Private limited company vs proprietorship in Nepal: which to registerप्राइभेट लिमिटेड कम्पनी कि फर्म दर्ता: कुन रोज्ने?

Private limited company vs proprietorship in Nepal: a company protects your personal assets and can take investors, including foreign ones, but must hold an AGM and file an annual return every year. A proprietorship firm is cheaper and simpler to run, but you are personally liable for every debt of the business.

A partnership firm sits in between on paperwork and has the same weakness as a proprietorship: each partner is personally liable. Below we compare all three on the points that usually decide it, then match them to common situations.

What is the difference between a company and a firm?

A private limited company (प्राइभेट लिमिटेड कम्पनी) is a separate legal person under the Companies Act 2063. It owns its assets, signs its contracts and owes its own debts. Shareholders risk only the capital they have put in or agreed to put in.

A proprietorship firm (एकल स्वामित्व फर्म) is registered under the Private Firm Registration Act 2014. A partnership firm (साझेदारी फर्म) is registered under the Partnership Act 2020 on the basis of a partnership deed. In both, the firm and its owners are legally the same. If the business cannot pay, creditors can come after the owners' houses, land and savings.

Company or firm registration in Nepal: where you register

Every company registers with the Office of the Company Registrar (OCR) online through CAMIS. Proprietorship firm registration in Nepal (फर्म दर्ता) was moved out of the Department of Commerce, Supplies and Consumer Protection after federalism. In Bagmati Province, new private and partnership firms have been registered by the district Cottage and Small Industries Offices since February 2021. In some districts the municipality registers small trading firms under its own local law. Confirm the office for your district before you prepare papers.

Private limited company vs proprietorship in Nepal: side by side

How much does each cost and how long does it take?

OCR charges a registration fee based on the company's authorised capital: Rs 1,000 up to Rs 1 lakh, Rs 4,500 up to Rs 5 lakh, Rs 9,500 up to Rs 25 lakh and Rs 16,000 up to Rs 1 crore. Our registration fee tool works it out for any amount. Once the name is approved and documents are signed, OCR usually registers a company within a few working days.

Firm fees are set by the registering office and depend on the firm's capital and type. Firm registration is commonly done in about a week. The low starting cost is real, but compare what each form costs to run every year, not only on day one.

What do you have to file every year?

A company must file its initial details (सुरुवाती विवरण) within three months of registration. After that, every year it needs audited accounts, an AGM (or a sole shareholder's written decision) and the annual return to OCR by Poush end. That yearly work is called कम्पनी अद्यावधिक. Miss it and Section 81 fines start: for a company with paid-up capital up to Rs 25 lakh, Rs 1,000 up to three months late, rising to Rs 5,000 for each further year.

A firm has no AGM and no OCR return. It renews its registration with the office that registered it and files its income tax return with the Inland Revenue Office. If you register a company, our first 90 days service and annual AGM service cover these steps.

Is a company taxed differently from a firm?

Yes. A proprietor's business profit is added to the owner's other income and taxed at individual slab rates, and small businesses may fall under simpler turnover-based tax. A company pays tax on its own profit, generally at 25%, with lower rates for some sectors. Dividends paid to shareholders are taxed again. Which works out cheaper depends on your profit level, so get a tax view before you decide. Nexus Advisory Services handles tax planning and accounts at nexusadvisory.com.np.

Investors, bank loans and foreign investment

• Investors buy shares, so only a company can take an outside investor without making them a partner with unlimited liability.
• Banks lend to both. A company can pledge its own assets, but banks usually still ask directors for a personal guarantee on a loan, so limited liability gives less protection against bank debt than many owners expect.
• Foreign investment under FITTA 2075 is made by owning shares in a Nepali company. A proprietorship or partnership firm cannot receive an FDI approval. If a foreign partner is likely, start as a company. See foreign investment.

Selling, transferring or closing

A company outlives its owners. Shares can be sold or inherited, and OCR records the change. A proprietorship is tied to one person, so selling usually means selling its assets. A partnership needs every partner to agree to a change.

Closing is where a firm is simpler. A firm can cancel its registration once taxes are cleared. A company must first be up to date with OCR, then go through liquidation, which takes months.

Is there a one person company in Nepal?

Nepal has no separate one person company form, but the Companies Act lets a single person own a private limited company. You get limited liability with one shareholder, and the sole shareholder's written decision replaces the AGM meeting. The company still needs an audit and an annual return every year. For most solo founders with real risk or growth plans, this is the alternative to a proprietorship.

Which one fits you?

• Freelancer or consultant working alone with low risk: a proprietorship is usually enough. Move to a one-shareholder company when contracts or clients ask for one.
• Shop or small retail business: a proprietorship or partnership firm is common and cheap to run, as long as the debts you take on are small.
• Startup seeking investors: register a private limited company from day one. Investors want shares, and converting later costs more.
• Importer: a company limits your exposure on large supplier and customs bills and is easier to bank. A firm can import, but the risk is personal.
• Family business: a company lets each family member hold shares and pass them on, without making everyone personally liable.

You cannot convert a firm into a company with one filing. If you expect investors, foreign money or large contracts, registering a company first saves a second registration later.

Ready to start? Read our company registration guide, or see firm registration if a firm suits you better.

Questions people ask

General information, not legal advice. Rules change; we check the current position for your case before filing. Legal documents are drafted under the supervision of our retained, licensed advocate.