Introduction
Venture capital (VC) and private equity (PE) funds have emerged as key drivers of innovation, startup growth, and foreign investment in Nepal. With the gradual development of Nepal’s entrepreneurial ecosystem, both domestic and foreign investors are increasingly interested in establishing VC and PE funds.
This article provides a comprehensive legal overview of venture capital registration in Nepal, including the governing laws, regulatory authorities, eligibility requirements, capital thresholds, registration procedure, and compliance obligations.
Legal Framework Governing VC and PE Funds in Nepal
Governing Laws
The operation and regulation of Venture Capital and Private Equity (PEVC) funds in Nepal are primarily governed by:
- Foreign Investment and Technology Transfer Act, 2075 (2019)
- Specialized Investment Fund Rules, 2075 (2019)
- Companies Act, 2063 (2006)
- Securities Act, 2063 (2007)
- Industrial Enterprises Act, 2076 (2020)
- Income Tax Act, 2058 (2002)
The Securities Board of Nepal (SEBON) is the principal regulatory authority overseeing PEVC funds.
Definition of Venture Capital and Private Equity Fund
Under the Specialized Investment Fund Rules, 2075:
Private Equity Fund
A fund that injects equity or equity-linked instruments into companies in accordance with the objectives and agreement of its partners.
Venture Capital Fund
A fund that invests equity capital in early-stage, innovative, or unlisted businesses engaged in new products, services, technology, skills, intellectual property, or innovative business models.
Is Venture Capital Legal in Nepal?
Yes. Venture capital and private equity investments are fully legal in Nepal. The Government of Nepal formally recognizes PEVC funds as a category of investment and allows both domestic and foreign investors to establish and operate such funds, subject to regulatory approval.
Foreign Investment in Venture Capital Funds
Investment in VC and PE funds is expressly recognized as foreign investment under the Foreign Investment and Technology Transfer Act, 2075.
Foreign institutional investors may:
- Establish a VC or PE fund in Nepal
- Hold 100% ownership
- Invest equity in permitted sectors
However, foreign investors must obtain:
- Foreign Investment Approval from the Department of Industry (DoI) or Investment Board Nepal (IBN), and
- Registration and licensing from SEBON
Capital Requirements
| Category | Minimum Paid-Up Capital |
|---|---|
| Domestic VC/PE Fund | NPR 50 million |
| Foreign-Invested VC/PE Fund | NPR 100 million |
| Fund Manager Company | NPR 20 million |
| Investment Company (General) | NPR 1 billion |
| Minimum Fund Size | NPR 1.5 billion |
Additional requirements:
- Close-ended fund structure
- Maximum 200 unit holders
- Unit holders may invest up to NPR 50 million each
- Cash dividend distribution only
Qualification of Fund Manager
A fund manager must:
- Be a corporate body incorporated under Nepali law
- Include fund management as a primary objective in its MOA and AOA
- Maintain a minimum paid-up capital of NPR 20 million
- Have promoters, directors, and executives with no criminal conviction involving fraud or moral turpitude
- Not be blacklisted by the Credit Information Bureau
- Maintain proper systems for securities trading, record keeping, and disclosure
Constitution Requirements of a PEVC Fund
The fund constitution must include:
- Name and type of fund
- Fund size and tenure
- Investor commitments (minimum 10% promoter contribution)
- Investment strategy and targeted sectors
- Profit distribution and hurdle rate
- Fund management fees
- Repatriation provisions
- Record keeping, audit, and compliance
- Dispute resolution mechanism
- Winding-up provisions
- Any additional requirements prescribed by SEBON
Eligible Investors in VC and PE Funds
The following entities may invest in VC and PE funds in Nepal:
- Banks and financial institutions
- Insurance companies
- Pension, provident, and welfare funds
- Citizen Investment Trust
- Bilateral and multilateral institutions
- Domestic and foreign corporate investors
- Nepali citizens and Non-Resident Nepalis (NRNs)
- Other investors approved by SEBON
Step-by-Step Venture Capital Registration Process in Nepal
1. Company Incorporation
- Register a Private Limited Company at the Office of Company Registrar (OCR)
- MOA must clearly include venture capital and investment management activities
2. Foreign Investment Approval (If Applicable)
- Apply to DOI or IBN
- Obtain FDI approval under FITTA, 2075
3. SEBON Registration
- Apply for registration as a Fund Manager
- Submit investment policy, management details, capital proof, and compliance documents
4. Tax Registration
- Obtain PAN/VAT registration from the Inland Revenue Department
5. Bank Account and NRB Compliance
- Open local bank account
- Comply with Nepal Rastra Bank (NRB) foreign exchange regulations
Required Documents (Foreign Investors)
- Project report and business plan
- Certificate of Incorporation
- MOA and AOA (notarized and translated)
- Joint Venture Agreement (if applicable)
- Passport copies of promoters/directors
- Financial Credibility Certificate (FCC)
- SEBON application forms and disclosures
Registration Timeline
The complete process typically takes 3 to 6 months, depending on:
- Completeness of documentation
- Foreign investment approval timeline
- SEBON review process
Fees and Government Charges
| Particulars | Estimated Cost |
|---|---|
| Company Registration | NPR 15,000 – 25,000 |
| SEBON License Fee | NPR 500,000 – 1,000,000 |
| Fund Manager Registration | NPR 300,000 (one-time) |
| Annual Renewal Fee | NPR 150,000 |
| Professional & Legal Fees | Case-specific |
Duties and Ongoing Compliance of Fund Manager
Fund managers must:
- Notify SEBON of changes in MOA/AOA within 15 days
- Report appointment of directors or CEO
- Disclose blacklisting status immediately
- Submit periodic reports and disclosures
- Comply with audit, AML, and KYC requirements
Conclusion
Venture capital and private equity funds are legally recognized and increasingly encouraged in Nepal. While the registration process involves multiple regulatory approvals and compliance requirements, it offers significant opportunities for investors seeking exposure to Nepal’s growing startup and innovation ecosystem.