Differences between private and public company registration in Pakistan

Company Registration - A Complete Guide on How to Register a Company in Securities and Exchange Commission of Pakistan (SECP)

Table of Contents

Company Registration

Introduction

The Securities and Exchange Commission of Pakistan (SECP) is the regulatory body for the corporate sector in Pakistan. It was established in 1999 under the Securities and Exchange Commission of Pakistan Act, with the aim of promoting the development of a modern and efficient corporate sector in the country.

The SECP’s mission is to protect investors and promote a fair, transparent, and efficient securities market in Pakistan. It is responsible for regulating and supervising the securities market, as well as protecting the interests of investors. The SECP also aims to ensure compliance with corporate laws and regulations, and to foster a culture of corporate governance in Pakistan.

SECP Responsibilities:

The SECP has a wide range of responsibilities, including:

  1. Registration and Regulation of Companies: The SECP is responsible for registering companies and regulating their activities. It oversees the incorporation of new companies, the issuance of securities, and the registration of prospectuses.
  2. Regulation of Securities: The SECP regulates the issuance and trading of securities in Pakistan. It supervises the stock exchanges and the brokerage industry and ensures compliance with securities laws and regulations.
  3. Non-Banking Financial Institutions: The SECP also regulates non-banking financial institutions, including insurance companies, pension funds, and investment companies.
  4. Investor Education and Protection: The SECP is committed to protecting the interests of investors in Pakistan. It promotes investor education and awareness and ensures that investors have access to accurate and reliable information.
  5. Corporate Governance: The SECP promotes the adoption of good corporate governance practices in Pakistan. It ensures that companies comply with corporate laws and regulations and encourages the adoption of best practices in areas such as board structure, financial reporting, and risk management.

The SECP is led by a chairman, who is appointed by the federal government. The commission consists of nine members, including the chairman, who are appointed for a term of three years. The members are selected on the basis of their expertise in areas such as finance, law, and business.

The SECP plays a crucial role in regulating and supervising the corporate sector in Pakistan. Its mission is to promote a fair, transparent, and efficient securities market, and to protect the interests of investors. The SECP’s efforts are aimed at fostering economic growth and sustainable development in Pakistan and promoting a culture of good corporate governance.

Types of Company

The Securities and Exchange Commission of Pakistan (SECP) is responsible for the registration and regulation of companies in Pakistan. We will discuss the different types of companies that can be registered with the SECP, including those that are limited by shares, limited by guarantee, and those with unlimited liability.

      1. Limited by Shares

A company limited by shares is a type of business structure where the liability of its shareholders is limited to the amount of capital they have invested in the company. This means that the shareholders’ personal assets are protected from any business-related liabilities or debts incurred by the company. We will discuss the features, advantages, and disadvantages of limited by shares companies.

Features of a Limited by Shares Company

  1. Separate Legal Entity

A limited by shares company is a separate legal entity from its shareholders. This means that the company can own property, enter into contracts, sue and be sued in its own name.

  1. Limited Liability

The liability of the shareholders of a limited by shares company is limited to the amount of capital they have invested in the company. This means that their personal assets are protected from any business-related liabilities or debts incurred by the company.

  1. Shareholders

A limited by shares company must have at least two shareholders, and there is no limit on the maximum number of shareholders. Shareholders can be individuals or corporate entities.

  1. Directors

A limited by shares company must have at least one director who is a resident of Pakistan. The director can also be a shareholder of the company.

  1. Memorandum and Articles of Association

The memorandum of association and articles of association are the primary documents required for company registration. The memorandum of association defines the company’s objectives and powers, while the articles of association define the rules and regulations governing the company’s internal management.

Advantages of Limited by Shares Company

  1. Limited Liability

The limited liability feature of a limited by shares company is one of its main advantages. Shareholders’ personal assets are protected from any business-related liabilities or debts incurred by the company.

  1. Access to Capital

A limited by shares company can raise capital by issuing shares to the public. This allows the company to raise funds for its growth and expansion.

  1. Perpetual Succession

A limited by shares company has perpetual succession, which means that the company can continue to exist even if its shareholders or director’s change. This provides stability to the company’s operations and allows for long-term planning.

  1. Transfer of Ownership

Shares in a limited by shares company can be easily bought and sold, allowing shareholders to transfer ownership without affecting the company’s operations.

  1. Professional Image

A limited by shares company has a professional image, which can help attract investors and customers.

Disadvantages of Limited by Shares Company

  1. Compliance Requirements

A limited by shares company must comply with various legal and regulatory requirements, which can be time-consuming and expensive.

  1. Increased Liability for Directors

Directors of a limited by shares company have increased liability compared to shareholders. They are responsible for managing the company’s operations and can be held liable for any breaches of legal or regulatory requirements.

  1. Limited Control for Shareholders

Shareholders of a limited by shares company have limited control over the company’s operations. They can only exercise their voting rights at general meetings of the company.

  1. Cost of Company Formation

The cost of forming a limited by shares company can be high, as it involves various legal and administrative processes.

Conclusion

A limited by shares company is a popular business structure that offers various benefits, including limited liability, access to capital, perpetual succession, and transfer of ownership. However, it also has its disadvantages, such as compliance requirements, increased liability for directors, limited control for shareholders, and the cost of company formation. Before deciding on a limited by shares company, it is important to carefully consider the advantages and disadvantages and seek professional advice to ensure that it is the right business structure for your needs.

      2.Limited by Guarantee

A company limited by guarantee is a type of company where the liability of its members is limited to the amount they have undertaken to contribute to the assets of the company if it is wound up. This means that the members of the company do not have to pay any further money towards the company’s debts or liabilities. This type of company is typically used for non-profit purposes, such as charities, clubs, and associations. The company does not have any share capital and its members do not hold shares. The company is managed by a board of directors, and the members of the company act as guarantors, promising to contribute a certain amount to the company if it goes into liquidation.

Introduction:

In Pakistan, a company limited by guarantee is a type of company that is often used for non-profit purposes. This type of company is typically formed by charitable organizations, clubs, and associations that aim to undertake activities that benefit the society without seeking profits. The liability of the members of such a company is limited to the amount they have agreed to contribute to the assets of the company in case it is wound up. In this blog, we will discuss the details of a company limited by guarantee and its registration process with the Securities and Exchange Commission of Pakistan (SECP).

Definition:

A company limited by guarantee is a type of company where the members act as guarantors of the company’s debts and liabilities. These members agree to contribute a certain amount towards the company’s assets if it is wound up. The company does not have any share capital and its members do not hold shares. The company is managed by a board of directors who are responsible for the overall management of the company.

Requirements for Registration:

To register a company limited by guarantee with the SECP, the following requirements must be fulfilled:

  1. Name Reservation: The first step in the registration process is to reserve a unique name for the company. The name should not be similar to any existing company in Pakistan. The SECP has an online name reservation system that can be used to reserve a name.
  2. Memorandum and Articles of Association: The company must have a Memorandum and Articles of Association (MAA) that outline the company’s objectives, rules, and regulations. The MAA must be signed by at least three members who act as guarantors of the company’s liabilities.
  3. Board of Directors: The company must have a board of directors who are responsible for the overall management of the company. The board of directors must have at least three members, and at least one of them must be a resident of Pakistan.
  4. Registered Office: The company must have a registered office in Pakistan. The address of the registered office must be mentioned in the MAA.
  5. Fees: The SECP charges a fee for the registration of a company limited by guarantee. The fee varies depending on the authorized share capital of the company.

Advantages:

There are several advantages to registering a company limited by guarantee:

  1. Limited Liability: The members of the company are only liable to contribute a certain amount towards the company’s assets if it is wound up. This means that their personal assets are not at risk.
  2. Non-Profit Activities: This type of company is ideal for non-profit activities such as charitable organizations, clubs, and associations.
  3. Separate Legal Entity: A company limited by guarantee is a separate legal entity from its members. This means that the company can enter into contracts, sue or be sued in its own name.

Disadvantages:

There are some disadvantages to registering a company limited by guarantee:

  1. Limited Funding: Since the company does not have any share capital, it may be difficult to raise funds.
  2. Limited Profit Distribution: The company cannot distribute profits among its members as it does not have share capital.

Conclusion:

A company limited by guarantee is a type of company that is often used for non-profit purposes. This type of company provides limited liability to its members and is managed by a board of directors. The registration process for this type of company with the SECP involves fulfilling certain requirements such as name reservation, MAA, board of directors, registered office, and fees. While there are advantages to registering a company limited by guarantee, such as limited liability and non-profit activities, there are also disadvantages, such as limited funding and limited profit distribution.

       3.Unlimited Liability

An unlimited liability company is a type of company where the liability of its members is not limited. This means that the members of the company are personally liable for the debts and obligations of the company. In the event of insolvency or liquidation, the personal assets of the members can be used to pay off the debts of the company. This type of company is not commonly used in Pakistan, as it poses a high risk to the members of the company.

Understanding the Risks and Benefits

In the world of business, companies can take on many different legal structures depending on their goals, needs, and risks. One such legal structure is the unlimited liability company, where the liability of the members is not limited. This means that the personal assets of the members can be used to pay off the debts of the company in case of insolvency or liquidation. While this type of company is not common in Pakistan, it can be useful in certain situations. In this blog, we will explore the risks and benefits of unlimited liability in SECP.

What is an Unlimited Liability Company?

An unlimited liability company is a type of company where the liability of its members is not limited. This means that the personal assets of the members can be used to pay off the debts and obligations of the company. Unlike other types of companies, such as limited liability companies or companies limited by guarantee, the members of an unlimited liability company do not have any protection against the company’s liabilities.

This type of company is not commonly used in Pakistan, as it poses a high risk to the members of the company. However, it can be useful in certain situations, such as when the owners of the company have a high degree of trust in each other and are willing to take on the risks associated with unlimited liability.

Risks of Unlimited Liability

The biggest risk of an unlimited liability company is the potential loss of personal assets in case of insolvency or liquidation. This means that the members of the company are personally responsible for the company’s debts and obligations, and their personal assets can be used to pay off these debts. This can include their homes, cars, and other personal belongings.

Another risk of unlimited liability is that it can make it difficult to raise capital. Investors may be reluctant to invest in a company with unlimited liability, as they do not want to risk losing their personal assets. This can make it challenging for the company to raise funds and grow its business.

Benefits of Unlimited Liability

While unlimited liability poses significant risks, it can also have some benefits. One such benefit is that it can help build trust among the members of the company. When the members know that they are personally responsible for the company’s debts and obligations, they may be more motivated to work together and ensure the company’s success.

Another benefit of unlimited liability is that it can help the company secure loans and other forms of financing. Lenders may be more willing to provide financing to a company with unlimited liability, as they know that the members of the company are personally responsible for the debts.

Conclusion

Unlimited liability is a legal structure that is not commonly used in Pakistan, as it poses significant risks to the members of the company. However, it can also have some benefits, such as building trust among the members and helping the company secure financing. Ultimately, the decision to form an unlimited liability company should be based on a thorough analysis of the risks and benefits, and the goals and needs of the company. Companies considering this structure should consult with legal and financial professionals to fully understand the implications of unlimited liability.

The SECP provides for the registration of various types of companies in Pakistan, including those that are limited by shares, limited by guarantee, and those with unlimited liability. The type of company chosen depends on the nature of the business and the objectives of the founders. It is important to understand the requirements and regulations governing each type of company to ensure compliance and smooth operations of the company. It is recommended to seek the guidance of a professional advisor or a legal expert to ensure the correct type of company registration for your business needs.

Kinds of Company

In Pakistan, the Securities and Exchange Commission of Pakistan (SECP) is the regulatory body that oversees the registration of different kinds of companies. There are several kinds of companies that can be registered with the SECP. Here is a detailed guide to the types of companies that can be registered in Pakistan:

1.Single Member Company (SMC):

A single member company is a company that has only one shareholder or member. This type of company is suitable for small businesses or individuals who want to start a business with limited liability. The SMC can be either a private limited company or a public limited company.

Register a Single-Member Company

How to Register a Single-Member Company with SECP in Pakistan

If you’re a sole proprietor looking to expand your business or seeking limited liability protection, registering a single-member company with the Securities and Exchange Commission of Pakistan (SECP) might be the right choice for you. In this blog post, we will guide you through the process of registering a single-member company with SECP.

Benefits

Benefits of Registering a Single-Member Company

Registering a single-member company with SECP has several advantages, including:

  1. Limited Liability: As a sole proprietor, your personal assets are at risk in case your business is sued or faces financial troubles. However, by registering a single-member company, you can limit your liability to the company’s assets, thereby protecting your personal assets.
  2. Tax Benefits: A single-member company enjoys the same tax benefits as any other company, including lower tax rates and tax exemptions.
  3. Credibility: Registering a company with SECP gives your business more credibility and enhances your professional image, making it easier to attract investors, clients, and customers.

Steps

Steps to Register a Single-Member Company with SECP

The process of registering a single-member company with SECP involves the following steps:

Step 1: Obtain a SECP Logins

The first step in registering a single-member company with SECP is to obtain a digital SECP logins if you are submitting online process.

Step 2: Name Reservation

The next step is to reserve a unique name for your company. You can check the availability of your preferred name on the SECP website and submit the application for name reservation online.

Step 3: Preparation of Documents

The next step is to prepare the documents required for company registration, which include the Memorandum of Association (MOA), Articles of Association (AOA), Form 1, and Form 21. The MOA and AOA outline the company’s purpose, objectives, and regulations, while Form 1 and Form 21 provide information about the company’s directors and registered office.

Step 4: Online Submission

Once the documents are prepared, you can submit them online through the SECP eServices portal. You will also need to pay the registration fee online.

Step 5: Certificate of Incorporation

Upon successful submission of the documents, SECP will review the application and issue a certificate of incorporation if everything is in order. The certificate of incorporation confirms that your single-member company is now a legal entity in Pakistan.

legal requirements and obligations

Despite being subject to various legal requirements and obligations, SMCs are eligible for certain exemptions, particularly if they meet certain criteria.

Exemptions Available for SMCs

Exemptions Available for SMCs: Here are some of the exemptions available for SMCs in Pakistan:

  1. Exemption from Appointing an Auditor: Under the Companies Act, 2017, SMCs with a paid-up capital of less than PKR 3 million are exempt from appointing an auditor. This means that the company’s owner does not need to hire an external auditor to conduct an audit of the company’s financial statements. However, if the paid-up capital of the SMC exceeds PKR 3 million, the company must appoint an auditor to conduct an audit and prepare an audit report.
  2. Exemption from Preparing Annual Audited Financial Statements: SMCs with a paid-up capital of less than PKR 3 million are also exempt from preparing annual audited financial statements. Instead, the company may prepare unaudited financial statements for its annual returns. However, if the paid-up capital of the SMC exceeds PKR 3 million, the company must prepare annual audited financial statements and include them in its annual returns.
  3. Exemption from Holding Annual General Meetings: SMCs with a paid-up capital of less than PKR 3 million are exempt from holding annual general meetings (AGMs). Instead, the company may conduct its business through written resolutions or other means. However, if the paid-up capital of the SMC exceeds PKR 3 million, the company must hold an AGM each year to present its financial statements, elect directors, and conduct other business.
  4. Reduced Filing Fees: SMCs are eligible for reduced filing fees when submitting documents to the SECP. The fees are lower for SMCs compared to other types of companies, making it more affordable for small businesses to comply with their legal obligations.
  5. Simplified Incorporation Process: SMCs have a simplified incorporation process, which makes it easier and quicker for entrepreneurs to set up their business. The process involves fewer requirements and documents compared to other types of companies and can be completed online through the SECP’s eServices portal.

Here are some of the key legal requirements and obligations of an SMC registered with the SECP:

  1. Complying with Company Law and Regulations: An SMC must comply with all the relevant company laws and regulations, including the Companies Act, 2017, and the SECP’s directives and guidelines. This includes registering the company with the SECP, obtaining necessary approvals and licenses, and complying with any legal requirements related to the company’s operations.
  2. Maintaining Proper Books of Accounts: An SMC must maintain proper books of accounts that accurately reflect its financial position and transactions. These books of accounts must be kept for a minimum of six years and must be available for inspection by the SECP and other relevant authorities. The books of accounts should include all financial transactions, such as income, expenses, assets, liabilities, and equity.
  3. Filing Annual Returns: An SMC must file its annual returns with the SECP within 45 days of the end of its financial year. The annual return must include the company’s financial statements, audit report (if applicable), and other relevant information. The SECP may impose penalties and fines for late or non-filing of annual returns.
  4. Paying Taxes: An SMC must pay all the taxes due to the relevant authorities, including income tax, sales tax, and other applicable taxes. The company must register with the Federal Board of Revenue (FBR) and obtain a National Tax Number (NTN) and Sales Tax Registration Number (STRN) to comply with tax regulations.
  5. Holding Meetings: An SMC must hold meetings of its shareholder(s) and board of directors in accordance with the Companies Act, 2017, and its memorandum and articles of association. For an SMC, the shareholder is also the sole director, so the company must hold at least one meeting of the shareholder/director each year. The meeting may be held in person or by proxy.
  6. Maintaining Statutory Registers: An SMC must maintain various statutory registers, such as the register of members, register of directors, and register of charges. The registers should contain accurate and up-to-date information about the company’s shareholders, directors, and debts. The registers must be kept at the company’s registered office and must be available for inspection by the SECP and other relevant authorities.
  7. Informing SECP of Changes: An SMC must inform the SECP of any changes in its registered office, directors, share capital, or other relevant information. The company must file the necessary forms and pay the prescribed fees to update its records with the SECP. Failure to update the records may result in penalties and fines.

Single Member Companies (SMCs) in Pakistan are eligible for various exemptions and benefits, particularly if they meet certain criteria. These exemptions can help reduce the compliance burden on small businesses and startups, making it easier for them to operate and grow. However, it is important for SMCs to understand their legal obligations and comply with them to avoid penalties and fines. Registering a single-member company with SECP is a relatively straightforward process that can provide several benefits to sole proprietors. However, it’s always advisable to seek professional assistance to ensure that all the requirements are met, and the registration process goes smoothly. By following the steps outlined in this blog post, you can successfully register your single-member company with SECP and take your business to the next level.

Private Limited Company (PLC):

A private limited company is a type of company that is owned by a group of people, usually family members or close friends. This type of company has limited liability, which means that the shareholders are only liable for the amount of money they have invested in the company. The PLC can have a minimum of two and a maximum of 50 shareholders. A private limited company is a type of business entity that is registered under the Companies Act, 2017. It is a popular form of business organization for small and medium-sized enterprises (SMEs) in Pakistan. A private limited company has a separate legal entity from its owners, which means that it can own property, enter into contracts, and sue or be sued in its own name.

Requirements

Requirements for Private Limited Company

  1. Minimum two Directors

A private limited company must have a minimum of two directors, and at least one of them must be a Pakistani resident. The directors are responsible for managing the affairs of the company and making strategic decisions on behalf of the company. They are also responsible for complying with the laws and regulations of the SECP.

  1. Minimum two Shareholders

A private limited company must have a minimum of two shareholders, and the maximum number of shareholders is limited to 50. Shareholders are the owners of the company and hold shares in the company. They are entitled to receive dividends and vote on important decisions affecting the company.

  1. Name Availability

The first step in registering a private limited company is to obtain the availability of the proposed name of the company from the SECP. The name should not be identical or too similar to an existing company name, and it should not violate any trademark laws. The name of the company should also include the words “Private Limited” at the end.

  1. Memorandum and Articles of Association

The next step is to prepare the Memorandum of Association (MOA) and Articles of Association (AOA) of the company. These documents outline the objectives, rights, and obligations of the company and its shareholders. The MOA and AOA must be in compliance with the provisions of the Companies Act, 2017 and the regulations of the SECP.

The MOA contains the following information:

  • Name of the company
  • Registered office address of the company
  • Objectives of the company
  • Authorized share capital of the company
  • Liability of shareholders
  • Association of the shareholders

The AOA contains the following information:

  • Rules and regulations governing the management of the company
  • Shareholders’ rights and obligations
  • Directors’ powers and responsibilities
  • Procedure for conducting meetings
  1. Share Capital

A private limited company must have a minimum authorized share capital of Rs. 100,000. The share capital can be increased at any time by passing a special resolution of the shareholders. The share capital can be in the form of equity shares or preference shares. Equity shares carry voting rights and dividend rights, whereas preference shares carry fixed dividend rights and priority in the distribution of assets in the event of liquidation.

  1. SECP Registration

Once the MOA and AOA are prepared, the company can apply for registration with the SECP by submitting the required documents and fees. The following documents are required for registration:

  • Form 1: Declaration of compliance with the requirements of the Companies Act, 2017
  • Form 21: Notice of situation of the registered office of the company
  • Form 29: Particulars of directors, chief executive, and officers of the company
  • Copies of the MOA and AOA
  • Evidence of payment of registration fees
  • National Tax Number (NTN) certificate
  • Bank account opening certificate

The registration process takes approximately two weeks, and upon successful registration, the SECP issues a certificate of incorporation to the company.

Post Incorporation Requirements

After the private limited company is incorporated, there are certain post-incorporation requirements that must be fulfilled by the company to remain in compliance with the SECP regulations. These requirements include:

  1. Business Registration

The company must obtain a business registration certificate from the relevant government department, depending on the nature of its business. For example, if the company is engaged in manufacturing, it must obtain a certificate from the Ministry of Industries and Production.

  1. Tax Registration

The company must register with the Federal Board of Revenue (FBR) and obtain a National Tax Number (NTN) and Sales Tax Registration Number (STRN). The company must also file monthly and annual tax returns with the FBR.

  1. Appointment of Auditors

The company must appoint auditors within 30 days of its incorporation. The auditors are responsible for auditing the financial statements of the company and preparing an annual audit report.

  1. Holding Annual General Meetings

The company must hold an annual general meeting (AGM) of shareholders within six months of the end of each financial year. The AGM is a platform for shareholders to review the company’s performance, approve the audited financial statements, and elect directors.

  1. Filing of Annual Returns

The company must file annual returns with the SECP within 30 days of the AGM. The annual return includes details of the company’s directors, shareholders, share capital, and audited financial statements.

Exemption available for Private limited Company

Exemption for Share Capital of up to Rs. 3 Million

The SECP has provided certain exemptions for private limited companies with a share capital of up to Rs. 3 million. These exemptions are intended to encourage entrepreneurship and ease the burden of compliance for small businesses. The exemptions include:

  1. Minimum Authorized Share Capital

Private limited companies with a share capital of up to Rs. 3 million are not required to have a minimum authorized share capital of Rs. 100,000. They can have an authorized share capital of any amount, as long as it is within the limit of Rs. 3 million.

  1. Reduced Registration Fees

Private limited companies with a share capital of up to Rs. 3 million are eligible for reduced registration fees. The registration fees for such companies are Rs. 2,000, compared to Rs. 4,000 for companies with a share capital of more than Rs. 3 million.

  1. Exemption from Appointing Company Secretary

Private limited companies with a share capital of up to Rs. 3 million are not required to appoint a company secretary. This exemption saves small businesses from the cost of hiring a company secretary.

  1. Exemption from Holding AGMs

Private limited companies with a share capital of up to Rs. 3 million are not required to hold AGMs. Instead, they can pass written resolutions to approve the audited financial statements and other matters requiring shareholder approval.

Conclusion

In conclusion, a private limited company is a popular form of business organization in Pakistan, particularly for small and medium-sized enterprises. To register a private limited company, certain requirements must be fulfilled, including a minimum of two directors and shareholders, a registered office, and MOA and AOA. After incorporation, the company must fulfill certain post-incorporation requirements, such as obtaining business and tax registrations, appointing auditors, holding AGMs, and filing annual returns. The SECP has provided certain exemptions for private limited companies with a share capital of up to Rs. 3 million, which include reduced registration fees, exemption from appointing a company secretary, and exemption from holding AGMs. These exemptions are intended to encourage entrepreneurship and ease the burden of compliance for small businesses.

Public Limited Company (PUC):

A public limited company is a type of company that can raise capital from the public by issuing shares. The PUC can have a minimum of seven shareholders, and there is no limit to the maximum number of shareholders. The PUC is also required to have a minimum share capital of Rs. 200,000. A public limited company (PUC) is a type of business organization in Pakistan that allows businesses to raise capital from the public by issuing shares. It is a popular choice for businesses looking to expand their operations and raise capital for growth. In this blog, we will discuss the requirements, benefits, post-incorporation requirements, and procedure for incorporating a public limited company in Pakistan.

Requirements for Public Limited Company

  1. Minimum Shareholders

A public limited company must have a minimum of seven shareholders. This requirement is in place to ensure that the company is adequately capitalized and has sufficient resources to meet its obligations to the public.

  1. Maximum Shareholders

There is no limit to the maximum number of shareholders a public limited company can have. This means that a PUC can have an unlimited number of shareholders, which can make it easier to raise capital through public offerings.

  1. Minimum Share Capital

A public limited company is required to have a minimum share capital of Rs. 200,000. This requirement is in place to ensure that the company has sufficient funds to carry out its operations and meet its obligations to the public.

  1. Directors

A public limited company must have a minimum of three directors, and at least one of them must be a resident of Pakistan. The directors are responsible for managing the company’s affairs and making decisions on behalf of the company.

  1. Registered Office

A public limited company must have a registered office in Pakistan. This is the address where all official correspondence is sent, and where the company’s records are kept.

  1. Memorandum and Articles of Association (MOA and AOA)

A public limited company is required to have MOA and AOA, which are legal documents that set out the company’s objectives and rules for running the business. The MOA and AOA must be submitted to the SECP during the registration process.

  1. SECP Registration

A public limited company must be registered with the Securities and Exchange Commission of Pakistan (SECP). The registration process involves submitting the MOA and AOA, along with other required documents, and paying the registration fees.

Benefits of Public Limited Company

  1. Limited Liability Protection

One of the key benefits of a public limited company is limited liability protection for shareholders. This means that the personal assets of shareholders are protected in the event of the company’s bankruptcy or legal action.

  1. Capital Generation

A public limited company can raise capital by issuing shares to the public. This can make it easier for the company to raise funds for expansion and growth.

  1. Public Perception

A public limited company can be seen as more credible and trustworthy than other types of business organizations. This can help attract investors and customers to the company.

  1. Continuity

A public limited company can continue to operate even if the shareholders change. This means that the company can continue to exist and carry out its operations for an indefinite period of time.

Post-Incorporation Requirements

After a public limited company is incorporated, there are certain requirements that must be met to comply with the regulations. These include:

  1. Business and Tax Registrations

A public limited company must obtain business and tax registrations from the relevant authorities, such as the Federal Board of Revenue (FBR) and the Registrar of Companies.

  1. Appointment of Auditors

A public limited company must appoint an auditor to conduct an annual audit of the company’s financial statements.

  1. Annual General Meeting (AGM)

A public limited company must hold an AGM once a year to approve the company’s financial statements and elect directors.

  1. Filing of Annual Returns

A public limited company is required to file annual returns with the SECP, which provide information on the company’s financial performance and other relevant details.

Procedure for Incorporating

Procedure for Incorporating a Public Limited Company

The procedure for incorporating a public limited company in Pakistan is as follows:

  1. Name Reservation

The first step in incorporating a public limited company is to reserve a name for the company. This can be done online through the SECP’s eServices portal. The name must be unique and not already in use by another company.

  1. Drafting of MOA and AOA

Once the name is reserved, the next step is to draft the MOA and AOA. These documents must comply with the requirements set out in the Companies Act, 2017.

  1. Payment of Fees

The next step is to pay the required fees to the SECP. The fees are based on the company’s authorized share capital and can be paid online through the SECP’s eServices portal.

  1. Submission of Documents

After the fees are paid, the MOA and AOA, along with other required documents, must be submitted to the SECP. These documents include:

  • A copy of the name reservation certificate
  • Proof of payment of fees
  • The company’s registered office address
  • Details of the company’s directors and shareholders
  • The company’s share capital structure
  1. Procedure for Incorporating

Once the SECP receives the documents, it will review them to ensure that they comply with the requirements. If the documents are in order, the SECP will issue a certificate of incorporation, which confirms that the company is registered.

Conclusion

In conclusion, a public limited company is a popular choice for businesses in Pakistan that are looking to raise capital from the public. It offers benefits such as limited liability protection, capital generation, public perception, and continuity. However, there are certain requirements and post-incorporation obligations that must be met to comply with the regulations. The procedure for incorporating a public limited company involves name reservation, drafting of MOA and AOA, payment of fees, submission of documents, and approval and registration. By understanding these requirements and following the proper procedure, businesses can successfully incorporate a public limited company and take advantage of the benefits it offers.

Foreign Company:

A foreign company is a company that is registered in another country but wants to do business in Pakistan. To operate in Pakistan, the foreign company must register with the SECP and comply with the relevant laws and regulations. Foreign companies can establish their presence in Pakistan by registering with the Securities and Exchange Commission of Pakistan (SECP). The SECP is the regulatory authority for companies operating in Pakistan, and it sets out the legal and regulatory framework for foreign companies. In this blog, we will discuss the requirements for foreign companies to register with the SECP and comply with the relevant laws and regulations.

  1. Definition of a foreign company

A foreign company is a company that is incorporated outside Pakistan but wants to do business in Pakistan. A foreign company can establish its presence in Pakistan through a branch office, a liaison office, or a subsidiary.

  1. Types of presence in Pakistan

A foreign company can establish its presence in Pakistan through three types of entities:

a. Branch office

A branch office is a temporary entity that allows a foreign company to carry out its business activities in Pakistan. A branch office can only conduct the same business activities as the foreign company, and it is not allowed to carry out any new or independent business activities in Pakistan. A branch office is required to be registered with the SECP.

b. Liaison office

A liaison office is a non-profit entity that allows a foreign company to represent its interests in Pakistan. A liaison office cannot carry out any business activities in Pakistan, but it can undertake market research and promote the foreign company’s products and services. A liaison office is required to be registered with the SECP.

c. Subsidiary

A subsidiary is a separate legal entity that is owned by the foreign company. A subsidiary can conduct any business activities in Pakistan, and it has its own legal and financial obligations. A subsidiary is required to be incorporated as a company under the Companies Act, 2017, and it is required to be registered with the SECP.

  1. Registration process

The registration process for a foreign company in Pakistan involves the following steps:

a. Obtain a digital signature and a National Tax Number (NTN)

A foreign company is required to obtain a digital signature and a National Tax Number (NTN) from the Federal Board of Revenue (FBR) before applying for registration with the SECP.

b. Reserve a name

A foreign company is required to reserve a name for its branch office or subsidiary with the SECP. The name must be unique and not identical or similar to any existing company or trademark in Pakistan.

c. File the registration documents

A foreign company is required to file the registration documents with the SECP, which include:

  • A certified copy of the certificate of incorporation or registration of the foreign company
  • A certified copy of the articles of association or memorandum of association of the foreign company
  • A certified copy of the board resolution authorizing the establishment of a branch office or subsidiary in Pakistan
  • A power of attorney in favor of a local representative for the foreign company
  • A declaration by the local representative stating that they are authorized to act on behalf of the foreign company in Pakistan

d. Pay the registration fee

A foreign company is required to pay the registration fee to the SECP, which varies depending on the type of entity and the authorized share capital.

  1. Compliance requirements

Foreign companies operating in Pakistan are required to comply with the following legal and regulatory requirements:

a. Appointment of a local representative

A foreign company is required to appoint a local representative in Pakistan who will act as its liaison with the SECP and other government authorities. The local representative must have a National Tax Number (NTN) and a valid identity card.

b. Maintenance of books of accounts

A foreign company is required to maintain books of accounts in Pakistan, which must be audited annually by a Pakistani auditor. The books of accounts must be kept in the Urdu language and in compliance with the International Financial Reporting Standards (IFRS).

c. Compliance with local Annual Compliance Requirements

Once a foreign company is registered with the SECP, it must comply with various annual compliance requirements to maintain its status and operate in Pakistan. Some of the key compliance requirements are:

  • Filing of Annual Return: A foreign company must file an annual return with the SECP within 30 days of the anniversary of its registration. The annual return must contain information about the company’s shareholding, directors, and other relevant details.
  • Filing of Financial Statements: A foreign company must prepare and file audited financial statements with the SECP within six months of the end of its financial year. The financial statements must comply with the International Financial Reporting Standards (IFRS).
  • Tax Filing and Payment: A foreign company must file its tax returns and pay any applicable taxes to the Federal Board of Revenue (FBR) in Pakistan. The tax filing and payment deadlines depend on the type of taxes and the company’s financial year.
  • Board Meetings: A foreign company must hold at least one board meeting in Pakistan each year. The meeting must be conducted in person, and the minutes of the meeting must be kept in the company’s records.
  • Statutory Registers: A foreign company must maintain certain statutory registers, such as a register of members, directors, and charges, in Pakistan. The registers must be updated regularly and made available for inspection by the SECP and other relevant authorities.
  1. Conclusion

In conclusion, a foreign company that wishes to do business in Pakistan must register with the SECP and comply with various laws and regulations. The registration process involves submitting various documents and information to the SECP, and obtaining various approvals and licenses. Once registered, a foreign company must comply with various ongoing requirements, such as annual filings, tax payments, and board meetings. Failure to comply with these requirements can result in penalties, fines, and other sanctions. Therefore, it is essential for foreign companies to engage qualified professionals and advisors to help them navigate the complex regulatory environment in Pakistan.

Not-for-Profit Organization (NPO):

 

In summary, there are five types of companies that can be registered in Pakistan: Single Member Company, Private Limited Company, Public Limited Company, Foreign Company, and Not-for-Profit Organization. Each type of company has its own unique features and requirements, and the registration process may vary depending on the type of company you want to register. A not-for-profit organization (NPO) is an entity that operates for the benefit of the public or a particular section of society, without the primary motive of making a profit. NPOs can be charities, social welfare organizations, trade unions, religious groups, or educational institutions, among others. In Pakistan, the Companies Act, 2017 (Section 42) provides the legal framework for the formation and regulation of NPOs. This blog will provide a comprehensive guide to NPOs under the Companies Act, 2017.

What is a not-for-profit organization (NPO)?

A not-for-profit organization (NPO) is a legal entity that operates for the benefit of the public or a particular section of society, without the primary motive of making a profit. NPOs can be charities, social welfare organizations, trade unions, religious groups, or educational institutions, among others. NPOs can be formed as trusts, societies, or companies, depending on the legal framework of the country.

NPOs are important in providing essential services to communities, promoting social welfare, and supporting the disadvantaged and marginalized. NPOs are governed by a board of directors or trustees who are responsible for the strategic direction and management of the organization.

Companies Act, 2017 (Section 42)

The Companies Act, 2017 (Section 42) provides the legal framework for the formation and regulation of NPOs in Pakistan. Section 42 of the Companies Act, 2017, allows for the formation of companies for promoting commerce, art, science, religion, charity, or any other useful object, provided that the profits or any other income of the company are applied for promoting its objects and not distributed among the members of the company.

In other words, Section 42 companies are NPOs that operate for a specific purpose and do not distribute profits or income among their members. The purpose of the company must be for promoting commerce, art, science, religion, charity, or any other useful object. The profits or income generated by the company must be applied for promoting its objects and not distributed among the members of the company.

Registration of Section 42 Companies

The registration process for Section 42 companies is the same as for other companies. The company must first obtain a name availability certificate from the Securities and Exchange Commission of Pakistan (SECP). The company must then file the necessary documents, including the memorandum and articles of association, with the SECP for registration.

The memorandum and articles of association of a Section 42 company must include the following:

  1. The company’s name, which must include the words “not-for-profit” or “NPO.”
  2. The company’s registered office address in Pakistan.
  3. The company’s objects, which must be for promoting commerce, art, science, religion, charity, or any other useful object.
  4. The company’s capital structure, which must include the authorized share capital and the number of shares.
  5. The company’s board of directors or trustees, which must have at least three members.
  6. The company’s dissolution clause, which must specify that any assets remaining after the payment of debts and liabilities will be transferred to another Section 42 company or a registered charity.

Restrictions on Section 42 Companies

Section 42 companies are subject to certain restrictions to ensure that they operate for their intended purpose and do not distribute profits or income among their members. The restrictions on Section 42 companies include:

  1. Prohibition on distribution of profits: Section 42 companies cannot distribute profits or income among their members. Any profits or income generated by the company must be applied for promoting its objects.
  2. Restriction on alteration of memorandum and articles of association: The memorandum and articles of association of a Section 42 company cannot be altered without the prior approval of the SECP. The approval of the SECP is required to ensure that any proposed alteration does not go against the objects of the company.
  1. Prohibition on transfer of shares: The shares of a Section 42 company cannot be transferred, except to another Section 42 company or a registered charity.
  2. Prohibition on payment of remuneration: The directors or trustees of a Section 42 company cannot receive any remuneration for their services. They may receive reimbursement of expenses incurred in the performance of their duties, but no other payment can be made.
  3. Prohibition on accumulation of income: Any income generated by a Section 42 company must be applied for promoting its objects within a period of five years from the date of its generation. If the income is not applied for promoting its objects within this period, the SECP may direct the company to apply the income in accordance with its objects or transfer the income to another Section 42 company or a registered charity.

Tax Benefits for Section 42 Companies

Section 42 companies enjoy certain tax benefits under the Income Tax Ordinance, 2001. Section 100 of the Income Tax Ordinance, 2001, provides that any income of a Section 42 company, applied solely for the promotion of its objects, is exempt from income tax. However, any income of a Section 42 company that is not applied for promoting its objects within a period of five years from the date of its generation is subject to income tax.

In addition, any donation made to a Section 42 company is also exempt from income tax under Section 61 of the Income Tax Ordinance, 2001. However, the donation must be made in cash, cheque, or bank draft and must be supported by proper documentation.

Conclusion

Section 42 companies are an important vehicle for promoting commerce, art, science, religion, charity, or any other useful object in Pakistan. These companies are not-for-profit organizations that operate for the benefit of the public or a particular section of society, without the primary motive of making a profit. The Companies Act, 2017 (Section 42) provides the legal framework for the formation and regulation of Section 42 companies in Pakistan.

Section 42 companies enjoy certain tax benefits, but they are subject to certain restrictions to ensure that they operate for their intended purpose and do not distribute profits or income among their members. The SECP plays a crucial role in ensuring that Section 42 companies comply with the legal requirements and operate for their intended purpose.

In conclusion, Section 42 companies are an important instrument for promoting social welfare, supporting the disadvantaged and marginalized, and providing essential services to communities in Pakistan. These companies must be operated with the utmost transparency and accountability to ensure that they fulfill their intended purpose and contribute to the betterment of society.