Corporate and Tax Law Experts

Types of Business Structures in Pakistan

To start with, we will discuss the different business structures available for entrepreneurs and businesspersons in Pakistan. 

These include:

Non-Corporate Structures

1. Sole Proprietorship
2. General Partnership or Association of Persons (AOP)

Corporate Structures

3. Limited Liability Partnership (LLP)
4. Single Member Company (SMC Private Limited)
5. Private Limited Company (PLC)
6. Public Limited Company (Not being discussed in this article)

Sole proprietorship is registered with the Federal Board of Revenue and the General Partnership is registered with the Registrar of Firms in your respective city/district. 

The corporate structures (LLP, SMC, PLC, and Public Limited Company) are registered with the Securities and Exchange Commission of Pakistan (SECP).

1. Sole Proprietorship

Sole proprietorship is the simplest form under which an individual can conduct a business. It is not a separate legal entity and responsibility of liabilities and debt rest with the proprietor. 

Sole Proprietor pays the taxes on his personal income. 

2. Partnership (AOP)

Partnership or Association of Persons is another simple business structure. It works just like the sole proprietorship but with multiple partners. Partners enter into a simple agreement that lists their respective shares and terms of doing business. 

Partnership is not a legal entity and all liability rests with partners. Income of the partnerships is taxed only once and partners are not required to pay tax on salaries or profits drawn by them. 

3. Limited Liability Partnership (LLP)

In contrast to a General Partnership or an Association of Persons (AOP), the LLP is a separate legal entity and provides protection to other partners from joint liability created by the misconduct of another partner. 

This business structure combines the advantages of Limited Liability Company and the flexibility of a general partnership (regulated under Partnership Act, 1932) at a low compliance cost. 

4. Single Member Company (SMC)

A Single Member Company is set up as a separate business entity from its owner and only has one shareholder. The single member serves as a director and has complete control of the company. 

Small business owners who are running their business as a non-corporate entity e.g. sole proprietorship can form an SMC which is a corporate entity with limited liability. 

5. Private Limited Company (PLC)

A private limited Company (PLC) is the ideal business structure for SMEs that need to raise capital on a small to medium scale. 

A PLC is a separate legal entity from its shareholders. Shareholders elect a board, that, along with the company’s CEO takes the operational decisions. 

in contrast to the LLP where only the income of partners is taxed, the company pays corporate tax on its profits and shareholders separately pay the taxes on income (dividends or salaries)

A company may also require a company secretary, legal advisor and auditor depending on its size

Comparison 

Importance of Choosing the Right Business Structure

When starting a business, entrepreneurs need to have a clear understanding of the requirements of their business and the pros and cons of different company structures. 

Every business structure has its unique tax liabilities and different tax rates. Moreover the level of compliance varies for different structures. Corporate entities have more compliance cost than the non-corporate entities. Compliance requires spending time and money on auditors, accountants and tax filing experts. It would not be advisable to register a private limited company without understanding the exact compliance requirements. Even among the corporate entities, tax rates and compliance levels differ for different structures. For example, compliance cost for a private limited company is more than that of a Limited Liability Partnership. 

Moreover, investors and credit lenders are generally comfortable putting capital in corporate entities. So the entrepreneurs who plan to raise capital need to consider this upfront. 

All these factors need to be taken into account before narrowing down on a business structure. 

Choosing a Business Structure while Applying for Company Registration in Pakistan

Let’s have a detailed look on the questions an entrepreneur needs to ask before choosing the right business structure:

i. How many co-founders/partners will your business have?

If you are a single owner of the company and putting in all the capital, you might want to go with a Single Member Company. In case you are looking for more partners/co-founders, or looking to raise the capital, a Limited Liability Partnership or a Private Limited Company may be a good choice for you. 

ii. Degree to which your personal assets are at risk (limited or unlimited liability?)

Business structures like Sole Proprietorship and General Partnership firms have unlimited liability. This means that in case of default of debt or other liabilities, the aggrieved party can legally recover the debt/liabilities from the partners or sole proprietor. This poses a high risk to the personal assets of partners. However, in a private limited company or a limited liability partnership, the liability is limited to the value of shares each member holds in the partnership or company. 

iii. Plans of getting money and offering share to investors

If you are looking to raise capital, you should opt for a private limited company or a limited liability partnership as they are created under a sound legal framework and provide more protection to investors and lenders. Non-corporate structures are not recommended for this and SMC won’t serve the purpose either. 

iv. Income Tax Rates and layers Applicable 

Tax rates vary for different business structures. So you need to take this factor into account while deciding on a structure. 

We have done a detailed article here to explain the tax liabilities that apply to different business structures in Pakistan. 

v. Cost of maintaining the business entity

It is important to consider how much compliance costs you are ready to bear. 

How to Register a Company in Pakistan?

Under this section we will explain the process of registering a private limited and a single member company in Pakistan. 

Incorporation of a Company involves four main steps:

1.  Filing an Application with the SECP for name reservation. Three proposed names are shared at this stage, in order of preference. Prohibited words are to be avoided when selecting the names. You can check the availability of names here before applying. 

2. Drafting the incorporation documents i.e. the (i) Incorporation Application (ii) Memorandum of Association (iii) Articles of Association and (iv) supporting documents including director consents, power of attorneys.
3. Arranging all other supporting documents mentioned in the next section; and
4. Submission of documents with the SECP and addressing any queries (or objections if any) raised by the Company Registration Office (CRO), SECP viz. the incorporation docs.

Documents Required for Company Registration in Pakistan

To register a company in Pakistan, certain documents are required by the Securities and Exchange Commission of Pakistan (SECP). While the list below covers the essentials, SECP may request additional documents depending on the specific case.

• Copies of CNICs or passports of all subscribers/shareholders

• Articles of Incorporation

• Memorandum of Incorporation

• Name availability confirmation letter from SECP

• Proof of registered or correspondence address

• Power of Attorney authorizing a representative to act on the company’s behalf

As Corporate and Tax Law Experts, we ensure your documentation is accurate and complete, minimizing delays in the incorporation process.

Frequently Asked Questions (FAQs) Around Company Registration

Where can I register my company?

Companies are registered with the SECP, which operates Company Registration Offices (CROs) in major cities like Islamabad, Lahore, Karachi, Peshawar, and Quetta.

What happens if my company name is already taken?

When applying, you can submit three name options. If the first is unavailable, SECP can choose from the remaining names, allowing you to move forward without delay.

Can a foreign national be a company director?

Yes, but they must obtain security clearance from the Ministry of Interior before officially serving as a director.

What are the benefits of forming a Single Member Company (SMC)?

SMCs offer simpler compliance, fewer formalities, and centralized decision-making since the sole member manages the company.

How long does company registration take?

If all documents are complete, SECP typically processes registration within seven working days.

Is physical presence required for company registration?

Companies can be registered either in person or via SECP’s online e-Services portal. An authorized person is required for physical filing, while any director or member can use the online option.

Can a director receive a salary?

Yes. Directors may be compensated through employment contracts that outline salary and benefits.

Why is a company called a separate legal entity?

A company can own assets, incur liabilities, and take legal actions independently of its owners or directors. This legal separation protects personal assets from business liabilities.

Our Corporate and Tax Legal Services

1. Business Registration

As Corporate and Tax Law Experts, we guide you through selecting the right business structure, registering your business name, obtaining required licenses, and meeting tax registration requirements like the EIN.

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We assist in forming LLCs or corporations, drafting legal documents, appointing directors, and managing ownership structures for your new business.

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We offer advice on ethical business practices, community initiatives, and social impact strategies that enhance your corporate reputation.

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We design governance frameworks, draft bylaws and policies, and perform compliance audits to keep your business aligned with regulatory standards.

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We help clients understand and access social security benefits like unemployment insurance and disability support while ensuring compliance.

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