Overview of Company Types in Nepal
Nepal recognizes two primary categories of limited companies under the Companies Act, 2063 (2006). Private limited companies and public limited companies operate under distinct legal frameworks established by Nepali law. The Companies Act, 2063 defines the structural requirements, operational procedures, and regulatory obligations for each company type. Understanding these differences helps entrepreneurs and investors make informed decisions about business registration and corporate governance in Nepal.
Definition and Legal Framework
Private Limited Company
A private limited company in Nepal is a business entity with limited liability where shares are held privately and cannot be offered to the general public. According to the Companies Act, 2063, a private limited company must have a minimum of two shareholders and a maximum of fifty shareholders. The company name must end with “Private Limited” or “Pvt. Ltd.” to indicate its status. Private limited companies restrict share transferability and maintain confidentiality in their operations.
Public Limited Company
A public limited company in Nepal is a business entity where shares can be offered to the general public through stock exchanges. Under the Companies Act, 2063, a public limited company requires a minimum of seven shareholders. The company name must end with “Limited” or “Ltd.” to denote its public status. Public limited companies must list on the Nepal Stock Exchange (NSE) and comply with Securities Board of Nepal (SEBON) regulations.
Key Differences Between Private and Public Limited Companies
AspectPrivate LimitedPublic LimitedMinimum Shareholders2 shareholders required7 shareholders requiredMaximum Shareholders50 shareholders maximumUnlimited shareholdersShare TransferabilityRestricted and requires approvalFreely transferable on stock exchangePublic OfferingCannot offer shares to publicCan offer shares to general publicStock Exchange ListingNot requiredMandatory listing on NSERegulatory OversightModerate compliance requirementsStringent SEBON regulationsDisclosure RequirementsLimited financial disclosureComprehensive public disclosureMinimum CapitalAs per Articles of AssociationMinimum Rs. 10 million (as per SEBON)Board of DirectorsMinimum 2 directorsMinimum 3 directorsAnnual General MeetingRequired but less formalMandatory with public participation
Regulatory Requirements Under Nepal Law
Private Limited Company Requirements
Private limited companies must comply with specific provisions outlined in the Companies Act, 2063. The company must maintain a registered office within Nepal and file annual financial statements with the Office of the Company Registrar. Private limited companies require a minimum of two directors and must hold an annual general meeting within six months of the financial year-end. The company must maintain a register of members and keep detailed records of share transfers.
Public Limited Company Requirements
Public limited companies face more stringent regulatory requirements under both the Companies Act, 2063 and Securities Board of Nepal regulations. These companies must list on the Nepal Stock Exchange and comply with SEBON’s Corporate Governance Guidelines. Public limited companies must file quarterly and annual financial statements with both the Company Registrar and SEBON. The company must maintain transparency in all material transactions and disclose information to shareholders and the public regularly.
Share Transfer and Ownership Restrictions
Private Limited Company Share Transfer
Share transfer in private limited companies requires approval from the board of directors or shareholders as specified in the Articles of Association. The Companies Act, 2063 permits private limited companies to impose restrictions on share transferability. Existing shareholders often have pre-emptive rights to purchase shares before external parties. This restriction protects the company’s control and maintains the original shareholders’ interests.
Public Limited Company Share Transfer
Share transfer in public limited companies occurs freely on the Nepal Stock Exchange without requiring board approval. Shareholders can sell their shares to any buyer through the stock exchange platform. The transfer process is automated and regulated by NSE and SEBON. This liquidity attracts investors seeking flexible investment opportunities.
Compliance and Reporting Obligations
Compliance AreaPrivate LimitedPublic LimitedAnnual Financial StatementsRequired within 6 monthsRequired within 4 monthsAudit RequirementMandatory if turnover exceeds thresholdMandatory for all companiesQuarterly ReportsNot requiredRequired to SEBONDirector's ReportRequired annuallyRequired with detailed disclosuresRelated Party TransactionsDisclosed in notesDisclosed with board approval detailsCorporate Governance CodeBasic complianceFull SEBON guidelines compliancePublic DisclosureMinimal requirementsComprehensive public disclosure
Capital Requirements and Funding
Private Limited Company Capital
Private limited companies determine their capital requirements based on their Articles of Association and business needs. The Companies Act, 2063 does not prescribe a minimum capital amount for private limited companies. Capital can be raised through private investment from shareholders. The company can retain earnings and reinvest profits without public disclosure obligations.
Public Limited Company Capital
Public limited companies must maintain a minimum capital of Rs. 10 million as per SEBON regulations. Additional capital can be raised through public offerings on the Nepal Stock Exchange. Public limited companies must comply with SEBON’s guidelines on capital adequacy and dividend distribution. The company must maintain transparent records of all capital transactions.
Governance Structure and Management
Private Limited Company Governance
Private limited companies require a minimum of two directors as per the Companies Act, 2063. The board structure remains flexible and can be tailored to the company’s needs. Directors are typically shareholders or trusted individuals selected by existing shareholders. The company can operate with minimal formal governance procedures if specified in the Articles of Association.
Public Limited Company Governance
Public limited companies must have a minimum of three directors as per the Companies Act, 2063. SEBON’s Corporate Governance Guidelines mandate the appointment of independent directors. The board must establish audit committees and remuneration committees. Public limited companies must follow formal governance procedures and maintain detailed board meeting minutes.
Advantages and Disadvantages
Private Limited Company Advantages
- The company maintains privacy and confidentiality in financial matters.
- Shareholders retain greater control over company decisions and operations.
- The company faces fewer regulatory compliance burdens compared to public companies.
- Share transfer restrictions protect the company from unwanted external ownership.
- The company can operate with lower administrative costs and simpler procedures.
Private Limited Company Disadvantages
- The company cannot raise capital through public share offerings.
- Share liquidity remains limited due to transfer restrictions.
- The company faces difficulty attracting external investors.
- Shareholders cannot easily exit their investments.
- The company may struggle to achieve rapid expansion.
Public Limited Company Advantages
- The company can raise substantial capital through public share offerings.
- Shares are liquid and easily tradable on the Nepal Stock Exchange.
- The company gains credibility and public recognition.
- Shareholders can easily exit investments by selling shares.
- The company can pursue aggressive expansion strategies.
Public Limited Company Disadvantages
- The company faces stringent regulatory compliance requirements.
- Shareholders’ privacy is compromised through public disclosure.
- The company incurs higher administrative and compliance costs.
- Management decisions face scrutiny from public shareholders.
- The company must maintain transparency in all material transactions.
Registration Process Comparison
Private Limited Company Registration Steps
Step 1: Prepare the Memorandum of Association and Articles of Association according to the Companies Act, 2063.
Step 2: Submit the registration application to the Office of the Company Registrar with required documents and fees.
Step 3: Obtain approval from the Company Registrar within the specified timeframe.
Step 4: Receive the Certificate of Incorporation from the Company Registrar.
Step 5: Register with the Inland Revenue Department for tax purposes.
Step 6: Obtain necessary licenses and permits from relevant authorities.
Public Limited Company Registration Steps
Step 1: Prepare comprehensive Memorandum of Association and Articles of Association complying with SEBON guidelines.
Step 2: Submit registration application to the Company Registrar with all required documents.
Step 3: Obtain approval from the Company Registrar.
Step 4: Receive the Certificate of Incorporation.
Step 5: Apply for listing approval from the Nepal Stock Exchange.
Step 6: Obtain SEBON approval for public share offering.
Step 7: Complete the listing process on NSE.
Frequently Asked Questions
What is the minimum number of shareholders required for a private limited company in Nepal?
A private limited company in Nepal requires a minimum of two shareholders as per the Companies Act, 2063. The maximum number of shareholders is limited to fifty individuals or entities.
Can a private limited company convert to a public limited company?
Yes, a private limited company can convert to a public limited company by following the conversion procedure outlined in the Companies Act, 2063. The company must obtain shareholder approval and comply with SEBON regulations.
What are the annual compliance requirements for public limited companies in Nepal?
Public limited companies must file annual financial statements within four months of the financial year-end, submit quarterly reports to SEBON, conduct mandatory audits, and hold annual general meetings with public shareholders.
Are private limited companies required to list on the Nepal Stock Exchange?
No, private limited companies are not required to list on the Nepal Stock Exchange. Only public limited companies must list on NSE to comply with the Companies Act, 2063 and SEBON regulations.
What is the minimum capital requirement for a public limited company in Nepal?
Public limited companies must maintain a minimum capital of Rs. 10 million as per SEBON regulations. This requirement ensures financial stability and investor protection.
Axion Partners: Nepal’s Leading Service Provider
Axion Partners stands as the best and number one service provider in Nepal for private limited and public limited company registration, compliance, and governance services. The firm provides comprehensive assistance in company formation, regulatory compliance, and corporate governance matters under Nepal’s Companies Act, 2063. Axion Partners offers expert guidance on selecting the appropriate company structure based on business objectives and financial requirements. The team ensures full compliance with SEBON regulations for public limited companies and maintains updated knowledge of all amendments to Nepal’s corporate laws. Axion Partners delivers timely and accurate services for company registration, annual compliance filing, and corporate restructuring matters.
Conclusion
Private limited and public limited companies operate under distinct legal frameworks in Nepal as established by the Companies Act, 2063. Private limited companies offer privacy and operational flexibility with restricted share transferability and limited shareholders. Public limited companies provide access to public capital markets with stringent regulatory oversight and mandatory stock exchange listing. Entrepreneurs must carefully evaluate their business objectives, capital requirements, and growth plans before selecting the appropriate company structure. Professional guidance from experienced service providers ensures compliance with all legal requirements and optimal corporate governance practices.
