In Pakistan, there are four main types of business structures, and each has its own rules, legal status, and setup process. These include:
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Sole Proprietorship
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Partnership Firm (Unregistered)
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Limited Liability Partnership (LLP – registered with SECP)
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Private or Public Limited Company (registered with SECP)
Before starting a business, it’s important to choose the right business structure depending on the size, nature, and goals of your business. This article explains each type in simple terms to help entrepreneurs make the right choice.
Quick Comparison of Business Types in Pakistan
| Feature | Sole Proprietorship | Partnership | Not-for-Profit Organization | Private/Public Limited Company |
|---|---|---|---|---|
| Members Required | 1 | 2 to 20 | Minimum 3 | Pvt Ltd: 1–50, Public Ltd: No Limit |
| How to Register | With FBR (NTN) | With Registrar of Firms | With SECP | With SECP |
| Compliance | Annual Tax Return | Tax returns for firm + partners | SECP + FBR filings | SECP + FBR filings |
| Liability | Unlimited | Unlimited | Limited | Limited |
| Transfer of Ownership | Not allowed | Allowed with in-person visit | Difficult | Easy |
| Business Duration | Ends with owner’s death | Ends if partner leaves or dies | Unlimited | Unlimited |
| Taxation | Yes | Yes | Can be tax-exempt | Corporate tax applies |
| Raising Capital | Owner only | From partners | Grants/Donations | From shareholders or investors |
What is a Sole Proprietorship?
A sole proprietorship is the simplest form of business in Pakistan. It is run and owned by one person. The business is not considered a separate legal entity, and the owner is personally responsible for all business debts and obligations.
Pros:
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Easy and free to start
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Full control of business
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Fewer rules to follow
Cons:
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Unlimited personal liability
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Hard to raise large funds
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Business ends if the owner dies
How to Register a Sole Proprietorship in Pakistan:
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Choose a unique business name.
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Create a letterhead with business name, logo, contact number, and office address.
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Get a business stamp made.
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Visit www.fbr.gov.pk and register your business on the IRIS portal to get an NTN.
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You will need your CNIC, office rent agreement, and latest paid electricity bill.
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Once your NTN is issued, go to any bank and open a business bank account using:
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Your NTN
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CNIC
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Letterhead
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Business stamp
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NTN verification print
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What is a Partnership Firm?
A partnership is a business started by two or more people who agree to work together and share profits or losses. The agreement can be written or oral, but it is better to have a written agreement to avoid disputes.
Key Features:
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Requires at least 2 people (up to 20 for regular business, and 10 for banking)
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Partners share responsibility and trust
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The firm is not a separate legal entity
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Not registered with SECP; registered with Registrar of Firms under the Partnership Act, 1932
Advantages:
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Easy to start and operate
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Combined capital and skills
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Shared responsibilities
Disadvantages:
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Unlimited liability
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Business can end if a partner leaves, dies, or is declared bankrupt
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Legal issues may arise if not registered
Important Rules:
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Every partner is an agent of the firm and other partners
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All partners must cooperate
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Profits are divided as per the agreement
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Consent of all partners is needed to bring in a new partner or transfer shares
What is a Limited Liability Partnership (LLP)?
A Limited Liability Partnership (LLP) is a modern form of business introduced by SECP in 2017. It combines the features of a partnership and a private limited company. It is a separate legal entity, so the personal assets of partners are protected.
Best for: Professionals like doctors, lawyers, and consultants who work together but want liability protection.
Differences from Traditional Partnership:
| Feature | Traditional Partnership (AOP) | LLP |
|---|---|---|
| Legal Status | Not separate | Separate entity |
| Liability | Unlimited | Limited |
| Taxation | Single-layer tax | Single-layer tax |
| Cost | Lower | Slightly higher than AOP but less than Pvt Ltd |
Benefits:
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Liability of partners is limited
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More flexible than a Pvt Ltd Company
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Registered with SECP
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Suitable for professional firms
What is a Private Limited Company?
A Private Limited Company (Pvt Ltd) is a popular form of business in Pakistan. It provides limited liability, a legal identity, and better credibility. It is registered with SECP and regulated under the Companies Act, 2017.
Basic Rules:
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Minimum 2 shareholders (can go up to 50)
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Can start operations after receiving Certificate of Incorporation
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A director can also be a shareholder
How to Register a Private Limited Company in Pakistan:
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Choose a company name and reserve it through SECP’s eServices portal.
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Prepare required documents:
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Memorandum of Association (MoA)
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Articles of Association (AoA)
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CNICs or NICOPs of directors
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Business address and contact details
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Submit online Form INC-1 on https://eservices.secp.gov.pk
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Pay the incorporation fee and wait for SECP approval.
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Receive Certificate of Incorporation and company’s registration number (CRN).
Once the company is formed, it also receives an NTN automatically from FBR. The company can then open a bank account, register for sales tax (if needed), and start business.
Time Required: Registration usually takes 5 to 10 working days depending on SECP review and documentation.
Advantages of Private Limited Companies
1. Separate Legal Identity:
A company is considered separate from its owners. It can own property, enter contracts, borrow funds, and sue or be sued independently.
2. Limited Liability:
Shareholders are only responsible for the money they invest. Their personal property is protected in case of business failure.
3. Easy Transfer of Shares:
Shares in a company can be transferred easily, subject to rules mentioned in the Articles of Association.
4. Perpetual Existence:
The company continues to exist even if the owners or directors change or pass away.
5. Better Access to Capital:
Banks, investors, and donors prefer to work with registered companies. You can raise funds easily through equity or loans.
6. Accountability and Reporting:
Companies must maintain financial records and file annual returns, which increases transparency.
7. Stronger Business Image:
A registered company gains trust among customers, vendors, and international clients.
8. Legal Framework:
A company operates under its own Memorandum and Articles of Association, ensuring professionalism and organized decision-making.
Final Words
Choosing the right business structure is one of the most important decisions an entrepreneur will make. A sole proprietorship is simple and cost-effective but carries personal risk. A partnership allows teamwork but has shared liability. An LLP gives partners some legal protection while offering operational flexibility. A private limited company offers the most benefits in terms of limited liability, legal identity, and credibility but comes with more formalities and compliance.
If your business has long-term growth plans, involves multiple stakeholders, or requires outside investment, registering a Private Limited Company with SECP is the most professional and secure option.
Let your choice of structure match your business goals, level of risk, and the nature of your work.
