Business entities in Pakistan

MBA
Spring, 2021
Exam next Tuesday
• Take home open universe
• Limited time class time
• Chapters 1,2 and 5 from O’Reed
• Litigation process and courts in Pakistan
Business organization
for profit
• Partnership-registered or unregistered
• Limited liability LLP
• Unlimited liability
• Sole Proprietorship
• Single owner
• Unlimited liability
• Company
• Limited by shares
• Private
• SMC
• MMC
• Public
• Non listed
• Listed-most regulated
• Limited by guarantee
• S.42-not for profit
S.42 company
• . Licencing of associations with charitable and
• not for profit objects.—(1) Where it is proved to the satisfaction of the
• Commission that an association is to be formed as a limited company—
• (a) for promoting commerce, art, science, religion, health, education,
• research, sports, protection of environment, social welfare, charity
• or any other useful object;

• (b) such company—

• (i) intends to apply the company’s profits and other income in
• promoting its objects; and
• (ii) prohibits the payment of dividends to the company’s
• members; and
• (c) such company’s objects and activities are not and shall not, at any
• time, be against the laws, public order, security, sovereignty and
• national interests of Pakistan,
Selecting the Best Organizational Form

• These are the different forms of business entities

you can choose from:
• Sole proprietorship
• Partnership
(i) Company limited by share.
- Public Ltd.
- Private Ltd.
(ii) Company limited by guarantee.
(iii) Unlimited company
Sole Proprietorship
• The most natural and simplest form of
business.
• Single person runs the business the way he
likes, with:
• low operational costs,
• without interference from others.
• No corporate formality
• Unlimited liability
Single Member Company (SMC)
Owned by a single person.
Any company registered as Single Member under
Company law 2003 as a single member company.
Or any private company changed its status to SMC
according to Company law 2003.
All the rules and regulation of Company ordinance
applied to SMC, similar to private company.
Limited Liability
 Formation of Single Member Company
Any person/company can form a company as per
Company Act 2017 and Single member company rules
2003.
Following procedure for registering SMC
File with the registrar at the time of incorporation as SMC
Documents similar to private company.
Form S1:Indicating at least two individuals to act as
nominee director and alternate nominee director in the
event of his death.
 Core Objective for SMC
• Core Objective:
• To facilitate sole proprietorships to avail corporate status.
• Extended Advantage of limited liability
• Rights and privileges of a separate legal entity.
• To stimulate documentation of the economy.
• Proper documentation of decisions taken, Such
documentation would avoid future disputes.
 Partnerships-unlimited liability
• Whenever two or more people wish to start a
business together is called Partnership.
• Partnership is an agreement between two or more
persons to share a common interest in a commercial
endeavor and to share profits and losses
• When compared to other form of business
organization a partnership is easily formed
• Regulated by the partnership act
Partnership
• Unlimited liability
• Jointly and severable liable
• Mutual agency
• All partners are agents for each other
• Can be registered-through a partnership deed (written contract)
Agency
• What is an agent-some who acts(agent) on behalf of
another(principal)
• When agent makes a contract , they bind the principal
Corporations/statutory company

• A corporation is an artificial, entity created under the

administrative authority of the Government
• The corporation is more complex to create and to
operate then other form of business
• The legal complexities are associated with structure of
corporation
• A corporation is created through a legislation by the
Government
 Limited Partnerships-LLP

A Limited Partnership is basically all the attributes of

partnership except that one or more of the partners
are designated as Limited Partner (AOP)
This type of partnership is not personally responsible for
the debts of the business organization
A Limited Partnership is created by an agreement under
LLP act 2015
The term of the Partnership Agreement control the
management of the organization
Company Limited by Share

Liability of the members is limited

to the extent of their share of the
paid up capital of the company.
These companies may further be
classified as public limited and
private limited companies.

Minimum number of directors of a company
• S. 154:
• (1) Notwithstanding anything contained in any other law for the time
being in force,-
• (a) a single member company shall have at least one director;
• (b) every other private company shall have not less than two directors; and
• (c) a public company other than a listed company shall have not less than three
directors
• (d) a listed company shall have not less than seven directors
• Provided that public interest companies shall be required to have
female representation on their board as maybe specified by the
commission
Company
• Limited liability
• Corporate tax applies
• Separate legal entity-artificial person
• Common seal-
• Perpetual succession
• Formed by memorandum of association and Articles of Association
Structure of company-divorce of ownership
and control
• Shareholders-owners of the company-ROI

• Board of Directors-aligns the interest of shareholder and management

• Chairman of BOD

• Management-control-CEO-MD-high salaries and bonus

 Company Limited by Guarantee

• Means a company having the liability of its members

limited by memorandum to such amount as the members
may respectively undertake to contribute to the share
capital of the company in the event to its winding up.
• The company limited by guarantee is usually formed on a
'no profit basis'.
• Guarantee limited companies must use the words
"(Guarantee) Limited" as the last words of their name .
Factors to Consider when selecting a Business’s
Form
• Significant factors to consider in selecting the best
organizational form for a particular business activity
include:
• The cost of creating the organization
• The continuity or stability of the organization
• The control of decisions
• The personal liability of the owners
• The taxation of the organization’s earning and its
distribution of profits to the owners
Thank You