Frequently Asked Questions / Guide / Help

Q: I want to start a business but do not know about what structure to use. Can you explain the different
business types?

A: There are basically the following types of business structures that one can adopt in Pakistan: Sole
Proprietorships, Partnerships, Limited Liability Partnerships (LLP) and Limited Companies (also known as
Corporations or sometimes as LLC in other countries). Each type is best for a specific purpose or
situation, and differs in characteristics when considering taxes, liability, and the ability to control the
profits and losses of the business. Each type is briefly explained in the following answers.

Q: What is a Sole Proprietorship?

A: Sole proprietorship (also known as a sole trader) is a business run by an individual. There is no
seperate legal entity; the owner takes all of the profits and / or losses of the business. The owner also
has all the control and all the liability and debts from the business. The owner is the final decision maker
and has no interference. The business taxes are paid by the owner through his or her personal income
tax return. Sole traders can benefit from lower tax rates. The obvious disadvantage of this business
structure is that there is unlimited liability of the owner and in case of lawsuits and other debts, the
owner is personally held liable. In order to register a sole proprietorship all you need to do is (1) think of
an unique name for your business, (2) make a letterhead and business card with business name, logo,
phone number and physical office address on it. Also create a business stamp. (3) You can then visit FBR
Regional Tax Office or FBR website and create a free account on IRIS from where you will be issued a
National Tax Number (NTN). Please note you will require a rent agreement of your office and electricity
bill. (4) Once NTN is issued, take your cnic, letterhead, business card, NTN copy, business stamp etc to
any bank of your choice. (5) They will open a bank account for you in the name of your business and give
you confirmation (account maintenance letter).

Q: What is a Partnership?

A: A partnership (also known as a Firm / Form C) is a business structure that works just like a sole
proprietorship, but with several individuals running it. The general partners share the profits and / or
losses depending on their agreement. They share control and liability for business operations. In case of
registered partnerships taxes are paid in the name of partnership and not on the personal tax returns of
partners. In case of an unregistered partnership taxes are paid by partners on their personal returns, in
proportion to their share of ownership as per their agreement. Partnerships require partnership
agreement on a legal stamp paper that clarifies the relationship between the partners, their roles and
responsibilities, and their shares in the profits or losses of the partnership. There is unlimited liability in
this type of business. If one partner is sued, all partners are held liable. Another disadvantage is that the
decision making is shared among the partners and hence no one individual has control.

Q: What is a Limited Liability Partnership (LLP)?

A: A Limited Liability Partnership (also known as LLP) is a newly introduced business structure in Pakistan
that has the flexibility of a general partnership as well as advantages of a limited liability company. It is a
hybrid of the concept of partnership and company structure to enable professionals, entrepreneurs and
small and medium enterprises to jointly organise and operate their businesses. LLPs are registered with
SECP. Taxes are paid in the name of the LLP and not on the personal tax returns of partners. All names
must have the acronym LLP in them and are subject to availability with SECP.

Q: What is a Company?

A: A Company is a business that is set up as separate legal entity from its owners. The words "Private
Limited" or "Public Limited" are added at the end of the name. These are known as Corporations in
other countries. There are members or shareholders who own the company. These members elect a
Board of Directors. There is one Managing Director (CEO) who along with the Board makes operational
decisions. The shareholders or owners are protected from the debts and liabilities of the corporation,
and the corporation pays corporate income taxes. These taxes are 23% for small companies while 29%
for larger ones. There is a lot more paper work and filing work required for this business structure. But
the obvious advantage is limited liability of the owners as well as transparency in the operations.

Q: What is a Single Member Company (SMC)?

A: A Single Member Company or SMC is a business that is set up as separate legal entity from its owner
and has only one shareholder. The creation of SMCs was first allowed by SECP through Single Member
Companies Rules, 2003. These rules allow single persons to convert their non-corporate entities into
companies with limited liability of the Single Member. The words "(SMC-PVT) Limited" are added at the
end of the name. There is one member or shareholder who owns the company. He or she acts as the
Director. The Single Member (Director) has all control of the company and can remove or appoint any
officer. The SMC, however, requires a nominee in case of single member's death or incapacity, whos
details are provided at the time of application for company incorporation.

Q: How much tax will I have to pay?

A: The Tax that you pay will depend on the business structure you choose. We have put together a
comprehensive guide along with tax rates. Please click here to see the guide.

Q: How long does it take to register a Partnership Firm?

A: The time depends on the Registrar of Firms and on how fast the client can provide us the required
documentation. Usually for Partnerships the time required to register is about 10 working days.

Q: How long does it take to register a Company?

A: The time depends on the companies registrar office (known as SECP in Pakistan) and on how fast the
client can provide us the required documentation. Usually for small companies the time required to
register a company is about 5 - 7 working days.

Q: How can I search company names in Pakistan?

A: Before incorporating a company, you must first ensure that the name you want to register is not
already being used by another company. Use the tool available on our Search page to check existing
names of all companies in Pakistan (courtesy SECP). Please note this search is only for checking names of
private limited companies. Currently there is no method to search names of existing sole proprietorships
or partnerships.

Q: What is EOBI? What is Social Security? Are they both the same?
A: Under EOB Scheme implemented through EOBI Act 1976, Insured Persons are entitled to avail benefit
like, Old-Age Pension (on the event of retirement), Invalidity Pension (In case of permanent disability),
Old-Age Grant (an Insured Person attained superannuation age, but does not posses the minimum
threshold for pension) Survivor's Pension (in case an Insured Person is expired). This is mandatory for all
businesses that employ 5 or more employees. 5% contribution of the salary has to be made by Employer
whereas 1% is contributed by the Employee. Social Security on the other hand was introduced by The
Provincial Employee's Social Security Ordinance 1965. Each province has its own institution that
enforces the law. In Islamabad it is the ICT Employees Social Security Institution (IESSI) that looks after
registration and enforcement. Social Security is paid for by the Employer at 6% of the wage. It is only
applicable to Employees that are earning less than Rs. 22,500 per month. Both EOBI and Social Security
are mandatory, even though due to the lack of enforcement, few people know about the latter.

Q: What is Intellectual Property?

A: Intellectual property refers to unique creations of the mind. These include inventions; literary and
artistic works; symbols, names, logos, designs, and images used in commerce. Intellectual Property
includes copyrights, trademarks, industrial designs and patents. For more information please visit
www.wipo.int/about-ip/en/. In Pakistan, the Intellectual Property Organisation (IPO Pakistan) deals with
these matters.

Q: Why should I apply for a Trademark or Copyright?

A: This is to prevent someone else from using your designs or work. It also acts as constructive notice to
the public of your claim of ownership of the same. If someone steals or misuses it without your
permission you can bring an action in court.