---
slug: pvt-ltd-vs-firm-vs-proprietorship-nepal
title: "Pvt Ltd, partnership or proprietorship: what actually changes after you choose"
h1: "Choosing a business structure in Nepal — what actually changes"
meta_description: "The structure you register decides your liability, your tax rate, your compliance burden and whether you can ever take investment. Here is what really differs between the three."
focus_keyword: "private limited vs proprietorship Nepal"
secondary_keywords: "company registration Nepal, business structure Nepal, OCR registration, partnership firm Nepal"
category: starting-up
status: draft
schema_type: Article
review_due_on: "annually"
---

Most people choose a business structure on the basis of one sentence someone told them — usually "a private limited looks more professional" or "a firm is cheaper." Both are true and neither is the point. The structure decides four things that will shape the business for years, and changing it later is expensive and disruptive.

Here is what actually differs.

## 1. Whether your personal assets are at risk

This is the difference that matters most and gets discussed least.

In a **proprietorship**, there is no separation between you and the business. The business's debts are your debts. If it fails owing money, creditors can pursue your personal assets — your savings, your property. There is no wall.

In a **partnership firm**, partners carry liability for the firm's obligations, and depending on the form and what the partners have agreed, that exposure can extend well beyond what any one partner put in — including for obligations another partner created.

In a **private limited company**, the company is a legal person distinct from you. Its debts are its own. Your exposure is generally limited to what you agreed to put in as capital.

That protection is real, but it is not absolute. It falls away where you have personally guaranteed a loan — which banks routinely require from directors of small companies — and it will not shield you from the consequences of your own wrongdoing. Still, for a business carrying stock, employing staff, taking customer advances or signing leases, the difference between "the business owes it" and "I owe it" is the single most consequential choice on this list.

## 2. How you are taxed, and it is not simply "which rate is lower"

A proprietorship's income is your income. It is taxed at the rates applying to a natural person, which are progressive — low at first, rising as income rises. At modest profit levels this is genuinely favourable.

A company is taxed at a corporate rate, applied flat from the first rupee. There is no low starting band.

The trap is comparing only those two numbers. What actually decides it is **what happens when you take the money out**. A proprietor's profit is already theirs; drawing it is not a further taxable event. Extracting profit from a company is a separate transaction with its own tax consequences.

So the comparison depends on how much you earn, and on how much of it you need in your own hands rather than reinvested in the business. A business retaining most of its profit to grow, and one distributing everything to its owner, can reach opposite conclusions on identical revenue.

This is worth modelling on your actual numbers before you register, not after.

## 3. What you have to do every year, forever

The compliance load differs sharply, and it is a recurring cost in both money and attention.

A **proprietorship** is the lightest: income tax filings, VAT if registered, TDS if you deduct, and local renewals.

A **partnership firm** adds the firm's own registration and renewals, and whatever the partnership deed requires between partners.

A **private limited company** carries the most: everything above, plus company law obligations — maintaining statutory registers, holding an annual general meeting, filing annual returns with the registrar, reporting changes in directors or shareholding, and having accounts audited.

None of it is difficult. All of it is mandatory, and penalties accrue quietly for missed filings that nobody noticed at the time. A company left dormant and unfiled for three years is a much bigger problem to fix than three years of doing it properly would have cost.

## 4. Whether the business can ever raise money or be sold

If you might one day take investment, bring in a partner, or sell the business, a company is the structure that supports it.

Shares can be issued, transferred, valued and pledged. Ownership can be split, diluted and documented. A proprietorship cannot do any of that — it *is* you, so the only thing to sell is the assets. Converting later is possible but means transferring assets, renegotiating contracts and permits, and dealing with the tax consequences of the transfer.

If external money or an eventual exit is anywhere in the plan, that argues strongly for a company from the start.

## A practical way to decide

Ask four questions honestly:

1. **Could this business owe more than I can personally afford to lose?** Stock, staff, leases, advances, credit — if yes, the liability wall matters and points to a company.
2. **Will I take the profits out, or leave them in to grow?** Taking everything out favours simpler structures; retaining and reinvesting often favours a company.
3. **Will I bring anyone in — a partner, an investor, a buyer?** If yes, a company.
4. **Will I actually keep up the filings?** If the honest answer is that nobody will manage it, a lighter structure genuinely well-run beats a company quietly accumulating defaults.

Then run the tax comparison on your own projected numbers rather than on a general rule.

## Frequently asked

**Can I convert a proprietorship into a company later?** Yes, but it involves transferring assets and contracts, re-registering permits and dealing with the tax consequences. It is far easier to start in the right structure.

**Is a private limited company always more expensive to run?** It carries more compliance, so yes in direct cost. Whether it is more expensive overall depends on the tax outcome and the value of limited liability in your situation.

**Do I need an auditor for a proprietorship?** Audit requirements depend on the entity's type and size. A company has a statutory audit requirement; other entities may face requirements based on turnover thresholds.

**How many people do I need to start a company?** The minimum number of shareholders and directors is set by company law, and a single-shareholder private company is possible in appropriate circumstances. Confirm the current requirement before you file.

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*Registration requirements, tax rates and thresholds change. This article explains the trade-offs; confirm the current figures and requirements before registering.*
