Business Structures in Pakistan

Before you jump into the large ocean of business, you must decide on the business structure that suits you the most. There are different business structures available, almost identical with minor variation in nomenclature, throughout the world. In this post, we will throw light upon the business structures available in Pakistan.

Sole Proprietorship Business Structure

Sole proprietorship is an incorporated business that is owned by single person. This is the most common business model in Pakistan.

In this business model, there is single owner and business is directly associated with the owner. Owner is all in all in decision making and solely responsible for the profit, loss, assets and liabilities of the business. Such form of business has no separate legal entity.

Sole proprietorship is a best model for starting a business at small scale and keep decision making in one hand. For instance, small retail store, service businesses, professional practices in law, medicine and accounting etc.

From legal view point, the business and its owner are not regarded as separate entities. Therefore, the owner is personally liable for the debts of the business .

If the business runs into financial difficulties, creditors can force the owner to sell his/ her personal assets to pay off the business debts.

Benefits of Sole Proprietorship

Sole Proprietorship has many benefits some of which are:

Sole Proprietorship is the easiest and simplest way to do business in Pakistan.
The registration process is very fast apart from being simple.
There is no legal difference between the business and the owner; therefore, shareholders and / or board of directors are not needed to run the business.
The owner has all the powers and he/she is not accountable to anyone; hence decision making is easy and fast.
As compared to a private limited company, very few lawful regulations and compliances are required to be followed.
Since the income of business and the owner is the same, hence income tax is to be paid on yearly basis.

Limited Liability Partnership

Limited Liability Partnership (LLP) may be defined as a written accord between partners of limited liability partnership. This written accord or agreement determines mutual rights and duties of the partners and their corresponding rights and duties to the business. Limited Liability Partnership Act, 2017 and the Limited Liability Partnership Regulations, 2018 governs this form of business.

Number of Members of LLP

Two or more persons can join together to carry on a lawful business in order to gain profit. They can form Limited Liability Partnership by subscribing their names to documents required for incorporation of LLP. It is pertinent to mention that a company or body corporate can also become a partner in LLP.

Where is the Business Incorporated?

The business is incorporated with Securities and Exchange Commission of Pakistan (SECP). Two or more persons voluntarily acting as partners or Co-owners own the business. SECP acts as regulator.

Requirements for Incorporation

What do you need for incorporation? In order to incorporate an LLP, you need to decide on the following points:-

A suitable Name of Business.
Principle Line of Business.
Registered Office Address.
Number of partners
Share of Contribution of each partner.
Designated Partner(s), if any. Designated Partner is a person who is responsible for doing all acts required to be performed by LLP in compliance of the provisions of LLP Act. Designated partner has to be an individual and resident Pakistani.
LLP Agreement that defines the terms and conditions of the partnership. Operations of LLP are administered in reference to this agreement.
Copies of National Identity Card of all partners and of designated partners.
Consent of designated partner (if any).
Application Form for reservation of name and incorporation of LLP prescribed through Limited Liability Partnership Regulations, 2017.

Private Limited Company

A private limited company is a corporation which is managed by the shareholders. Generally, shareholders/members appoint directors to run the affairs of the company.

These are typically small to medium sized businesses. Private Limited company is not permitted to offer share to public.

If some partner is desirous of disposing off his/her shares, first right of purchase is of the existing shareholders of the company. If no shareholder is willing to purchase the offered shares, only then such shares can be sold to some outside person.

As per prevalent laws, shares of private limited company are can not traded on stock exchange.

The financial statements of a private limited company are confidential from public.

The Financial statements are required to be audited by either chartered accountant or cost and management accountant. However, It depends upon the paid up capital of the company.

Liability of shareholders is limited to the contributed capital or shareholding.

In a private limited company, maximum 50 and minimum 2 members are permitted.

Minimum capital required is only Pakistan Rupees (PKR) One Hundred Thousand.