Types of businesses that can be registered in Pakistan

Pakistan offers a diverse range of business structures to cater to different entrepreneurial needs, from small family-owned enterprises to large multinational corporations. Choosing the right type of business registration is crucial, as it affects everything from liability and taxation to funding and compliance. The Securities and Exchange Commission of Pakistan (SECP) and other regulatory bodies provide a framework for registering various types of businesses in the country.

In this article, we will explore all the main types of businesses that can be registered in Pakistan, their legal requirements, benefits, and practical considerations to help entrepreneurs make informed decisions.

Sole Proprietorship

A sole proprietorship is the simplest and most common form of business in Pakistan. It is owned and operated by a single individual who is personally responsible for all debts and liabilities of the business.

Key Features

• Owned by one person

• No separate legal entity

• Minimal regulatory requirements

• Profits taxed as personal income

Registration Process

Sole proprietorships are registered with the Federal Board of Revenue (FBR) for NTN (National Tax Number) purposes and with local authorities (e.g., Chamber of Commerce) if required. No registration with SECP is needed.

Pros

• Easy and inexpensive to set up

• Full control over business decisions

• Minimal compliance and reporting requirements

Cons

• Unlimited personal liability

• Difficulty in raising capital

• Lack of continuity upon the owner’s death

Partnership Firm

A partnership firm is a business owned by two or more individuals who agree to share profits and losses. It is governed by the Partnership Act, 1932.

Types of Partnerships

• General Partnership

• Limited Partnership (introduced via SECP regulations)

Key Features

• Registered with Registrar of Firms under the respective provincial government

• Requires a written partnership deed

• Profits and liabilities are shared as per the agreement

Registration Process

• Draft and notarize a partnership deed

• Submit Form-I and the deed to the Registrar of Firms

• Obtain registration certificate and FBR NTN

Pros

• Shared resources and decision-making

• More capital than sole proprietorship

• Simple structure for small to medium-sized enterprises

Cons

• Unlimited liability for general partners

• Potential for disputes among partners

• Limited continuity if a partner leaves or dies

Limited Liability Company (LLC)

The most common and versatile form of business in Pakistan is the Limited Liability Company, registered under the Companies Act, 2017.

Types of LLCs

• Private Limited Company

• Single Member Company (SMC)

• Public Limited Company (listed or unlisted)

Private Limited Company

A private limited company is owned by 2 to 50 shareholders. It restricts the right to transfer shares and does not invite the public to subscribe to its shares.

Key Features

• Separate legal entity

• Limited liability of shareholders

• Can be managed by directors and shareholders

• Can raise capital from private investors

Registration Process

• Name reservation through SECP e-Services

• Submission of incorporation documents including:

  • Memorandum of Association (MoA)

  • Articles of Association (AoA)

  • CNICs of directors

  • Form 29 (particulars of directors)

• Payment of fees and issuance of Incorporation Certificate

Pros

• Limited liability protection

• Perpetual succession

• Better access to funding and bank loans

Cons

• Higher compliance costs

• Mandatory annual filings with SECP and FBR

Single Member Company (SMC)

An SMC is a type of private company with only one shareholder, suitable for sole entrepreneurs who want limited liability and a separate legal identity.

Key Features

• Only one shareholder required

• Nominee director must be appointed

• Same incorporation process as a private limited company

Public Limited Company

A public limited company can raise funds by offering shares to the public and must comply with stringent regulations, including listing with the Pakistan Stock Exchange (PSX).

Key Features

• Minimum three directors

• Must file a prospectus with SECP if offering shares to the public

• Subject to strict regulatory compliance

Limited Liability Partnership (LLP)

The LLP structure was introduced under the Limited Liability Partnership Act, 2017, offering a hybrid model between a partnership and a company.

Key Features

• Separate legal identity

• Limited liability for partners

• Registered with SECP

• At least two partners are required

Registration Process

• Name reservation through SECP

• Filing of incorporation documents and LLP agreement

• Issuance of Incorporation Certificate

Pros

• Ideal for professionals like lawyers, accountants, consultants

• Less compliance compared to private companies

• Limited liability and flexible structure

Cons

• Still a relatively new concept in Pakistan

• Not suitable for raising equity from investors

Foreign Company Registration

Foreign companies can also register and operate in Pakistan by setting up a liaison office, branch office, or a locally incorporated subsidiary.

Types

• Branch Office: Can undertake commercial activities with prior approval

• Liaison Office: Non-commercial, for coordination and market research

• Subsidiary Company: Registered as a local private or public limited company

Registration Process

• Apply to the Board of Investment (BOI) for permission

• Register with SECP

• Obtain NTN and other necessary licenses (e.g., provincial registrations)

Pros

• Access to local market

• Tax advantages under DTAA (Double Taxation Avoidance Agreements)

Cons

• Regulatory scrutiny

• Mandatory reporting to BOI and SECP

Non-Profit Company (Section 42 Company)

Non-profit organizations can register as companies under Section 42 of the Companies Act, 2017 for charitable, social, religious, or educational purposes.

Key Features

• Must reinvest all profits in the organization’s purpose

• Requires license from SECP

• Strict compliance and auditing requirements

Registration Process

• Apply for a license under Section 42 from SECP

• Submit memorandum and articles of association

• Register the company after obtaining license

Pros

• Enhanced credibility

• Eligible for local and international grants

• Tax exemptions (subject to FBR approval)

Cons

• No distribution of profits allowed

• High compliance burden

Association of Persons (AOP)

An AOP is similar to a partnership but can include a combination of individuals, companies, or both, aiming to earn income collectively.

Key Features

• Taxed as a separate entity

• Must register with FBR

• Can obtain commercial and professional licenses

Registration Process

• Obtain FBR NTN as AOP

• Submit constituent documents (e.g., AOP agreement)

• Register with relevant authorities based on nature of business

Cooperative Societies

These are registered under the Cooperative Societies Act, 1925 and are formed for mutual benefit, often in agriculture, housing, or credit sectors.

Key Features

• Democratic management (one member, one vote)

• Profits distributed among members

• Must register with Registrar Cooperative Societies

Pros

• Community-based economic benefit

• Government support in agriculture and rural sectors

Cons

• Bureaucratic registration process

• Limited appeal for commercial ventures

Freelancer and Digital Sole Traders

While not a formal business type in legal terms, many freelancers operate by registering themselves as sole proprietors or as SMCs.

Benefits

• Easy FBR registration

• Access to banking and payment platforms

• Eligibility for PSEB registration for IT exporters

Comparative Table of Business Types in Pakistan

Conclusion

Pakistan provides a robust legal framework for registering a variety of business types, from informal setups like sole proprietorships to structured legal entities like private limited companies and LLPs. Entrepreneurs should choose their business type based on their liability tolerance, capital needs, operational flexibility, and regulatory compliance capability. Consulting with a professional firm like Sterling.pk can ensure a smooth registration process and long-term legal compliance.