Starting a business in Pakistan can be an exciting and rewarding experience, but it’s important to make sure you have all your legal requirements in order. One of the first steps you’ll need to take if you’re considering a partnership is to register your partnership with the government. Registering your partnership not only gives you legal recognition as a business entity, but it also offers a number of benefits, including protection of your business name, tax benefits, and access to banking and other financial services. In this blog post, we’ll take a closer look at the process of partnership registration in Pakistan, including the requirements, procedures, and documents you’ll need to get started. Whether you’re a first-time entrepreneur or an experienced business owner, this guide will help you navigate the partnership registration process and set your business up for success.
What is a partnership?
In business, a partnership is a type of business structure in which two or more people join together to carry out a business for profit. Each partner contributes to the business financially, in terms of capital or assets, and shares in the profits or losses of the business according to the terms of the partnership agreement.
Partnerships are a popular choice for small businesses because they allow for shared management and ownership of the business, and they are relatively easy and inexpensive to set up compared to other business structures. Partnerships also offer flexibility in terms of taxation, as they are not taxed as separate entities, but instead, the profits and losses are passed through to the individual partners and are reported on their personal tax returns.
There are two main types of partnerships: general partnerships and limited partnerships. In a general partnership, all partners have equal management authority and are jointly and individually liable for the debts and obligations of the business. In a limited partnership, there are two types of partners: general partners who manage the business and are personally liable for the debts and obligations, and limited partners who invest capital but have limited management authority and liability.
Types of Partnerships
There are several types of partnerships that exist, including:
- General partnership: A general partnership is the most common type of partnership. It involves two or more partners who share equally in the management and profits of the business, as well as being personally liable for the debts and obligations of the partnership.
- Limited partnership: A limited partnership has at least one general partner who has unlimited liability for the partnership’s debts and obligations, and one or more limited partners who contribute capital but have limited liability. Limited partners are not involved in the day-to-day management of the business.
- Limited liability partnership (LLP): An LLP is a partnership in which all partners have limited liability for the partnership’s debts and obligations. Partners in an LLP are not personally responsible for the actions of other partners, but they may be held responsible for their own actions.
- Joint venture: A joint venture is a partnership that is formed for a specific project or purpose. Joint ventures can be used to share resources and expertise between partners for a limited period of time.
- Silent partnership: A silent partnership is a partnership in which one partner provides capital to the business but does not take part in the day-to-day management or decision-making.
- Partnership at will: A partnership at will is a partnership that does not have a fixed term and can be dissolved at any time by any partner.
Pros and Cons of the different types of Partnerships
Here are some pros and cons of each type of partnership:
- General partnership: Pros:
- Easy and inexpensive to set up and operate
- Shared management and decision-making can bring diverse skills and expertise to the business
- Profits are shared equally among partners
- Partners have unlimited personal liability for the partnership’s debts and obligations
- Disagreements among partners can lead to conflicts
- Partnership may dissolve if one partner withdraws or passes away
- Limited partnership: Pros:
- Limited partners have limited liability for the partnership’s debts and obligations
- General partners have control over management and decision-making
- Limited partners can invest in the business without being involved in day-to-day operations
- General partners have unlimited personal liability for the partnership’s debts and obligations
- Limited partners cannot be involved in management or decision-making
- Complex legal and financial requirements for setting up and operating a limited partnership
- Limited liability partnership (LLP): Pros:
- All partners have limited personal liability for the partnership’s debts and obligations
- Shared management and decision-making can bring diverse skills and expertise to the business
- Profits are shared among partners
- More complex and expensive to set up and operate than a general partnership
- Liability protection may not extend to personal misconduct or negligence
- LLPs may not be available in all jurisdictions
- Joint venture: Pros:
- Partners can share resources and expertise for a specific project or purpose
- Limited duration means that partners can move on to other projects after completion
- Risks and costs are shared among partners
- Partners may have different goals or expectations for the project
- Disputes can arise over allocation of resources or profits
- Joint ventures are subject to legal and financial requirements, similar to other partnerships
- Silent partnership: Pros:
- Silent partners can invest in the business without being involved in day-to-day operations
- General partners have control over management and decision-making
- Silent partners have limited liability for the partnership’s debts and obligations
- Silent partners may not have a say in management or decision-making
- Silent partners may not be able to protect their investment if the general partner makes poor decisions
- The partnership may dissolve if the general partner withdraws or passes away
- Partnership at will: Pros:
- Flexible and easy to set up and operate
- Partners can dissolve the partnership at any time
- Uncertainty over the duration of the partnership can make it difficult to plan for the future
- Partners may have different goals or expectations for the partnership
- Personal liability for the partnership’s debts and obligations
Here are the steps to register a partnership in Pakistan:
- Check availability of name:
Steps for checking name availability in Pakistan for a company:
- Visit the SECP eServices Portal The Securities and Exchange Commission of Pakistan (SECP) eServices portal can be accessed at https://eservices.secp.gov.pk/eServices/. This is the official portal for registering companies in Pakistan.
- Select Company Name Availability Search On the SECP eServices portal, click on the ‘Company Name Availability Search’ button. This will take you to the next screen.
- Enter Proposed Name of Company On the next screen, enter the proposed name of your company in the search bar. It is recommended to choose a unique and distinguishable name that is not already in use by another company.
- Click Search Once you have entered the proposed name of your company, click on the ‘Search’ button. This will initiate the search process to check the availability of the name.
- View Search Results After the search is completed, a list of results will be displayed on the screen. If the proposed name is available, it will be listed as ‘Available’ under the ‘Name Availability Status’ column. If the name is not available, the search results will display the reason for the name being unavailable.
- Reserve Company Name If the proposed name of your company is available, you can reserve it by clicking on the ‘Reserve Name’ button. This will initiate the process of reserving the name for your company for a period of 90 days.
Overall, checking the availability of a company name in Pakistan is a simple and straightforward process that can be completed online through the SECP eServices portal. It is important to choose a unique and distinguishable name that is not already in use by another company to avoid any legal issues in the future.
A partnership deed is a legal document that outlines the terms and conditions of a partnership between two or more individuals who wish to start a business together. It is important to prepare a partnership deed to avoid any misunderstandings or disputes that may arise in the future. Here are the steps to prepare a partnership deed:
- Identify the partners: List the names and addresses of all the partners who will be part of the partnership. Also, mention their contribution towards the business in terms of capital, assets, or skills.
- Name of the partnership: Decide on a name for the partnership, which should be unique and not already in use by another business. It should also not be misleading or offensive.
- Nature of the business: Describe the nature of the business that the partnership will undertake. This should include the type of products or services offered, target customers, and any other relevant details.
- Duration of the partnership: Decide on the duration of the partnership, which can be for a fixed term or until it is dissolved by mutual agreement.
- Profit sharing ratio: Decide on the profit-sharing ratio among the partners. This can be based on the capital contribution of each partner or any other agreed upon criteria.
- Roles and responsibilities: Define the roles and responsibilities of each partner in the partnership. This should include the day-to-day management of the business, decision-making, financial management, and any other relevant responsibilities.
- Admission of new partners: Define the process for admitting new partners into the partnership. This should include the criteria for admission, the procedure for admission, and the effect of the admission on the profit-sharing ratio and roles and responsibilities of the existing partners.
- Withdrawal of partners: Define the process for the withdrawal of a partner from the partnership. This should include the circumstances under which a partner can withdraw, the procedure for withdrawal, and the effect of withdrawal on the profit-sharing ratio and roles and responsibilities of the remaining partners.
- Dissolution of the partnership: Define the process for the dissolution of the partnership. This should include the circumstances under which the partnership can be dissolved, the procedure for dissolution, and the distribution of assets and liabilities among the partners.
- Signatures and witnesses: The partnership deed should be signed by all the partners and witnessed by two individuals who are not part of the partnership.
It is important to consult a lawyer or a professional to ensure that the partnership deed is legally sound and protects the interests of all the partners.
Get the Partnership Deed Notarized:
Once you have the partnership deed ready, you need to get it notarized by a notary public.
Register with the Registrar of Firms:
The next step is to register your partnership with the Registrar of Firms in the district where your business is located. You need to submit the following documents to the Registrar:
- Partnership Deed (original and a copy)
- Identity documents of all partners (original and a copy)
- Proof of address of all partners (original and a copy)
- Duly filled registration form
- Partnership registration fee
Obtain National Tax Number (NTN) and Sales Tax Registration Number (STRN):
You will need to register your Partnership with the Federal Board of Revenue (FBR) for tax purposes. Following is a detailed overview of the procedure for registering with the tax authorities in Pakistan:
- Obtain National Tax Number (NTN) The first step in registering with the tax authorities is to obtain a National Tax Number (NTN) from the Federal Board of Revenue (FBR). You can obtain the NTN by submitting an application to the FBR online or through a designated branch of the National Bank of Pakistan.
- Obtain Sales Tax Registration Number (STRN) If your company is engaged in the supply of goods or services, you will need to obtain a Sales Tax Registration Number (STRN) from the FBR. The STRN can also be obtained through the same process as the NTN.
- Register for Withholding Tax If your company is required to deduct withholding tax on payments made to suppliers, contractors or employees, you will need to register for withholding tax with the FBR. This can be done online through the FBR’s e-portal or through a designated branch of the National Bank of Pakistan.
- Register for Professional Tax If your company employs professionals such as doctors, lawyers or engineers, you will need to register for professional tax with the relevant authority. The registration process and requirements may vary depending on the profession and the location of your company.
- Register for Provincial Taxes If your company operates in a province that imposes its own taxes such as the Punjab Sales Tax on Services Act, 2012 or the Sindh Sales Tax on Services Act, 2011, you will need to register for these taxes separately. The registration process and requirements may vary depending on the specific tax and the location of your company.
File Tax Returns Once your company is registered with the tax authorities, you will need to file tax returns on a regular basis. The frequency and deadlines for filing tax returns will depend on the type of tax and the location of your company.
Register for Professional Tax:
If your business falls under the definition of a profession, you need to register for Professional Tax with the relevant Provincial Excise and Taxation Department. In Pakistan, professional tax is a tax that is levied on individuals who are engaged in a profession, trade, or business. The tax is collected by the provincial government, and the rate of tax varies depending on the province. Here is an overview of professional tax in Pakistan:
- Applicability: Professional tax is applicable to individuals who are engaged in a profession, trade, or business in Pakistan. This includes self-employed individuals, partnerships, and companies.
- Rates of tax: The rate of professional tax varies depending on the province and the amount of income earned by the individual. For example, in Punjab, the tax rate ranges from Rs. 200 to Rs. 2,000 per year, depending on the income level.
- Filing requirements: Individuals who are subject to professional tax are required to file a tax return on an annual basis. The deadline for filing the return and paying the tax varies depending on the province.
- Exemptions: Some categories of individuals are exempt from professional tax, such as government employees, members of the armed forces, and individuals who earn below a certain income threshold.
- Penalties for non-compliance: Failure to pay professional tax or file a tax return can result in penalties and legal action by the tax authorities.
Register with the Labor Department:
If you plan to hire employees, you need to register with the Labor Department of the province where your business is located. In Pakistan, every business, including partnerships, is required to register with the labor department. Here are the steps to register a partnership with the labor department in Pakistan:
- Obtain the partnership deed: The first step is to obtain a partnership deed that outlines the terms and conditions of the partnership. The deed should include the names and addresses of all partners, the nature of the business, and the roles and responsibilities of each partner.
- Obtain a National Tax Number (NTN): Every partnership must obtain an NTN from the Federal Board of Revenue (FBR) before registering with the labor department. This can be done online by visiting the FBR website or by visiting the nearest Regional Tax Office (RTO).
- Complete the registration form: Once you have obtained an NTN, you must complete the registration form for the labor department. This form can be obtained from the labor department or downloaded from their website.
- Provide partnership details: The registration form will require you to provide details about the partnership, such as the name of the partnership, address, nature of business, and the names and addresses of all partners.
- Provide employee details: If the partnership has employees, the registration form will also require you to provide details about them, such as their names, addresses, and job titles.
- Submit the form: Once the form is completed, it must be submitted to the labor department along with the required documents, which may include a copy of the partnership deed, proof of address, and other relevant documents.
- Pay the registration fee: The registration fee for the labor department varies depending on the province and the number of employees. The fee can be paid at the labor department or online through their website.
- Obtain the registration certificate: Once the registration form and fee have been submitted, the labor department will process the application and issue a certificate of registration. This certificate should be displayed at the partnership’s place of business.
It is important to keep the labor department registration up to date and to comply with the labor laws in Pakistan to avoid any penalties or legal issues.
By following these steps, you can successfully register your partnership in Pakistan and begin operating as a legal business entity. It’s essential to ensure that you comply with all legal requirements to avoid any legal issues or penalties in the future.
Advantages of Partnership
Partnership is a form of business organization in which two or more individuals come together to carry out a business with a shared goal. Some advantages of a partnership include:
- Shared responsibility: In a partnership, the responsibility of running the business is shared among the partners. This can help in reducing the workload and stress on an individual partner.
- Capital availability: Partnerships can benefit from having access to a larger pool of capital since each partner contributes to the business’s capital. This can make it easier for the business to obtain financing, and it can also help to mitigate the risk of financial loss.
- Specialized skills: Partnerships allow each partner to bring their own unique set of skills and expertise to the business. This can lead to a more diverse and well-rounded business, and it can also help to improve the quality of products or services offered.
- Tax advantages: Partnerships enjoy certain tax advantages, such as being able to pass through the business’s profits and losses directly to the partners. This means that the partnership itself is not taxed, and the partners are only taxed on their share of the profits.
- Flexibility: Partnerships are generally more flexible than other types of business organizations, such as corporations. This is because there are fewer formal requirements and regulations to follow, and decisions can be made more quickly.
- Greater motivation: Partnerships can provide a greater sense of motivation for the partners since they are personally invested in the business’s success. This can lead to increased dedication and commitment to the business.
Overall, partnerships can be a good option for individuals who are looking to start a business with others and want to benefit from shared resources, skills, and expertise.
Challenges faced in a Partnership
While partnerships offer many advantages, they can also present some challenges. Here are some of the common challenges that partners may face:
- Disagreements and conflicts: Since partnerships involve two or more individuals with different personalities, ideas, and ways of doing things, disagreements and conflicts can arise. These can be related to decision-making, business strategies, or personal issues.
- Unequal contributions: One partner may feel that they are contributing more to the partnership than the others. This can lead to resentment and feelings of unfairness.
- Liability: Partnerships are generally not incorporated, which means that the partners are personally liable for the debts and obligations of the partnership. This can put personal assets at risk if the partnership incurs significant debts or legal issues.
- Sharing profits: Partnerships require the sharing of profits among the partners, which can be a source of conflict if partners feel that they are not being compensated fairly for their contributions.
- Communication breakdowns: Effective communication is critical for any partnership to succeed. When partners fail to communicate effectively, misunderstandings and mistakes can occur, leading to negative consequences for the business.
- Unforeseen events: Partnerships can be vulnerable to unforeseen events such as illness, death, or departure of one or more partners. This can disrupt the business and require significant changes to be made.
It is important for partners to address these challenges proactively to ensure that the partnership remains successful and productive. This may involve setting clear expectations, having open and honest communication, and creating contingency plans for unforeseen events. Additionally, it is recommended to consult with a legal professional to draft a comprehensive partnership agreement that covers all the possible scenarios and situations that may arise.
In conclusion, registering a partnership in Pakistan requires careful consideration of legal and regulatory requirements. It is important to consult with a lawyer to draft a comprehensive partnership deed that outlines the rights, responsibilities, and obligations of each partner. Additionally, partners must comply with registration requirements set by the Registrar of Firms and the Labor Department to operate legally and avoid any penalties or legal issues. While partnerships offer many advantages, it is important for partners to be aware of the challenges that may arise and address them proactively. By following the proper registration procedures and establishing clear expectations and communication, partnerships can thrive and achieve their business goals in Pakistan.
- What is a partnership?
A partnership is a business structure in which two or more individuals come together to carry out a business with a shared goal. Each partner contributes capital, skills, and expertise, and shares in the profits and losses of the business.
- What are the requirements for partnership registration in Pakistan?
To register a partnership in Pakistan, partners must have a partnership deed that outlines the rights, responsibilities, and obligations of each partner. The partnership deed must be signed and attested by all partners, and registered with the Registrar of Firms. Additionally, partners must obtain a National Tax Number (NTN) from the Federal Board of Revenue and register with the Labor Department for professional tax purposes.
- What is the procedure for partnership registration in Pakistan?
The procedure for partnership registration in Pakistan involves drafting a partnership deed, attesting and signing the deed, and submitting it along with the required documents to the Registrar of Firms. The partners must also obtain an NTN and register with the Labor Department. After completing these steps, the partnership will be issued a certificate of registration.
- What are the advantages of registering a partnership in Pakistan?
Registering a partnership in Pakistan can provide legal recognition, which can help to build trust with customers, suppliers, and other stakeholders. Additionally, registered partnerships may be eligible for certain tax exemptions and benefits.
- What are the disadvantages of a partnership?
Partnerships can face challenges such as disagreements among partners, unequal contributions, and personal liability for the debts and obligations of the partnership. Additionally, partnerships may not have the same access to financing or resources as larger corporations.
- Do partners need to pay taxes on partnership income?
Partnerships in Pakistan are considered pass-through entities, which means that the business’s income is not taxed at the partnership level. Instead, each partner is responsible for paying taxes on their share of the profits and losses.