Private Company vs Public Company in Nepal — Key Differences

Private Company

A private company can be incorporated with: one shareholder

The ordinary private-company maximum is 101 shareholders under section 9(1). Section 9(3) excludes the qualifying employee-share-plan holders described there from that count; the current amended provision and company facts should be checked when applying the maximum.

A single-shareholder private company is expressly recognised.

Private companies are therefore suitable for:

• family businesses;

• professional businesses where permitted;

• startups;

• closely held investments;

• joint ventures;

• subsidiaries.

Public Company

A public company generally requires at least: 7 founders/shareholders and can have any greater number of shareholders.

The Companies Act provides an exception where one public company incorporates another public company under the circumstances specified by the Act.

Minimum Paid-up Capital

For a public company, the Companies Act ordinarily requires minimum paid-up capital of: NPR 10,000,000

unless:

• another prevailing law; or

• Government Gazette notification

requires a higher level.

Regulated sectors can require substantially higher capital.

A private company does not have the same general NPR 10 million statutory minimum under Section 11.

Some Businesses Must Be Public Companies

Section 12 requires specified businesses to operate as public companies.

The statutory categories include activities such as:

• banking;

• financial business;

• insurance;

• securities-market business;

• pension funds;

• mutual funds;

• telecom service providers above the specified paid-up-capital threshold;

• other prescribed businesses.

Therefore company type should be determined after reviewing the sector law, not simply based on founder preference.

Public Offering

A private company cannot openly offer its:

• shares; or

• debentures

to the public.

The Companies Act expressly prohibits open sale of private-company shares/debentures.

A public company may raise capital publicly subject to:

• Companies Act;

• SEBON;

• securities law;

• prospectus approval/registration;

• other requirements.

Transfer of Private-company Shares

Private-company securities are more restricted.

Transfer should follow:

• Companies Act;

• AOA;

• unanimous/shareholder agreement where applicable;

• internal transfer procedures;

• OCR registration requirements.

A private company's shares should not be treated like freely traded listed securities.

Commencement of Business

Private company

A private company generally needs no separate OCR commencement approval after incorporation, but it must obtain any licence required for the activity.

Public company

A newly incorporated public company normally needs commencement approval under section 63. Founder-payment evidence and the applicable minimum capital must be established. The current proviso exempts an already operating private company that converts to public from obtaining fresh commencement approval.

Prospectus

A private company generally does not require a prospectus.

Before publicly issuing securities, a public company must satisfy the applicable prospectus and securities-law requirements, including SEBON approval where required and OCR record procedures.

General Meetings

Public-company meeting requirements are more prescriptive.

OCR guidance states that a public company normally gives:

• at least 21 days' notice for an AGM;

• at least 15 days' notice for a Special General Meeting,

along with the statutory publication requirements.

Private-company meeting procedure is governed substantially by:

• Companies Act;

• Articles of Association;

• applicable unanimous agreement.

Public Company Quorum

Under section 73(2), an ordinary public-company general meeting requires representation of more than 50% of allotted shares and at least three shareholders, personally or by representative, unless the articles require a higher quorum.

Where the first meeting fails for lack of quorum, section 73(3) permits the reconvened meeting after at least seven days’ notice with at least 25% of allotted shares and three shareholders. Section 73(4) removes the three-person requirement for its specified company categories. Private-company quorum is governed by its articles.

Independent Director / Governance

Public companies face additional governance obligations, including statutory requirements concerning directors and, where applicable:

• independent directors;

• audit committee;

• prospectus;

• public disclosures.

Private companies ordinarily have more flexibility subject to their Articles and the Companies Act.

Annual Compliance

Both private and public companies must maintain:

• books;

• annual financial statements;

• audit;

• corporate records;

• OCR filings.

However, public companies generally carry greater:

• disclosure;

• meeting;

• governance;

• securities-related

obligations.

Which Company Type Is Better?

Private company may be preferable where:

• ownership will remain closely held;

• no public fundraising is planned;

• sector law permits a private company;

• flexible governance is desirable.

Public company may be required/preferable where:

• the business legally requires public-company form;

• securities will be offered to the public;

• broad investor ownership is planned;

• capital-market listing is intended.

Decision Checklist

• Number of founders

• Expected future shareholders

• Regulatory sector

• Public fundraising planned?

• SEBON/listing planned?

• Required paid-up capital

• Foreign investor?

• Governance capacity

• Disclosure requirements

• Exit/share-transfer strategy

Common Errors

Creating a private company for a sector that legally requires public-company form

Assuming every public company is listed on NEPSE

Assuming public company means Government-owned company

Treating private-company shares as freely transferable

Ignoring minimum capital requirements

Further guidance and practical checks

Private versus public company is a legal and capital-structure decision, not merely a naming choice. The intended sector, financing strategy and ownership plan should be considered before incorporation.