Register a Private Limited Company
Before you can start operating your business, the most significant step will be to register a private limited company. Operating your business as a freelancer and taking a plunge is divided by something as simple as a legal status. Registering as a Private Limited company sends the message to the world that you are a regulated business. Pakistan has seen a surge in the uptake of startups. We touched upon this subject in our podcast with Mr. Parvez Abbasi. Despite there being a tonne of advantages to registering a company (listed at the end of this article), a lot of startups just pick a fancy name while an individual (maybe a tiny team) operates under the name without any regulation.
This practice of setting up and running businesses without registration also leaves people vulnerable to threats of product copying and stealing of Intellectual Property (IP) among other risks. By registering your business – ideally with the Securities and Exchange Commission of Pakistan; SECP (though there are other legal, but limited, ways, this is globally acceptable) – you ensure that your business is considered a legal entity sheltering you against social, economic and legal instability.
Private Limited company
A private limited company is a privately held business entity. Its name is also abbreviated as (Pvt.) Ltd. A private limited company limits owner’s liability to the business. In contrast, a private unlimited company would offer the owner no protection in case of dissolution, every single paisa will be owed to any and all stakeholders. However, a private limited company has built-in shelters in case of dissolution. However, to prevent misuse, it is highly regulated and closely monitored by the SECP and the liability of shareholders is limited to the price paid for any shares.
Update: Since the publication of this article SECP has published a video to help with Registration for e-services.
In order to register your private limited company, you need to go through the following steps:
1. Register for e-services
Think of this as stage 0, because it is the groundwork of every step that follows. You have to register your details with the SECP using your National Identity Card (NIC) or National Identity Card of Overseas Pakistanis(NICOP). What you will need is a valid ID card along with a valid email address and mobile phone number. For a foreign national, you will need a valid passport and photograph in addition to aforementioned requirements. Once you have all the above you may head over to e-services section and signup for a User ID and password by submitting your details.
Once you have completed the process successfully you will then be able to login and start or update various applications and forms and use your unique PIN to sign the forms and submit them to SECP. You can see the process flow on the following flyer. Note: There is a one-time charge of PKR 100/- (accurate as of the publication of this article) when you register for e-services for the very first time.
2. Search for availability of name
Up next you need to head over to Company name search. Here you need to fill in the name of your company in the empty field and search. If the search does not return any results this means there are no other companies with that name and you can request for reservation of that name for yourself.
3. Reservation of name
When confirming the name you need to make sure you refer to Section 10 of the Companies Act, 2017 (the “Act”) as well as Regulation 4 (Regulations for prohibitions/restrictions) in order to be compliant as approved by Government of Pakistan. Once you have completed the name reservation application form online.
4. Memorandum of Association
Memorandum of association(MoA) is what we would strictly call the charter of a company. It is a legal document that serves as the foundation of a company’s vision and also defines its relation with it’s share holders. An MoA contains the details of a company’s share holders, the overall composition of its share and the number of shares held by each share holder, its objectives, location of the company’s registered office etc. You can find the samples of MoA on the SECP website that can be adapted to your needs by using your personal information.
5. Articles of Association
Articles of Association (AoA) are the set of rules that serves as user’s guide and dictates how a company’s internal operations are to be carried out on daily basis and further its objectives. In strict terms, AoA are the constitution of a company. It outlines the relation between the shareholders and the company, the process of appointing a director and management of financial audits. You have to submit AoA as part of your application for incorporation of your company. You can find a number of samples of AoA on the SECP website, for a variety for business that you can adapt to your requirements and arrangements.
6. Submission of Forms
You can file for company incorporation both online and offline. All three applications; reservation of name, memorandum and articles of association can be submitted together. If you wish, you can also place to separate applications by submitting an application for reservation of company name and once reserved, submit your memorandum of association along with articles of association. You can use the e-services portal to submit your applications. If you wish to use the online submission process; You can pay the fees by using internet banking, by using mobile banking payment processes, your debit or credit card of the banks listed here.
You can print out the PSID and take it to one of the banks listed for over the counter (OTC) payment. Alternatively, you can print out the challan form and pay the fees at one of the selected branches of MCB or UBL. However, if you wish to use the offline services; you can fill out and download manual challan form, submit the fee at one of the selected branches of MCB or UBL. Once you pay the fee, you can then submit the original challan form(paid receipt) along with all the applications and forms with the registrar at the concerned customer relationship office (CRO).
7. Processing Time
SECP has recently set out new guidelines and optimised the company incorporation services to fast track the processes. An application with MoA and short AoA submitted before or at 1200hrs on a working day will be processed the same day, however, applications submitted after 1200hrs will be processed on the next working day. The total application processing time is four (4) hours of a working day.
You can have an in-depth read of the regulations pertaining to the incorporation of a company here and if you wish for a simplified guide then head over here to read a guide brochure for incorporation of a company and for a more detailed explanation of the steps, click here. The content of this article details the formation of a private limited company in Pakistan, under companies registration act 2017
Benefits of registering
Let’s go into a bit of detail as to how you could benefit from registering as a business:
1. Secure Business Identity
Name of a business, like your own personal names, is its unique identity. Your name is what sets you apart from the rest and makes you recognisable for who you are, what you do, what you are well-known for and how people identify you. By registering your company, you make sure that your business is the only business with that particular name ensuring the business name is reserved exclusively for you. You may not start operating immediately but registering your company’s name means that no other business can use that name without your explicit permission and agreement. Securing your identity and letting you control your company image.
Once the incorporation is complete – you can take it a step further and secure the trademark and copyrights, this enables you to further limit usage of your company name, logo, brand identity without your agreement, on a global level. A company registers with your local company house or register of companies where as securing a trademark and/or copyright helps you secure your business identity on an international level.
2. Formal Structure
Part of the process of registration requires you to list the directors, company secretary and accountant. The separation and division of roles enables your company to clearly list its inter-company processes and formulate a formal structure. These formal structures or hierarchies will enable you not only in defining the roles and responsibilities in a clear manner but also make your company’s image more professionally presentable. A potential investor or a bank would always prefer dealing with a company that has better profile that they can see and know as it helps them gauge who they are investing in rather than a hodgepodge team without overlapping roles and unclear responsibilities.
3. Acquiring a Business Bank Account
Acquiring a business bank account is one of the most important business process aiding activity after registering your business. It is an asset as you can use the business account exclusively for your business related activities helping you separate your personal financial transactions. This also aids in promoting a more professional and organised image with your clients as it gives your clients a business name for payment instead of your own name. In order to open an account you need to provide certain legal documents, as detailed above.
In addition to registering a Private limited company, you can register your business in the following ways as well:
- Sole Proprietorship
- Limited Liability Partnership (LLP)
- Single Member company (SMC) private limited company
We hope this article will help you in understanding the importance of registering your startup as a business and safeguarding its financial and legal status. All the processes and steps listed are current and up to date in line with the SECP guidelines at the time of writing.
If you found this article helpful or have any suggestion, please feel free to leave a comment.