By Farrukh Dall
There are different forms of business establishment in Pakistan. Although the forms of business establishment are many i.e. Sole Proprietorship, partnership, Joint Ventures, Associations, company etc, three most common business forms in Pakistan are Sole Proprietorship, partnership and company particularly private limited company. The decision to chose the best suitable form of business is taken keeping in view the particular nature of business, costs of registration, tax benefits, flexibility of operation, annual compliance requirements, reporting requirements and other factors.
Although registering business under any of these forms has its own advantages and disadvantages, therefore, keeping in view many corporate aspects as mentioned above and legal aspects, mentioned below, we always assist our clients to register their business as a private limited company particularly when they have already established their business. Following are the few major benefits of registering business as “Company” in Pakistan:
A company enjoys a separate and independent legal entity than its directors. It is regarded by the law as a person. A company is distinct from its directors, shareholders, employees and creditors. From the moment of its incorporation it is capable of entering into contracts, suing and being sued.
A company have unlimited life. Sole proprietorship loses its life when its owner dies but in case of a company such demise does not affect the life of the company.
A company is a corporate structure whereby the members of the company cannot be held personally liable for the company’s debts or liabilities. For example, a shopkeeper as a sole proprietor, purchases inventory of Rs.1 million on credit and then loses his inventory due to fire, he has to pay the amount by selling his personal assets. However, in case, a company loses its inventory, the director has nothing to pay from his pocket as he will lose his shares in the company accordingly.
Easy transfer of Ownership:
It is easy to transfer the ownership from one person to another as compared to other business structure.
In Pakistan, companies are generally rated higher than other corporate structures.
In a company, the directors of a company can receive salary from the company. In other business setups, the owner is not allowed to receive salary from his business. In this way, net profit can be reduced and ultimately tax rate may also be reduced.
Conducting business in own name:
A company is capable to operate a business separate from its shareholders. The independent existence of the company allows it to make contracts, which bind the company but not the individual shareholders.
Holding property in its own name:
From the moment of its incorporation the company has power to acquire, hold and dispose of property.
For the reasons and advantages mentioned above, the ratio of registration of businesses as company is increasing in Pakistan. The Securities and Exchange Commission(SECP) registered 375 new limited liability companies in May, bringing the total corporate portfolio
to 62,549 companies. An impressive 12% growth in company registration has been
witnessed, compared to the preceding month.
The SECP continued its efforts to promote corporatization in the country, including conduct of various seminars with all stakeholders, awareness campaigns and facilitation extended including provision of fast track registration services.
According to data provided by SECP, Around 91% companies registered as private limited companies, while around 5% companies registered as single member companies. Around 2% companies registered as public limited companies, 1% companies have been registered as associations under Section 42 of the 1984
Companies Ordinance and 1 % as foreign companies, during the month.
Foreigners showed a significant interest in investing in Pakistan as evident from formation of 19 new companies having foreign investment. These companies have foreign investors from Afghanistan, Canada, China, Germany, New Zealand, Saudi Arabia, Syria, Turkey, the UAE, the UK and the US. These companies are from Airlines, Automobile parts, construction, consultancy services, electrical goods, food, IT, mining and quarrying, oil and gas exploration, power generation, software development, telecommunications, textile, trading and transport sectors. Interest of foreign investors is also a reflection of the SECP’s facilitative regime for foreign investors including, fast tracked provisional registration of companies having foreign directorship.
The services sector has again taken the lead in new registrations with the incorporation of 50 new companies, this month, followed by trading with 46 companies, tourism with 38, I.T. with 36, corporate agricultural farming with 20, constructions with 18, textile with 14,communications with 13, pharmaceuticals with 12 and education with 11 companies.
The highest number of companies, i.e., 117, was registered at the Company Registration Office (CRO) in Lahore. It was followed by the CROs in Islamabad and Karachi, registering 114 and 87 companies respectively. The Multan, Peshawar and Faisalabad CROs registered 27, 18 and 10 companies respectively, while the CROs in Quetta and Sukkur registered 1 company each.