Differences between private and public company registration in Pakistan

Pakistan’s corporate framework, governed by the Companies Act, 2017, provides various legal structures for entrepreneurs and businesses. Among these, private limited companies and public limited companies are the most common types for medium to large enterprises. Choosing the right structure depends on several factors such as capital requirements, shareholder expectations, regulatory obligations, and intended business goals. This article explores the key differences between private and public company registration in Pakistan and provides a clear understanding of their legal, procedural, and compliance requirements.

Definition of Private and Public Companies in Pakistan
A Private Limited Company (Pvt. Ltd.) in Pakistan is a business entity incorporated under the Companies Act, 2017, with restrictions on the transfer of shares, and it cannot offer its shares to the general public. It is usually preferred by small to medium-sized businesses and closely held entities.

A Public Limited Company can be either listed (on the Pakistan Stock Exchange) or unlisted. It is allowed to offer shares to the public and raise capital from general investors, provided it complies with regulatory conditions imposed by SECP and PSX (for listed companies).

Legal Framework and Governing Body
Both company types are governed under the Companies Act, 2017, and regulated by the Securities and Exchange Commission of Pakistan (SECP). However, public companies, especially listed ones, are subject to additional regulations under the Public Offering Regulations, 2017, and Listing Regulations of the Pakistan Stock Exchange.

Shareholder Requirements

• Private Company: Minimum 2 and maximum 50 members (excluding employee shareholders).

• Public Company: Minimum 3 shareholders. There is no upper limit on the number of shareholders. Listed public companies typically have hundreds or thousands of shareholders.

Capital Requirements

• Private Limited Company: No mandatory minimum capital. Most startups begin with a paid-up capital of PKR 100,000 or more.

• Public Limited Company:

  • Unlisted: Must have at least PKR 100,000 as paid-up capital.

  • Listed: Requires a minimum paid-up capital of PKR 200 million under PSX rules.

Board of Directors

• Private Company: Minimum of one director is required.

• Public Company: Minimum three directors are mandatory, with at least one independent director required for listed companies.

Company Name Suffix

• Private companies must include “(Private) Limited” or “(Pvt.) Ltd.” at the end of the company name.

• Public companies must use “Limited” at the end, without “Private”.

Restrictions on Share Transfer

• Private Limited Company: Restricts the right to transfer shares, and shares cannot be offered to the public.

• Public Limited Company: Shares are freely transferable, and in case of a listed company, can be traded on the stock exchange.

Public Fundraising Ability

• Private Company: Cannot invite the general public to subscribe to its shares.

• Public Company: Can raise capital from the general public through Initial Public Offerings (IPO) or Private Placements, subject to SECP approval.

Regulatory Filings and Disclosure

• Private Company: Limited disclosure requirements. Filings with SECP include Form A, Form 29, annual returns, audited accounts (for medium/large companies), and changes in shareholding.

• Public Company: More rigorous compliance. Must submit quarterly, half-yearly, and annual financial statements, Form 23, Form 29, director reports, and comply with the Code of Corporate Governance.

Audit Requirements

• Private Company: Only medium and large-sized companies are required to get accounts audited. Small companies may be exempt.

• Public Company: Mandatory annual audit by a QCR-rated audit firm. Listed companies also require internal audits and audit committee reports.

Listing on Stock Exchange

• Private Company: Cannot be listed on the Pakistan Stock Exchange.

• Public Company: Eligible for listing after fulfilling PSX criteria. Listing allows access to wider capital markets and greater visibility.

Compliance with Code of Corporate Governance

• Private Company: Not applicable.

• Public Company: Must follow SECP’s Code of Corporate Governance, especially listed companies. This includes board independence, audit committees, related-party disclosures, and investor relations.

General Meetings and Resolutions

• Private Company: Annual General Meetings (AGMs) are not mandatory unless specified in the Articles of Association.

• Public Company: AGMs and other statutory meetings are mandatory. Resolutions passed must be filed with the SECP as per statutory deadlines.

Documentation for Incorporation
Private Limited Company:

• CNIC/NICOP of directors and shareholders

• Address of the registered office

• Memorandum and Articles of Association

• SECP Form 1, Form 21, Form 29

• Payment of registration fee

Public Limited Company:

• CNIC/NICOP of promoters/directors

• Capital declaration

• Company name availability letter

• SECP-prescribed forms

• Bank certificate of paid-up capital

• Detailed prospectus (if applying for listing)

• Compliance with IPO regulations

Advantages of Private Companies

• Easier to form and maintain

• Fewer regulatory obligations

• Ideal for startups and family businesses

• Lower cost of compliance

• No public scrutiny or pressure from shareholders

Advantages of Public Companies

• Access to large-scale capital

• Enhanced credibility and visibility

• Opportunity to attract diverse investors

• Can issue bonus shares and right issues

• Exit opportunity for founding shareholders

Disadvantages of Private Companies

• Limited access to capital

• Share transfer restrictions

• Cannot access stock market

• Investor interest may be low due to lack of liquidity

Disadvantages of Public Companies

• Higher cost and time for registration and compliance

• Requires a more complex corporate structure

• High regulatory scrutiny

• Shareholder activism and influence on decisions

• Market pressure for short-term performance

Conversion from Private to Public
A private company can convert into a public limited company by:

• Passing a special resolution

• Amending Articles of Association

• Changing the name to include “Limited” instead of “(Pvt.) Ltd.”

• Filing Form 26 and other supporting documents with SECP

• Complying with the additional requirements of public companies

Suitability of Each Company Type

• Private Company: Best for small businesses, family-owned enterprises, joint ventures, and service-oriented firms.

• Public Company: Suitable for companies looking for capital expansion, infrastructure development, or broader investor participation.

Costs Involved in Registration

• Private Company: Relatively low registration fees (around PKR 1,500 to PKR 10,000 depending on capital).

• Public Company: Higher registration fees, prospectus preparation costs, legal and consultancy expenses, and potential listing costs if going public.

Timeframe for Incorporation

• Private Company: 1–3 working days (via SECP’s online e-services).

• Public Company: 5–10 working days or more, depending on SECP approvals and documentation. Listed companies require even more time for IPO processing.

Taxation Differences

• No major difference in taxation between private and public companies in terms of corporate tax rate. However, listed companies are eligible for tax rebate under Section 65C of the Income Tax Ordinance, 2001, which allows a 20% tax credit for listed entities.

Disclosure and Transparency

• Private Companies operate with relatively lower transparency obligations, offering flexibility.

• Public Companies are held to high standards of disclosure, especially if listed, with obligations to disclose material information immediately to SECP and PSX.

Investor Perception and Trust
Public companies, particularly listed ones, enjoy more trust and brand recognition due to stringent regulatory oversight and transparency. Private companies, while nimble, may be viewed with skepticism by institutional investors due to limited disclosure.

Key SECP Forms Used

Conclusion
Understanding the differences between private and public company registration in Pakistan is crucial for entrepreneurs, investors, and advisors. The decision to register a business as a private or public company hinges on various considerations such as capital needs, compliance capacity, ownership structure, and long-term business strategy. Private limited companies offer operational flexibility with limited disclosure, while public companies provide capital-raising opportunities with increased scrutiny. Each structure serves a distinct business goal, and making the right choice can significantly influence your company’s growth, governance, and success