Pakistan is getting tons of attention from businesses across the globe because of the Chinese interest & Pakistan being an important part of One Belt One Road project of China (CPEC is a part of OBOR). This article focuses over the legal requirements & procedures to setup a business in Pakistan.
Business registration is essential to provide your business a legal cover and to ensure smooth working. Business registration is an important tool to formalize your business in terms of providing an existence to your business. Registration of a business assists an entrepreneur in multiple ways including; documenting legal aspects of the business & its owners, assigning identity, facilitating access to formal financing, offering tools & techniques to control legal consequences in case of breach of contract etc. It also provides opportunities to participate in projects sponsored by the government, large private companies and to meet international trade requirements.
Types of Business Registrations In Pakistan
The most commonly used types of business formation or registration options in Pakistan are:
- Sole proprietorship
- Partnership firm
Selecting Business Registration Type in Pakistan
A new business setup in Pakistan can choose the type of business registration based upon the nature, size and objectives of business. During the decision making process, the entrepreneur may consider the following:
- Nature and size of business
- Flexibility of operation
- Costs of registration
- Compliance requirements
- Tax benefits
- Reporting requirements
In Pakistan, most of the small businesses prefer to register as a sole proprietorship under Income Tax Ordinance, 2001 or under Partnership Act 1932, whereas, for medium to large sized business, Private Limited Companies are the preferred category to be registered under the Companies Act, 2017. It is also important to know that a business registered as sole proprietor or firm, may also be converted into a Private Limited Company as the business moves towards expansion and maturity.
1. Sole Proprietorship Business Registration in Pakistan
Sole proprietorship is not considered to be a formal way of doing business in Pakistan and has no stated business registration procedure. A sole proprietor is defined as;
A type of enterprise that is owned and run by one natural person and in which there is no legal distinction between the owner and the business entity. The owner is in direct control of all elements and is legally accountable for the finances of such business and this may include debts, loans, loss, etc. The sole trader receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts.
In Pakistan, Income Tax Ordinance 2001 handles taxation related issues for sole proprietorship. A person can request for stating his/her business name in the NTN certificate. By doing so, the person will be liable for personal and business tax under the same NTN and the entrepreneur’s status will be as individual.
Governing Body & Fee of Sole Proprietorship Registration
The governing body & registering authority for sole proprietor business is the Federal Board of Revenue (FBR).
Cost of Registration: Other than lawyer’s fee, no cost is associated for applying NTN for sole proprietorship.
Time of Registration: The estimated time of sole proprietorship registration is 7-10 days.
Benefits: Easy to register, less time consuming and flexibility to take a decision by the owner as the owner is solely liable to the business.
2. Partnership Firm Business Registration in Pakistan
Two or more partners can register themselves as a firm under Partnership Act 1932. Application forms can be acquired from the Registration Section of Registrar of Firms of District Government. Partnership deed shall be made on judicial papers worth Rs.1,000 on behalf of the firm, which shall be signed by all partners and witnesses accordingly, mentioning their complete particulars there in. A challan form of Rs.100 submitted in National Bank of Pakistan shall be attached with the application form.
Governing Body & Fee of Partnership Firm Registration
The governing body & registering authority for partnership firm business is the Registrar of Firms under District Government.
Cost of Registration: Other than lawyer’s fee a challan of Rs. 100 needs to be deposited with National Bank of Pakistan and stamp paper of Rs. 1,000 is required for applying firm registration.
Time of Registration: The estimated time of partnership form registration is 10-15 days.
Benefits: Easy to register, less time consuming and flexibility to take a decision.
Steps of Partnership Firm Registration in Pakistan
- Drafting of partnership deed on a stamp paper of Rs. 1,000 duly signed and stamped by Oath Commissioner and Notary Public.
- Payment of challan of Rs. 100 to National Bank of Pakistan (NBP).
- Preparation of Form – 1: Declaration of name of firm, office address, particulars of partners and 2 witnesses
- Submission of Form-1 along with a copy of partnership deed and original receipt of challan to the office of District Registrar of firms.
- Issuance of Certificate of registration of firm.
3. Company Registration in Pakistan
Securities and Exchange Commission of Pakistan (SECP) is the only authority that provides services for registration of companies in Pakistan under Companies Act 2017. Company registration office charges fees for registration in Pakistan. A company may be registered online or manually, and the fee structure is subject to differ.For example,fees of Rs. 1,000 is charged for online registration of a company with nominal share capital not exceeding Rs. 100,000 and Rs. 2,000 registration charges are levied in case of physical submission of documents.
Governing Body & Fee of Company Registration
The governing body & registering authority for partnership firm business is SECP.
Cost of Registration: Other than lawyer’s fee, a challan of Rs. 500 in case of offline or Rs. 200 in case of online is required to be deposited with Muslim Commercial Bank (MCB) for availability of name application with SECP and if it is accepted Rs. 1,000 for online registration of a company whose nominal share capital (amount of capital funded by a company’s shareholders) does not exceed Rs. 100,000 and Rs. 2,000 in case of physical submission of documents.
Time of Registration: The estimated time of partnership form registration is 20-30 days.
Benefits: Owner of the business enjoys limited liability for the business debts i.e. the owner is liable for debts only to the extent of the owner’s shares. Company is an individual & a separate legal entity from its owner.
Steps of Company Registration in Pakistan
- Filing of application on plain paper for availability of name to the registrar of companies of SECP. Receipt of challan of Rs. 500 deposited in MCB or Rs. 200 in case of online submission of application for each name.
- Upon receiving the certificate of availability of name, 4 copies of Memorandum of Association and 4 copies of Article of Association to be submitted to SECP within 90 days from the date of issuance of Certificate of Availability of Name along with filled application forms.
- Submission of Forms – Form – 1 (Declaration of applicant for compliance), Form – 21 (Notice of situation of registered office of the company) & Form – 29 (Particulars of first directors of the company – CNIC or
passport in case of foreigner etc.)
- Original receipt of challan of Rs. 2,000 (in case of online submission Rs. 1,000) deposited in MCB must be attached. The above mentioned documents need to be submitted with the registrar of Companies of SECP within 90 days from the date of issuance of certificate of availability of name.
- Issuance of Certificate of Incorporation by the registrar of Companies.
You might need to apply for certain licenses at the start of your business subject to the nature of your business you are in. The most common licenses needed to apply for are:
- National Tax Number (NTN): Needed for all business types & categories. NTN is issued by FBR.
- Sales Tax Number (STN): Needed for all business types which are involved in sales of goods, trading or services. STN is also issued by FBR.
- Intellectual Property Rights (Trade Mark, copy right, patent etc.): Needed for any business type that wants to hold the rights for their intellectual property. IPO-Pakistan is the issuing authority.
- Professional Tax: Needed for all business types that are providing services. It’s a provincial tax & provincial excise and taxation officer (ETO) is the issuing authority.
- Employees Social Security Institution: Needed for all manufacturing, trading & services businesses in Pakistan. It’s a provincial governing body and provincial commissioner of employees social security is the issuing authority.
- Employees Old Age Benefits Institution: Needed for all businesses in Pakistan. It’s a federal governing body & EOBI is the issuing authority.
Specialized Business Licensing Requirements in Pakistan
When a business falls under food, agriculture, entertainment, services (such as pathological medicinal services), etc. additional licensing requirements may need to be fulfilled, some of which are stated as below:
Some manufacturing, trading & services businesses like food, wheat and sugar production and halal food
certificate would need to have this certificate from:
- Pakistan Environmental Protection Agency (PAK-EPA)
- Provincial Environmental Protection Agencies / Department (incl. AJK and Gilgit Baltistan)
- Departments Forest Environment & Wildlife, Sindh
Council Permits and Certificates From Concerning Professional Body
Some specialized licenses that can be obtained from:
- Pakistan Medical and Dental Council. (PMDC)
- The Pakistan Council of Architects and Town Planners
- Pakistan Engineering Council (PEC)
- National Council for Tib
- National Council for Homeopathy
- Pakistan Veterinary Medical Council
- Bar Councils