Incorporating a business has become an essential requirement for entrepreneurs, businessmen, startups, and investors. Have you ever wondered where it all began? In this blog, we’ll explore the methods of business incorporation in key commercial hubs and Pakistan and why it’s essential for modern businesses. Read on to get answers to questions like how to incorporate a business in Pakistan, business management, registration, compliance, and the benefits of business incorporation.
Tracing the Evolution of Business Incorporation: History, Growth, and Global Influence
The idea of a business incorporation has developed over centuries and has been shaped by many factors, including historical, economic, legal, and political developments. Historically, commercial partnerships existed in the civilizations of Rome and Greece centuries ago in the form of guilds, and at that time, the need for separate legal identities had not existed. Meanwhile, merchants in medieval Europe helped systemize trade by introducing a basic framework for partnerships, such as the commenda in Italy. Furthermore, between the 7th and 15th centuries, the Islamic world introduced profit-sharing contracts like mudarabah, musharakah, and Ijarah, which laid the foundation for modern commercial practices. As a result, the industrial revolutions led legislatures to enact laws protecting owners’ interests and promoting sustainable growth through regulated corporate structures.
What drives the decision to incorporate a business?
Entrepreneurs who are eager to turn their dreams into reality have financial freedom, the power to lead, and the opportunity to shape the future on their terms. However, starting a business is not just about profit; it is all about purpose, change, growth, and the legacy you choose to leave behind. Therefore, depending on the purpose, growth, and legacy, you need to choose a structure while keeping in mind the general concepts of liability, intention, succession, duration, and tax implications. Currently, we see different corporate structures, such as a company, corporation, partnership, non-governmental organization, not-for-profit organization, or firm incorporated for several strategic, legal, and financial reasons.
Benefits of incorporation of business:
- Incorporation offers separate legal entity for owners and the business itself (depending on the nature of the structure)
- Businesses can own property separately and reserve the right to purchase or alienate that property
- Business can enter contracts with any other business, state, or individual
- Separate liability protects the real owners from the debts of business
- Registration in state authorities enhances credibility and trust
- Brand recognition
- Perpetual succession means the business continues to exist even if the ownership or management changes
- Raising capital through the issuance of shares or by attracting investors
- Protection of name, preventing others from using it, and securing brand identity
- Sustainable growth
- Most businesses benefit from tax credits and lower percentages of deductions
- Registered businesses may avail the benefits of competition and intellectual property laws
How do you turn your business idea into a legal entity?
Legal entities, whether an LLC (Limited Liability Company), private or public company, corporation, or firm, may vary in rules across jurisdictions, but all structures follow some globally recognized frameworks like distinct legal identity, succession, and separate liability. Specifically, in major economies like the United States, the United Kingdom, the European Union, and China, incorporation typically begins with registering the business with a government authority (such as the Secretary of State in the U.S. or Companies House in the U.K.). In particular, entrepreneurs choose between different legal structures based on ownership, liability preferences, tax implications, and investment goals.
For example, small to medium businesses in the United States often choose limited liability corporations (LLCs) because they offer flexibility and tax benefits. In contrast, startups aiming to raise venture capital typically form corporations. Consequently, startups and small businesses in the United Kingdom mostly choose private limited companies (Ltd), which dominate among SMEs. Meanwhile, businesses aiming to list on stock exchanges typically form public limited companies (PLC).
In general, eligibility criteria depend on many factors, including prevailing laws, public policy, corporate structure, and the financial position of the country where a business is going to be set up. However, the basic structure for any business and in any jurisdiction is the same in terms of identity, adherence to local law, compliance with registering authority, and other international standards, if demanded, such as ISO certifications.
However, the nature of technicalities or compliance may differ as a country may have a liberal policy towards investors like UAE and Singapore, where simplified incorporation processes and minimal taxes are offered. On the other hand, some countries, such as Japan and Germany, have, to some extent, strict regulations requiring higher capital or tax rates but offer access to stable markets.
Which types of businesses are eligible for incorporation, and what legal barriers exist?
Choosing a structure for your business is based on the nature and purpose of its operations, desired liability structure, taxation preferences, and strategic goals. Generally, any lawful commercial activity can be incorporated, ranging from tech startups, manufacturing units, consulting services, and e-commerce platforms to real estate, healthcare, and professional practices like legal or accounting firms. Each business form, either LLC, corporation, or partnership, offers distinct legal and tax advantages. On the other hand, private and public limited companies are preferred for larger operations in jurisdictions like the UK, India, and Pakistan, especially when the purpose is to attract investors or go public.
Therefore, an entrepreneur or businessperson has to concentrate not only on the structure and ownership of the business but also on the type of business activity. For instance, an activity that is allowed in one country may be banned in another country. For example, farming pork or gambling is allowed in China, but that business idea is strictly prohibited in Saudi Arabia based on public policy, religious grounds, or cultural differences. A study of the laws and licensing procedures of the host country may help in considering options for investment in that country. For instance, in the United States, gambling businesses are heavily regulated and protected at the state level, and in China, foreign-invested enterprises are prohibited or restricted from engaging in internet news services, rare earth mining, and gambling operations.
Moreover, even where such businesses are permitted, they often require special approvals, additional capital, or regulatory compliance that may prolong the timeframe and add extra costs to investors. For instance, an online casino company in Malta or Gibraltar must obtain a gaming license before business incorporation.
Who is eligible to incorporate a business, and why must you register your business?
In general, anyone who complies with the legal requirements of a host jurisdiction can incorporate a business, whether they are a local, a foreign national, or a group. Specifically, the eligibility to incorporate typically depends on the nature of the business, the desired business structure, the expected outcome, the activities of the business, and the laws of the country in which the business is being set up. Additionally, entrepreneurs or individuals with legal capacity (usually over the age of 18, also depending on jurisdiction) can incorporate a business, whether it’s a sole proprietorship, partnership, LLC, or corporation. Foreign nationals are often allowed business incorporation in countries such as the U.S., the UK, Canada, the UAE, and Pakistan, although some sectors may have restrictions that require local partners or a physical presence. Existing corporations or holding companies may incorporate subsidiaries or non-profits under specific legal frameworks abroad.
On the other hand, every commercial activity, having a business name, goodwill, and sales, must register their business. Therefore, a business must fully comply with legal obligations to sustain material advantages like tax credits and tax allowances. Additionally, it must consistently provide uninterrupted services or products to maintain strong customer relationships. On the other hand, businesses can achieve invisible benefits like brand name protection, product credibility, availability, sustainable growth, and trust only when they are properly regulated. A customer is going to believe who is conscious about respect, trust, and a long-term relationship between customer and provider.
For example, businesses with employees or physical premises (either foreign-based or local) are usually required to register with the relevant local or national authorities for taxation, labor, intellectual property, and regulatory compliance. Similarly, freelancers, e-commerce sellers, and consultants who have headquarters or subsidiaries (distributors) in the host country often need to register with tax authorities, business incorporation bodies, and intellectual property regulatory authorities to protect their trademark, copyright, patent, or industrial design. Furthermore, specific kinds of business incorporation may require licenses to operate in specifically regulated industries, such as healthcare, finance, mining, security, food, or education, and must register themselves to obtain the appropriate permits.
Navigating the Path to Business Incorporation in Pakistan
The path to business registration in Pakistan goes through many legislations depending on the nature and activity of the proposed business. In fact, different laws and rules govern the incorporation, compliance, and governance of various business forms. Firstly, every business incorporation in any form or structure needs to be governed by taxation law and the tax regulatory authority of Pakistan. Furthermore, there is a list of laws and rules that supervise every aspect of business incorporation, its fair governance, and compliance. Based on the nature, purpose, activity, liability, and identity of the business, the available options in Pakistan to get started are:
Sole Proprietorship
- Single owner, simplest form
- Registration through Federal Board of Revenue (FBR)
- No separate identity
- Unlimited personal liability
- Taxed as an individual
Single Member Company (SMC-Private) Registration
- Private limited company with one shareholder
- Registered with SECP
- Separate identity
- Limited liability
- Tax benefits
Limited Liability Partnership
- Governed by Limited liability partnership act, 2017
- Hybrid form of company and partnership
- Registered with SECP
- Separate legal identity
- Liability limited to the contribution
- Taxed as AOP
Partnership (Firm)
- Registered under Partnership act, 1932
- Owner by two or more persons under partnership deed
- Registered with Firm Registrar
- No separate identity
- Joint and unlimited liability
- Taxed as an AOP
Public Limited Company
- Governed by Companies Act, 2017
- Types:
- Unlisted Public Company: Cannot trade on stock exchanges
- Listed Public Company: Can trade on stock exchanges
- Separate legal identity
- Limited liability
- Registered with SECP
- Strict regulatory requirements
Private Limited Company
- Governed by Companies Act, 2017
- Separate legal entity with limited liability, owned by shareholders (2 to 50 members).
- Registered with SECP.
- Separate legal identity from its members.
- Taxed as a company (corporate tax rate applies).
- Annual filing with SECP & FBR, audit (depending on size).
Society
- Governed by Societies Registration Act, 1860
- Forpromotion of literature, science, fine arts, social welfare, education, religion, or charitable causes.
- Registered withregistrar of joint stock companies or registrar of societies (under provincial industries departments).
- Minimum 7 members.
- Separate legal entity.
- Documents Required:
- Memorandum of Association
- Rules & regulations
- CNICs of members
- Must register with FBR for NTN and tax exemption (if applicable).
- Annual returns and financial statements with Registrar and FBR.
Trust
- Governed by Trust Act, 1882
- For public charitable or religious purposes (healthcare, education, etc.).
- Registered with Trust registrar under Stamp Act & Registration Act
- Trust is a legal obligation but may not have a full legal personality unless registered under specific rules (e.g., Punjab Charities Act).
- Apply to FBR for tax exemption under Section 100C of Income Tax Ordinance, 2001.
- Annual financial statements (if registered for tax exemption or foreign funding).
NGO (Non-Governmental Organization)
- NGO is not a legal category itself; it can take different legal forms:
- As a society
- As a trust
- As a company limited by guarantee
- If operating with foreign funding, they must: Register with Economic Affairs Division (EAD)
- Registered with local provincial departments or SECP
- Comply with the Policy for NGOs/NPOs receiving Foreign Contributions
NPO (Not-for-profit Organization)
- Governed by Income Tax Ordinance, 2001 and Companies Act, 2017
- Usually registered as:
- Company limited by guarantee
- Society or trust
- Registered with FBR after approval and SECP’s License
- Available if approved under FBR’s NPO criteria
Foreign Company
- Governed by Companies Act, 2017 – Section 435 onwards
- Foreign entities registered with SECP to operate in Pakistan.
- Registered through SECP, BOI (Board of Investment), and FBR.
- Extension (Subsidiary) of parent company.
- Local compliance and reporting to SECP & FBR.
The government enacted the Act of 2017 after repealing the Ordinance of 1984. It aimed to make the process of incorporation smooth and fast with minimum capital and minimal formal documentary requirements. To start a business easily and make it affordable for everyone, the minimum share capital requirement for the company was minimized to PKR 100,000/- (800$). For easy access and control, the Securities and Exchange Commission of Pakistan (SECP) was designated as the primarily responsible regulatory body for companies, limited liability corporations, NGOs, and NPOs.
Nature, purpose, and activity decide the timeframe and regulations for the setup. The process of business incorporation generally starts with the selection of a unique business name, memorandum of association (MOA), articles of association (AOA), identifications, proof of addresses, and relevant business licenses or approvals, as in the case of a trading company that require approval from Pakistan Mercantile Exchange (PMEX) and license from SECP before operation in Pakistan.
Corporate Governance in Business and Nonprofit Models
Below is a chart of the duties and responsibilities of office bearers, as designated officers perform legal responsibilities and respective laws govern their operations.:
| Entity Type | Officials | Legal Duties/Authority |
| Private/Public Company | – Director (Board of Directors) – CEO/Managing Director – Company Secretary | – Policy decision-making – Fiduciary duties under Companies Act – Filing returns to SECP – CEO manages day-to-day affairs |
| Single Member Company (SMC) | – Single Director – Nominee Director (in case of death) | – Same responsibilities as a director in Pvt Ltd – All powers rest with the sole member unless delegated |
| Partnership Firm (under Partnership Act, 1932) | Partners | Jointly and severally liable – Governed by partnership deed – Each partner may have equal or specified management authority |
| LLP (Limited Liability Partnership) | Designated Partners | At least one must be a resident in Pakistan – Responsible for regulatory compliance with SECP |
| Trust (under Trust Act, 1882) | – Trustees – Settlor (the person who creates the trust) | – Trustees manage trust property – Must act in accordance with the trust deed and fiduciary duties |
| Society (under Societies Registration Act, 1860) | – President – Vice President – General Secretary – Treasurer – Executive Committee | – Titles vary slightly – Elected as per society’s by-laws – Responsible for day-to-day operations, meetings, compliance with Registrar |
| Company Limited by Guarantee (Sec 42 Company | – Directors – Chairman – Secretary / CFO (optional) | – Similar to private/public company, but for nonprofit purposes – Must follow SECP licensing and governance structure |
| NGO/NPO (general) | – Depends on the structure: Trustees, Board Members, Directors, Office Bearers | – Accountability to FBR, SECP, or EAD depending on legal structure and funding – Must maintain transparency and good governance |
Key Functional and Regulatory Aspects of Business and Nonprofit Entities:
In Pakistan, structure, ownership, and operational needs decide the nature, function, and regulatory authority. A functional overview of every entity can help clients understand why they need a specific structure:
- A Private Limited Company is the most prevailing option for small to medium-sized businesses, normally for consultancy, education, manufacturing (small scale), and advisory services. It offers limited liability protection for shareholders (owners) and allows them to raise capital through shares.
- A Public Limited Company is suitable for larger businesses that plan to offer shares to the public and potentially list on the stock exchange to raise funds and share trading, but it is subject to stricter regulations such as audits, licenses, or approvals.
- The Single Member Company (SMC) (alternative to sole proprietorship) allows individual entrepreneurs to enjoy the benefits of limited liability and separate identity while operating a business as a sole owner.
- The Limited Liability Partnership (LLP) combines the flexibility of a partnership with limited liability for its partners, making it ideal for professional firms or small business partnerships.
- Trust: In Pakistan, individuals register a trust to legally transfer and manage property or assets for the benefit of specific individuals or causes. Registration ensures transparency, legal recognition, and enforceability under the Trust Act of 1882. It is commonly used for charitable, religious, or estate-planning purposes.
- Society: In Pakistan, individuals register a society to promote charitable, literary, scientific, or public welfare objectives through collective action. Additionally, registration under the Societies Registration Act of 1860 offers legal identity, enabling the society to own property, open bank accounts, and enter into contracts. Moreover, it ensures accountability and recognition by government and regulatory bodies.
- NGO (Non-governmental Organization): In Pakistan, an NGO registers to engage in social, humanitarian, or developmental work at a community or national level. In addition, registration gives the business a legal identity to operate, receive local or foreign funding, and collaborate with stakeholders. Furthermore, it ensures compliance with regulatory bodies like the Economic Affairs Division and local laws.
- Foreign Company: In Pakistan, a foreign company registers to operate legally, invest, or establish a business presence within the country. Moreover, registration with the SECP under the Companies Act 2017 allows the company to open branches, enter contracts, and hire employees. Additionally, it ensures compliance with local laws, taxation, and regulatory frameworks for smooth and lawful operations.
- Sole Proprietorship: In Pakistan, an individual registers a sole proprietorship to gain legal recognition for conducting business under a specific name. Furthermore, registration (usually with FBR and local authorities) allows the proprietor to open a business bank account, issue invoices, and pay taxes. In addition, it helps build business credibility, ensures compliance, and provides access to government or financial services.
- Partnership (Firm): Two or more individuals register a partnership (firm) in Pakistan to formalize their business agreement and work together for profit. In addition, registration under the Partnership Act of 1932 provides legal recognition, dispute resolution mechanisms, and access to banking and contracts. It ensures compliance with tax authorities like FBR and enhances trust with clients and institutions.
Relevant provisions governing incorporation and compliance:
The Companies Act, 2017, and SECP’s SROs are issued in different situations and regulations to govern the corporate structure and its management.
| Type | Relevant Provisions |
| Private & Public Companies | Sections 16–36 (Incorporation), Sections 85–110 (Management), Sections 147–171 (Annual Return & Audits) |
| Section 42 (NPOs) | Section 42 (Licensing), Sections 42–43 (Conditions & Revocation), Section 227 (Audit & Annual Filing) |
| Foreign Companies | Sections 435–443 (Registration & Compliance) |
| Director Roles & Duties | Sections 172–188 |
| Compliance Requirements | Sections 223–241 (Accounts, Audit, Filing) |
In below table, partnership (firm) governing provisions (Partnership Act, 1932) and rules:
| Type | Relevant Sections / Provisions |
| Registration | Sections 58–59 |
| Rights & Duties | Sections 9–17 |
| Rights & Duties | Sections 9–17 |
| Dissolution | Sections 39–47 |
| Compliance | Section 69 (Effect of non-registration) |
In fact, tax laws and business registration rules usually regulate sole proprietorships, as they are not governed by a separate corporate law. Table below guides the provisions and rules about sole proprietorship:
| Type | Relevant Provisions |
| Tax Registration | FBR (Income Tax Ordinance, 2001) |
| Name Registration | Local Trade License Authorities or Chambers of Commerce |
| Sales Tax / PRA | Sales Tax Act, 1990 / Provincial Revenue Authorities |
Trust Act, 1882, reading with Registration Act, 1932, regulates the registration and compliance of trusts:
| Area | Relevant Sections |
| Creation of Trust | Sections 4–6 |
| Duties of Trustee | Sections 11–20 |
| Rights of Beneficiary | Sections 55–66 |
| Registration (in some cases) | Local Sub-Registrar under Registration Act, 1908 |
The Societies Registration Act, 1860 governs the registration of societies:
| Area | Relevant Sections |
| Formation & Objectives | Section 1–2 |
| Filing of Memorandum & Rules | Section 3–4 |
| Annual Filing Requirements | Section 4 |
| Dissolution | Section 13–14 |
Registration of NGO, INGO, and NPO is regulated by Companies Act, 2017 (Section 42 – for NPOs), Economic Affairs Division (EAD) Policy, 2013 (for INGOs), and Voluntary Social Welfare Agencies (Registration and Control) Ordinance, 1961:
| Area | Relevant Provision |
| Registration with EAD | INGO Policy, 2013 |
| Local NGO under Ordinance | Section 3–7 (Registration & Control) |
| Compliance and Reporting | Depends on licensing authority (EAD, SECP, Social Welfare Dept.) |
Every business in Pakistan must comply with and be regulated by tax laws. Below is a table of necessary key tax compliances:
| Type of Compliance | Key Sections |
| NTN & Tax Filing | Sections 114, 118 (ITO, 2001) |
| Sales Tax Registration | Section 14 (STA, 1990) |
| Withholding Tax | Sections 149–153 (ITO, 2001) |
| Audit and Returns | Sections 177, 210 (ITO, 2001) |
Starting a business in Pakistan opens the door to tax benefits, including exemptions, credits, and lower rates under the Federal Board of Revenue (FBR). 29% corporate tax for most businesses is a key benefit, while some subsidized or special sectors may qualify for lower rates or tax exemptions in Pakistan. Approximately all companies can take advantage of tax deductions for only business-related expenses, including wages, utilities, freight, and rent, and can also claim allowances on depreciation and amortization of assets. Government policies regarding some businesses, including IT, export-oriented companies, and education, may differ for public growth, foreign remittances, and increasing foreign reserves. As a result, these businesses become eligible for exemptions and incentives that significantly reduce their tax burden.
The government also offers tax credits when businesses invest and reinvest their profits in special sectors. Therefore, businesses can only avail themselves of most benefits, including exemptions, credits, allowances, deductions, and incentives, if they are properly registered. They must also comply with the relevant rules and regulations to qualify for these advantages. So, incorporating a business in Pakistan offers legal protection and credibility and substantial tax benefits that promote sustainable growth and success.
Haider Zia Kainth is a legal strategist and partner at Neutral’s Law, specializing in contract law, intellectual property, and alternative dispute resolution. His expertise in arbitration and mediation empowers businesses to overcome legal challenges and foster effective resolutions in a dynamic global marketplace.