Business Structures and Regulatory Framework

Business Structures and Regulatory Framework

In Pakistan, various business activities can be conducted through different legal structures, including companies, modarabas, branches, partnerships, and sole proprietorships. Companies incorporated in Pakistan and foreign companies operating through branches or liaison offices are subject to regulation under the Companies Act, 2017 (“CA”) and its associated Rules, overseen by the Securities and Exchange Commission of Pakistan (SECP).

Types of Companies 

The Companies Act outlines several types of companies:

Company Limited by Shares

Shareholders’ liability is limited to the amount on their shares, ensuring that their liability does not exceed their investment commitment.

Company Limited by Guarantee

Members are bound to contribute to the company’s assets in case of winding up. Their obligation extends to covering debts, liabilities, and winding-up costs, up to a specified maximum amount.

Unlimited Company

This type of company allows members to have unlimited liability. However, the more practical choice for non-resident investors is typically the limited liability company with share capital.

Public and Private Companies

Companies incorporated in Pakistan can be “Public Companies” or “Private Companies.” Public companies may also be listed companies, and these entities must register under tax laws to obtain a National Tax Number (NTN).

 Private Company

A private company can be formed with a minimum of two members (one for a single-member company). It can begin business immediately after incorporation. The company’s Articles of Association impose restrictions on share transfers, limit membership to fifty, and prohibit public share or debenture invitations.

Single-Member Company

Individuals can establish a single-member company to gain corporate status and limit liability. In case of the single member’s demise, a nominated individual becomes the nominee director. The company must indicate “SMC” along with “Private Limited” in its name.

Limited Liability Partnership (LLP)

An LLP combines elements of partnerships and companies, allowing partners to have limited liability and direct business management rights. LLPs bridge the gap between sole proprietorships/partnerships and limited liability companies under the Companies Act, 2017.

Public Company

Formed by three or more members, a public company can commence business after obtaining a Commencement of Business Certificate. It has no restrictions on membership number and share transferability. Public companies can list their securities on stock exchanges.

Foreign Nationals as Directors

Foreign individuals can become directors of Pakistani companies, whether public or private, subject to clearance from the Ministry of Interior. Required documents for foreign directors include clear passport copies, personal profiles (similar to resumes), and an affidavit stating that shares will be transferred if security clearance is not obtained from the Interior Ministry.

Documentary Requirements

For registration with foreign directors, the following documents are needed:

• Clear scanned passport copies of foreign directors
• Personal profiles detailing the foreign directors’ capabilities.
• Affidavit indicating the transfer of shares if Interior Ministry security clearance is not obtained.