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Doing Business in Pakistan
 
 
 

Forms of Business Organisation

There are three main forms of business in Pakistan:

• Sole Proprietorship;
• Partnership;
• Company.

Sole Proprietorship

In Sole Proprietorship, a business or a profession is carried out by an individual on his own account. No formal procedure or formality is required to be followed for setting up a sole proprietary concern.

Partnership

A Partnership is a business relationship entered into by a formal agreement between two or more persons or corporations carrying on a business in common. The capital for a partnership is provided by the partners who are liable for the total debts of the firms and share profit and loss of a business concern according to the terms of the partnership agreement. Partnerships (other than banking companies) are generally limited in size to twenty partners. The interest of a partner is transferable only with the prior consent of the other partner(s). However, a partner's right to a share of the partnership income may be received on trust for another person.

For taxation purposes, partnerships are classified into:

• Registered; and`
• Unregistered Firms.

The income of the registered firm is subject to super tax, before distribution to the partners. Also the individual income of the partners is subject to income tax at the usual rates. For unregistered firms, income tax is levied on the income and the partners are not liable to pay tax on the share of profit received from the unregistered firm(s).

Company

A Company as a legal entity can be formed under the companies’ ordinance, 1984, and can have share capital or can be formed without share capital. A company having share capital may be formed as:

• Company Limited by Share;
• Company Limited by Guarantee;
• Unlimited Company.

Company Limited by Share

Liability of its members is limited up to the extent of their share to paid up to capital of the company. These companies may further be classified as public limited and private limited companies. Public limited companies can be formed by at least seven persons by subscribing their names to the 'memorandum & articles of association' of the company. The word 'limited' must be used as the last word of its name. Private limited companies may be formed by at least two persons by subscribing their names to the 'memorandum and articles of association' of the company.

A private limited company, by its 'Article of Association' is restricted to:

• the right to transfer shares;
• the number of its members is limited to 50;
• any invitation to the public to subscribe for share is prohibited.

Private Limited Company is required to use the words "(Private) Limited" as the last words of its name.


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