The document provides a brief description of Legal Entities that could be incorporated in Pakistan to start a business and the merits and demirits of using each entity as a launch pad
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Introduction to Business Entities in Pakistan
1. INTRODUCTION TO LEGAL BASICS
Incorporation of
Business Entities
INTRODUCTION TO LEGAL BASICS
F O R S T A R T U P S
B Y
HAMID JALAL
h a m i d j a l a l @ h o t m a i l . c o m
2. Introduction to Business Entities
— Types of Businesses
— Individual / Sole Proprietor
Association of Persons— Association of Persons
— Partnership Firm
— Limited Liability Company
3. Introduction to Business Entities
— Individual / Sole Proprietorship
— Business in Personal Name
Registration— Registration
¡ NTN in individual’s Name with Business Reference
¡ Bank Account – Local / Foreign Currency
¡ Sole Proprietorship Certificate from Bank
4. Introduction to Business Entities
— Merits of Sole Proprietorship
— Negligible Cost of Registration
— No Specific Business Address Required
No Audit Costs … … … (unless substantial cash flows)— No Audit Costs … … … (unless substantial cash flows)
— Simple Accounting / Profit & Loss Accounting
— Simple Tax Regime & Low Tax Rates
— No Partner – No Dispute
— No Trade Laws and Policies applicable
— Easy Closure
5. Introduction to Business Entities
— Merits of Sole Proprietorship
— Independence and Autonomy
— Flexible Working Hours
— You keep all the profits— You keep all the profits
— Policies are Optional
¡ HR Policy
¡ Employee Retirement Schemes
¡ Compulsory Employee Insurances
¡ Compulsory Third Party Insurances
¡ Provident and other Funds
6. Introduction to Business Entities
— Demerits of Sole Proprietorship
— Single Owner - Personally Liable for all matters
— Entire Burden of Investment on one person
Inability to raise Financing— Inability to raise Financing
— Slow Expansion
— Licencing & Trade Bodies Registration Problems
— Software Export Licences Problems
— Property Purchased in Personal Name
7. Introduction to Business Entities
— Association of Persons (AOP)
— Group of two or more Individuals
— Registration:
¡ Agreement /Partnership Deed of all Associates
¡ Registration in NTN as an AOP
¡ Banking through Business Account
8. Introduction to Business Entities
— Merits of AOP
— Negligible Cost of Registration
— Collective Poole of Investment
No Audit Costs (unless substantial cash flows)— No Audit Costs (unless substantial cash flows)
— Business’s Profit & Loss Accounting
— Profit Sharing by Partners
— Simple Tax Regime & Low Tax Rates
— No Trade Laws and Policies applicable
— Policies are Optional (as in Sole Proprietorship)
9. Introduction to Business Entities
— Demerits of AOP
— All Owners Liable for Business Transactions / Debts
— No Paperwork - Chances of Financial Disputes
Difficulties Decision Making— Difficulties Decision Making
— Inability to raise Financing
— Licencing & Trade Bodies Registration Problems
— Software Export Licences Problems
— Inability to Purchase property for Business
10. Introduction to Business Entities
— Registered Firms (Partnerships)
— Two or more Individuals locked in a contract for sharing profits
Registration— Registration
¡ Partnership Deed on Stamp Paper
¡ Registration of Partnership Deed under Partnership Act 1932
¡ Certificate of Registration by Registrar of Firms
¡ NTN and GST Registration
11. Introduction to Business Entities
— Main Clauses of a Partnership Deed
— Nature of Business
— Duration of Partnership
Partnership Property / Capital Investment— Partnership Property / Capital Investment
— Partnership Shares
— Percentage of Profits and Losses
— Nature of Partnership
— Role & Responsibility of Each Partner
12. Introduction to Business Entities
— Main Clauses of a Partnership Deed
— Loans and Drawings
— Good Faith
Restrictions on Partners— Restrictions on Partners
— Termination and Succession
— Dispute Resolution Mechanism
13. Introduction to Business Entities
— Merits of Registered Firms
— Reasonable Cost of Registration
— Pooling of Profits
Profit Sharing by Partners— Profit Sharing by Partners
— Single Taxation of Firms
— Easy Licencing
— Recognition in Trade Bodies / Chambers of Commerce
14. Introduction to Business Entities
— Demerits of Registered Firms
— Commercial Place of Business
— Each Partner can bind all others (Joint Debt Liability)
— Creditors can create lien on partners’ personal assets— Creditors can create lien on partners’ personal assets
— Difficulty in Decision Making
— Higher Tax Rates
— Audit preferably by a Chartered Accountant
— Automatic dissolution upon death/resignation of one Partner
— Applicability of Labour Laws
— Problems in Dissolution
15. Introduction to Business Entities
— Limited Liability Company
— A separate Legal Entity
— Two or more Individuals or Entities
Shareholders and Directors— Shareholders and Directors
— Decision Making by the Board of Directors
— Liability of Directors is Limited
— Private and Public Limited Company
16. Introduction to Business Entities
— Registration of a Company
— Registration under the Companies Ordinance 1984
¡ Name Availability from Securities & Exchange Commission of PakistanName Availability from Securities & Exchange Commission of Pakistan
¡ Memorandum of Association
¡ Articles of Association
¡ Form 1 and Form 21 (Declaration and Place of Business)
¡ Form 29 (Directors and Officers) along with CNICs and details etc
¡ Submission of All Documents to SECP
¡ Filing Fee
¡ Registration Certificate Issued by Companies Registrar, SECP
¡ Bank Account, NTN and GST etc.
17. Introduction to Business Entities
— Corporate Structure of a Company
— Independent Legal Entity
— Liability of Directors in Limited
Decisions / Authority by the Board of Directors— Decisions / Authority by the Board of Directors
— Directors Represent Shareholders and No. of Shares
— Private and Public Limited Status
— Listed and Non Listed
18. Introduction to Business Entities
— Merits of a Company
— Pooling of Investment
— Easy Decision Making Process by Majority Vote
All expenditure charged to Company— All expenditure charged to Company
— Purchase of Real Property / Assets
— Taxation of Company on Profit and Loss Basis
— Easy Financing on basis of Balance Sheet / Assets etc
— Easy Licencing and Worldwide Business Recognition
— Full Recognition in Trade Bodies / Chambers of Commerce
19. Introduction to Business Entities
— Demerits of Company
— High Cost of Registration
¡ Filing Fee, Stamp Duty, Consultant’s Fee, Printing, liaison with SECP etc
— Too much paperwork— Too much paperwork
— Compulsory Appointments
¡ Auditor and Legal Advisor
¡ Chief Executive Officer
¡ Qualified Chief Financial Officer
¡ Qualified Company Secretary
¡ Chairman of the Board
20. Introduction to Business Entities
— Demerits of Company
— Minimum Investment / Capital Thresholds
— Highest Tax Rates
— Separate Taxation for Company and Directors— Separate Taxation for Company and Directors
— Annual and Periodical Filings
— Board Meetings (AGM / EGMs etc)
— Tax on Dividends paid to shareholders
— Employment and other Policies
— Industrial and Labour Laws
— Winding up Issues
22. Introduction to Business Entities
HAMID JALAL
Attorney at Law
R E H M A N & A S S O C I A T E S
ATTORNEYS AT LAW & CORPORATE COUNSEL
12, 13 (Mezzanine) Razia Sharif Plaza,
Fazal-e-Haq Road, 92 Blue Area, Islamabad
Ph: +92 (51) 2802457/2344653 | Fax: +92 (51) 2344652
mail@ralegal.com.pk | www.ralegal.com.pk