com]

   Government of Nepal (English translation) · Authenticated 16 November 2020 BS (28 February 1964); in force · Tier 6 — Professional or news source

   Supports: Compulsory registration within six months of the partnership agreement, joint and personal liability of partners, loss of legal validity for an unregistered firm's business, and the NPR 50 fine.

   Accessed 26 August 2026

5. The Industrial Enterprises Act, 2076 (2020) — sections 3, 4 and 43

   Government of Nepal (English translation) · Authenticated 2076.10.28 (11 February 2020); in force, as amended · Tier 1 — Primary legal instrument

   Supports: That no industry may be established or operated without registration, and the penalties for doing so, which apply regardless of the legal form chosen.

   Accessed 26 August 2026

6. Publication of Act to Amend Some Nepal Acts Relating to Improving Economic and Business Environment and Enhancing Investment 2081 (2025 A.D.)

   Pradhan, Ghimire & Associates · 2025 · Tier 6 — Professional or news source

   Supports: The 31 March 2025 authentication date of the omnibus amendment and the 90% remission of late-filing fines to 16 July 2025.

   Accessed 26 August 2026