Sole proprietorship

The default business structure for independent contractors, freelancers and small businesses with one owner. It is the oldest and the most common form of business. The individual entrepreneur owns the business and is fully responsible for all its debts and legal liabilities. The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor, and all debts of the business are the proprietors. This means that the owner has no less liability than if they were acting as an individual instead of as a business. Legally, there is no difference between the business entity and its owner. Its main features are:

• Doesn’t require any formal paperwork to create, a business name, or a separate business bank account. However, the owner is required to get NTN certificate from FBR.
• Sole proprietors being the owner maintains 100% control over the business profits
• Sole proprietors have personal liability for all of the business’s debts and liabilities. Creditors can even go after a sole proprietor’s home, car, or other personal assets to satisfy business debts.
• Legally, there is no difference between the business entity and its owner.
• Filing taxes as a sole proprietorship is relatively easier than that of a corporation.
• Sole proprietorships typically require less capital to set up and have easier payroll requirements.
• Sole proprietorships are not as heavily regulated as other forms of organizations.

Partnership & Joint Ventures:

Partnership form of business organization is suitable for small and medium scale of businesses. The registration of partnership is not compulsory by law. It is optional and there is no penalty for non-registration. Maximum numbers of partners are limited up to 20 members. However, there are certain legal and tax disadvantages for registration which is governed under Partnership Act 1932. It is a form of business organization in which two or more parties come together to achieve specified economic objective. Each such party to the organization is known as ‘partner’. The relationship between / among partners are governed by the partnership agreement. Some of the common clauses relating to partnership are capital, profit/loss sharing ratio, tenor, object, inclusion of new partner, retirement / exclusion of existing partner, dissolution of partnership etc.

A partnership can be registered with the Registrar of Firms under Partnership Act. A statement in prescribed form should be delivered to the relevant Registrar stating:

• Firm name
• Place or principal place of business of the firm
• Names of any other places where the firm carries on business
• Date when each partner joined the firm
• Names in full and permanent addresses of the partners with CNIC & NTN
• Duration of the firm

Limited Liability Partnership

LLP is a new-fangled corporate structure, it registered through SECP similar a Limited Company, that carries the flexibility of a general partnership and the benefits of limited liability of a company at a low compliance cost. It is an alternative corporate business option that offers the benefits of limited liability of a company, but aids its members with the suppleness of organizing their internal management on the basis of a mutually arrived agreement, as is the case in a general partnership firm. Owing to flexibility in its structure and operation, LLP would be useful for small and medium enterprises, in general, and for the enterprises in services sector, in particular. Internationally, LLPs are the preferred option of business, particularly for service industry or for activities involving professionals. Introduction of LLP in Pakistan is expected to enable entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific and technical disciplines, to form commercially efficient vehicles suited to their requirements.

COMPARISON BETWEEN GENERAL PARTNERSHIP AND LLP

LLP is a kind of partnership where all the partners possess limited liability in an incorporated entity and is a legal entity separate from its partners. Existence of LLP is not dependent upon its members/partners as it has recognition of legal person according to law. It, therefore, comes up with the elements of general partnerships and company. In LLP, one partner is not responsible or liable for another partner’s misconduct or negligence whereas in partnership registered under Partnership Act 1932 all the partners are liable, jointly with all the other partners and also severally, for all acts of the firm done while they are partners. Unlike corporate shareholders, the partners in an LLP have the right to manage the business directly. In contrast, corporate shareholders have to elect a board of directors to manage the affairs of company.

Joint Ventures

Joint ventures are suitable form of carrying out a business in Pakistan where two or more parties do not wish to form a separate entity to deal with a venture, however, they only agree to act together in a specific manner and under certain terms and conditions. In such situation each party retains its own individual identity which may be in the form of a company or a partnership. In a joint venture, therefore, these parties agree to enter into a consortium or a joint venture agreement. Relationship between the parties is created on the terms and conditions as stated in this agreement and no relationship that is beyond the ambit of this agreement comes into existence. Rights, liabilities etc. of each contracting party are also determined according to the terms and conditions of the agreement. There is no requirement under the law of Pakistan for registration of such Agreements. However, the entities which form Joint Venture may themselves be required to be registered under the relevant law.

Limited Company:

Companies form of business organizations is the most prevalent form in Pakistan specially meant for medium and large-scale business enterprises, the governing law regarding companies in Pakistan Companies Ordinance, 1984. Whereas the administration of these companies is done through the Securities and Exchange Commission of Pakistan and the Registrar of Companies appointed by appointed by the Securities and Exchange Commission of Pakistan for a Province of Pakistan where such company is to be registered.

According to the Companies Act, 2017 a company is a corporate body with separate legal entity and a perpetual succession and a company may be formed by persons associating for any lawful purpose by subscribing their names to the Memorandum of Association and complying with other requirements for registration of a company under the provisions of the Ordinance. The benefits for Limited Company or Ltd. Company organization are protection in litigation, reliability, tax savings, asset protection, secrecy, easy arrangements of capital, possession of a separate legal entity for personal protection, establishing an Ltd. Company has an extensive range of powers as compared to sole proprietorship, small claims court benefits, separate liability for corporate debts, and perpetual duration. There in Ltd. Company incorporation you r business own a separate legal person. You are a shareholder. You can control the corporation. However, when your business is sued you can be protected from being sued personally after forming a Ltd. Company.

There are two types of limited liability companies are the Companies Ordinance, 1984 namely,

• A Private Limited Company and
• A Public Limited Company (which may be listed or unlisted).

Any one or more persons associated for any lawful purpose by subscribing their name(s) to the Memorandum of Association and complying with other registration specific requirements of the Companies Ordinance, 1984 may incorporate a private limited company. Provided that where a company has only one subscriber to the Memorandum of Association then such a company is called a Single Member Company, however, a Single Member Company remains a private limited company for all intents and purposes of the Ordinance. Whereas any three or more persons so associated may form a public limited company. A company limited by shares whether a private company or a public company is the most common vehicle for carrying out a business enterprise in Pakistan.

Private Limited Company

This is the most prevalent type of companies in Pakistan. According to the provisions of companies’ ordinance, 1984 private limited companies are defined as:

“A private limited company is the company which restricts the right to the transfer the shares “

Here the maximum number of members are fifty. Private Limited Company does not allow any kind of invitation to general public to subscribe for its any shares and pay any amount to the company in that respect.

Public Limited Company

A company other than a company registered as private limited company is called public limited company. Companies’ ordinance defined certain conditions for public limited companies which are as under:

“A company registered as public limited company does not impose any restrictions on the number of members that the company can have”. A Public company is a company which does not impose any restriction on the right of transfer of its shares. Public company does not impose any restriction on the invitation to general public to subscribe for its shares and pay any amount in respect of that subscription.

Listed Company

A public company can be further classified into two categories:

Listed company is the company which has its shares listed on any stock exchange. In Pakistan at the moment companies are listed on three stock exchanges of the country namely Karachi Stock Exchange, Lahore Stock Exchange and Islamabad Stock Exchange.

Unlisted Company

Unlisted Public companies are those companies whose shares are not listed on any stock exchange of the country and these types of companies are not allowed to trade their shares through stock exchange.

Welfare Association, Trust, NGOs

Non-profit organization is an organization which is established in Pakistan for educational, charitable, welfare or development purposes. It is established with the open assertion that its assets and income will be used to achieve its objectives and no portion thereof shall be distributed, paid or transferred directly or indirectly by way of dividend, bonus, and profit or by any other means to its Board of Directors, organizers or any member of its general body. The nonprofit organizations are registered under Societies Registration Act 1860 or Trusts Act 1882. The income of Non-Profit organizations or NGOs are exempted from income tax, as per income tax ordinance 2001.

Important elements of NGOs are:

1. At least 8 to 10 members of trust/trustees. If you are registering Society then you need 25 members
2. You also need a land or money which you want to donate for the trust. Land is more preferable for the registration of Trust/Society
3. An office with rent agreement/ownership papers of that land
4. Memorandum of Trust
5. Article/Objective of trust.
6. CNIC of all members
7. Affidavit from all members

Trust

A public charitable trust is a trust which is created for the benefit of society generally or for certain sections of society. The said Act extends to the whole of Pakistan but nothing contained in the Act affects the rules of Muslim law as to waqf. A waqf under Muslim law is generally made with a pious, charitable or religious purpose. As a Trust property vests in Trustees, but waqf property vests in Almighty Allah. A trust may be created for any lawful purpose like advancement of religion, advancement of knowledge, advancement of health and safety of public, advancement of any other beneficial to making etc. The purpose of a trust is lawful unless it is forbidden by law, or is of such a nature that, if permitted, it would defeat the provisions of any law, or is fraudulent, or involves or implies injury to the person or property of another, or the Court regards it as immoral or opposed to public policy. According to the Trust Act, 1882, no trust in relation to immovable property is valid unless declared by a non-testamentary instrument in writing signed by the author of the trust or the trustee and registered, or by the will of the author of the trust or of the trustee and Trust in relation to movable property is valid unless declared as aforesaid, or unless the ownership of the property is transferred to the trustee. A Trust may be established by a deed of settlement and rules there-under under the Trusts Act, 1882.

Post Registration Follow Ups

ILP serves the clients anytime not just at tax time.

For all statues and laws, there are various legal requirements which needs to be fulfilled periodically, moreover sometimes few changes are required in the structure membership/partnership/directorship & shareholding patterns or in agreement, deed, articles & memorandums etc. we keep the track and help our clients round the clock.