Forms of Business Forms of Business OrganizationsOrganizations

Overview in Pakistan’s PerspectiveOverview in Pakistan’s Perspective

Abid Husein Khan, Abid Husein Khan, Corporate Lawyer & Advisor Corporate Lawyer & Advisor

LLM (Sweden), Fellow United Nations 2001-03(Geneva) LLM (Sweden), Fellow United Nations 2001-03(Geneva)

Options for selecting Business Options for selecting Business Entity Entity

Any entrepreneur in Pakistan has a range of options in its Any entrepreneur in Pakistan has a range of options in its decision- making process to choose a form of business decision- making process to choose a form of business structure: structure:

1.1. Corporations Corporations

2.2. Limited Liability Companies /Joint Stock CompaniesLimited Liability Companies /Joint Stock Companies

3.3. PartnershipPartnership

4.4. Joint VentureJoint Venture

5.5. Sole ProprietorshipSole Proprietorship

Corporations Corporations

► In Pakistan, corporations are created In Pakistan, corporations are created by the Federal Government or a by the Federal Government or a Provincial Government by the Acts of Provincial Government by the Acts of Parliament or, as the case may be, by Parliament or, as the case may be, by an Act of a Provincial Assembly. an Act of a Provincial Assembly.

►Each individual enactment governs the Each individual enactment governs the purpose, functions, management, legal purpose, functions, management, legal status and matters connected to the status and matters connected to the individual corporation, including individual corporation, including winding-up. winding-up.

Joint Stock CompaniesJoint Stock Companies

► A 'company' is a legal entity admitted by law to do business, A 'company' is a legal entity admitted by law to do business, own properties, sue and be sued for the recovery of own properties, sue and be sued for the recovery of properties, money, enter into contracts etc. in its own name properties, money, enter into contracts etc. in its own name and independent to its member (s). and independent to its member (s).

► To be a ‘company’ in law it must be registered under the To be a ‘company’ in law it must be registered under the Companies Ordinance, 1984. Companies Ordinance, 1984.

► Any one or more persons can form a company by fulfilling the Any one or more persons can form a company by fulfilling the

formalities required by law.formalities required by law.

PartnershipPartnership

► A 'firm' is a relationship between two or more A 'firm' is a relationship between two or more persons who have agreed to share profits of a persons who have agreed to share profits of a business according to their participation. business according to their participation.

► The partners are collectively called a ‘firm’ and the The partners are collectively called a ‘firm’ and the name under which they do business is called the name under which they do business is called the ‘firm name’. ‘firm name’.

► Any two or more persons (up to 20) can form a Any two or more persons (up to 20) can form a partnership to do any one or more businesses partnership to do any one or more businesses through an agreement in writing. through an agreement in writing.

► It is not compulsory in law to register a partnership. It is not compulsory in law to register a partnership. However, a registered partnership has more However, a registered partnership has more advantages than an un-registered partnership. advantages than an un-registered partnership.

Sole ProprietorshipSole Proprietorship

► A 'sole proprietorship' is a form of doing business where one A 'sole proprietorship' is a form of doing business where one person owns and runs a business under a specific business person owns and runs a business under a specific business name. name.

► Any person interested in doing a business may start the same Any person interested in doing a business may start the same at any time by giving a particular name to its business.at any time by giving a particular name to its business.

► To start a business as a ‘sole proprietorship’ no prior To start a business as a ‘sole proprietorship’ no prior registration of it is required with any government department registration of it is required with any government department or authority. or authority.

Legal Entity under I.T. LawLegal Entity under I.T. Law

► Under the Income Tax Ordinance 2001, is Under the Income Tax Ordinance 2001, is federally levied on the total federally levied on the total incomeincome of a of a personperson excluding the deduction allowed by excluding the deduction allowed by the Ordinance for one tax year. The term the Ordinance for one tax year. The term personperson is also divided into four categories is also divided into four categories which include:which include:

► a) an individuala) an individual► b) companyb) company► c) small companyc) small company► d) association of persons d) association of persons