When we use word ‘company’ in Pakistan, it means a business registered with the Securities and Exchange Commission of Pakistan (SECP).

It may be used in following forms:

• Single Member Private Limited company (SMC-Pvt. Ltd.) – This sort of company has only one member.
• Private Limited company (Pvt Ltd.) – This sort of company should have 2 to 50 members.
• Public Limited Company (Ltd.) – it may be listed or not listed on Pakistan Stock Exchange. It should have 3 to unlimited members.
• Not for Profit Company (NPO / Under Section 42) – It should have 3 to unlimited members.
• Limited Liability Partnership (LLP) – This sort of company should have 2 to 50 members.

Companies are governed in Pakistan under Companies Act, 2017 and Companies (Incorporation) Regulations, 2017.

Is it compulsory to register company with SECP to run a business in Pakistan?
Answer is no. Anyone can start business in Pakistan without registering company in SECP. However, if his or her annual income is more than Rs. 400,000 they must register with Federal Board of Revenue (FBR) and should file Income Tax Return every year.

Then why to register a company with SECP?
Registering a company provides some benefits to those who want to expand their business. When someone register a company with SECP, his liability become limited. For example, Mr. Ali registers a company with Rs. 100,000 investment (this initial investment is called paid up capital), his liability shall not exceed to Rs. 100,000.

Now, assume that Ali’s company got Rs. 200,000 loan from bank to run its business. Now Ali has total Rs. 300,000. Ali’s company went into loss of all Rs. 300,000 due to sudden surge in Covid-19 cases, and he had to close the company.

Ali will only pay Rs. 100,000 because his liability is limited to Rs. 100,000 and he is not responsible to pay back Rs. 200,000 to the bank as natural and unavoidable circumstance failed the business. If Ali’s company would not be registered company with SECP, the bank could have seized Ali’s car to recover its loan. But now because of limited liability of Ali, bank cannot sell Ali’s personal asset. This is why, registered companies are called to have limited liabilities.

Another feature of company is that it’s a sort of democratic organization. One who invests more into the company has more powers in the company. For example, Ali has 60% shares in a company while his partner, Ahmed, has 40% shares. Mr. Ali seems to dictate or decide most of decisions in the company.

What is disadvantage of registering a company with SECP?
Because it provides a shield environment to investors, government imposes more taxes on the companies.

Who should register his business as a company?
One who is ambitious to expand his business rapidly and that too without fear of losing his personal assets, should get registered with the SECP. Especially, those who want to bring more investors into their businesses to expand rapidly should register it with SECP.

Who should not register a company?
Those who have small businesses should not register companies because of higher taxes. Also those who are not going to bring outside investors into their businesses should not register companies because all the money invested is their own money.