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Private Limited Company


What is the main source of law authorising this entity form?

The Companies Act, 2017.


Give a brief summary of this entity form, including

Does the entity possess separate legal personality?

A Private Limited Company limited by shares has a separate legal personality from that of its members (shareholders).

(Maximum) period of existence

It has perpetual existence.

Governing document(s)

Its primary governing documents are the Memorandum of Association and the Articles of Association.

Liability of incorporators / shareholders

The liability of its members is limited to the extent of their shareholding in the company.

(Governing) bodies

Depending on the organisational structure prescribed in the Articles of Association, the affairs of a private limited company are managed by its Chief Executive Officer (CEO) or Managing Director. It is not authorised to solicit investments or deposits from the public.

Other particularities

N/A


Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?

Yes, the above activities can be undertaken by a private limited company.


Can this type of entity be publicly listed or held?

No.


Can this type of entity be used for a non-profit or charitable organization?

No.





Give a brief summary of the process of incorporation, formation, or organization, including

Main documents required

Documents required for incorporation are Computerised National Identity Cards (CNICs) or National Identity Cards for Overseas Pakistanis (NICOP) or passports of the prospective members. Prospective members who are not citizens of Pakistan can proceed with their passports. However, all foreign nationals require security clearance from the Ministry of Interior prior to setting up companies or prior to acting as directors in companies. The Memorandum of Association lists the company’s core area of business activity. The Articles of Association contain the internal rules which will be applicable to the company (if no Articles are provided at the time of incorporation, the default Articles provided in the statute will be applicable).

Foreign entities interested in setting up a branch office or a liaison office of a company established outside Pakistan are required to obtain permission from the Board of Investment (BoI) by fulfilling the formalities of the BoI along with payment of applicable fees. Once the permission has been obtained, the incorporation procedure can be completed digitally.

Foreign companies wishing to set up a subsidiary private limited company in Pakistan must file a board resolution indicating authorisation for setting up the company and copies of its Memorandum and Articles of Association.

Involvement of notary, company register, governmental authorities

The documents can be digitally filed with the Registrar of Companies.

Timing (estimate)

The certificate of incorporation is usually issued within three (3) days of submission of the documents.

Main costs, including registration and similar fees (excluding legal fees)

The registration fee is PKR 3,200 (US$20).

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

The company’s name must disclose its principal line of business. Moreover, the Memorandum of Association is required to contain a description of the company’s core business activities. However, once incorporated, the company may engage in any lawful business (barring those which are regulated, require a license, or are specifically prohibited – e.g. offering financial or banking services).


Minimum number of incorporators / shareholders and residency requirements

The minimum number of shareholders is two (2). Residence within Pakistan is not required. However, persons who are not citizens of Pakistan are required to obtain prior security clearance from the Ministry of Interior.


Minimum number of directors (or other applicable officers) and residency requirements

The minimum number of directors is two (2). Residence within Pakistan is not required. However, prospective directors who are not citizens of Pakistan are required to obtain prior security clearance from the Ministry of Interior.


Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

There is no prescribed minimum share capital for private limited companies, but it is usually fixed at least at Rs. 100,000, which is typically divided into shares having a face value of Rs. 10 each. The company is required to open a bank account in its name within 60 days of incorporation and deposit the share capital therein. Physical presence in Pakistan would be required to open a bank account.


Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?

No, except as noted above with respect to the opening of the bank account.


Is a tax identification number, or equivalent, required? If so, how is it obtained?

A National Tax Number (NTN) is required for such a company. It is automatically generated after incorporation.





What is the title of the applicable company registry?

The Securities and Exchange Commission of Pakistan (SECP), which is the statutory regulator.


What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.: Articles , Ownership identification (direct and/or indirect ownership, 'beneficial owners') , Group structure , Share capital , Directors , Accounts , Insolvency, good-standing, liquidation , Liens and encumbrances on the shares , Liens and encumbrances on assets of the entity , Other (e.g. litigation, tax matters)

The Articles of Association and Memorandum of Association are public documents and can be obtained from SECP by anyone by paying the applicable fee.

Information as to ultimate beneficial ownership (UBO) of a company is required to be filed with SECP and can be obtained by outsiders by paying the applicable fee.

Where the company is a subsidiary of another entity, the details of the parent entity are required to be disclosed but are not publicly available.

The company’s authorised share capital, paid-up share capital, and face value of each share are mentioned in the Form-A, which is filed on an annual basis with SECP and is publicly accessible.

Particulars of a company’s directors are publicly available through the Form-A.

The accounts filed by a private limited company are not publicly available. However, the Form A contains a summary of the company’s financials, which is publicly available.

There is no such requirement with respect to insolvency, good-standing and liquidation.

If a company is declared insolvent by the court, or undergoes voluntary liquidation, this information is required to be disclosed to SECP.

Liens and encumbrances on a company’s assets are required to be registered with SECP, and this information is open to the public.

The accounts are not publicly available. Usually, audited accounts are required to state the possible effect of any litigation which the company is engaged in or threatened with.





What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

The Board of Directors, who may either appoint a director or any other person to act as the Chief Executive Officer (CEO) or Managing Director of the company, who is charged with running the company’s day to day affairs (subject to any restrictions in the Articles of Association).


How are the members of the executive body appointed, dismissed and replaced?

The directors are appointed, dismissed, and replaced by the shareholders in an annual general meeting, or a meeting specially convened for this purpose.


Is it possible to appoint corporate directors or must all directors be natural persons?

A director is required to be a natural person.


Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

There is no requirement for appointment of non-executive directors for Private Limited Companies. A director has to have shareholding in the company. Where an entity or other juristic person is a shareholder in the company, it may appoint a natural person as a nominee director and for this purpose, may assign one (1) share to such person, called nominee shareholding.


What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

The shareholders in general meeting. The shareholders in a general meeting may:

  • Appoint, dismiss, or reappoint directors and auditors;
  • Increase the authorised share capital;
  • Amend the Memorandum and Articles of Association;
  • Wind up the company;
  • Authorise payment of dividends;
  • Approve accounts; and
  • Change the company’s name or its status (e.g. from a private limited company to a public limited company).

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

Decisions at a general meeting are taken with a simple majority of the members present at such a meeting, on the principle of one (1) vote against one (1) share (unless provided otherwise in the Articles), except for certain decisions requiring a three-fourth majority. Decisions requiring a super majority include winding up, increase in share capital, amendments in the Memorandum or Articles of Association, change of company name and change of status.


Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

Not applicable to Private Limited Companies.


What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

Annual accounts approved by the Board of Directors are presented for approval before the shareholders in annual general meeting and are filed with SECP.


Is the entity permitted to determine its own financial year?

Yes.


Is the entity subject to any statutory (external) auditor obligations?

A private limited company is only required to file annual accounts certified by external auditors if its authorised share capital is in excess of PKR 1,000,000.


Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

A Private Limited Company is required to appoint a cost and management accountant or a chartered accountant, external auditors (regulated by the Institute of Chartered Accountants Pakistan ICAP) and a legal advisor (regulated by any of the provincial bar councils) only if the company’s paid-up capital is more than PKR 1,000,000, PKR 3,000,000, and PKR 7,500,000 respectively. There are no specific residency requirements for auditors or legal advisors.





What is the title designated for ‘ownership interests' (e.g. shares, quota, interests, membership)?

Shares.


Are different classes of ownership interests possible? If so, what are some examples of different classes?

Examples of different classes of shares include ordinary shares and preference shares. It is also possible for the shareholding rights to be varied through shareholding agreements.


What documentation is required for the transfer of ownership interests?

A member desiring to transfer his or her shares to another person writes to the Board of Directors. The Board of Directors writes to the other members, who have the right of first refusal. The transfer is effected through execution of a written share transfer deed, to be signed by the transferor and the transferee and submitted to the company. The members’ register maintained by the company is also updated.


Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

The Company maintains the members’ particulars in the Members’ Register. No other governmental approvals are required after the board has approved the transfer of shares.


Are there any applicable stamp duties imposed when transferring ownership interests?

0.25% of the consideration.


How are shares issued? (including information on payment obligations, registration requirements)

Presently, shares are issued in physical form (certificates). SECP is working on draft regulations for issuance of digital share certificates. The members pay the share price into the company’s bank account, after which the company issues share certificates and enters the members’ particulars in the Members’ Register maintained by the company.


Further information on equity contributions, e.g. , Non-cash payments on shares; (Share premium) contributions without issuance of shares , Can partially paid shares/ownership interests permitted and what are the restrictions on them?

No.

Yes, the remaining amount must be paid by the members when called upon to do so by the company


Any requirements with respect to share cancellation, share repurchase and other capital reductions

Subject to confirmation by the Court, a private limited company, if authorised by its Articles, may reduce its share capital pursuant to a special resolution passed by three-fourth majority of the shareholders.


Any requirements with respect to distributions to shareholders?

There are no specific regulations concerning distribution of dividends of private limited companies.


Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Yes, such an agreement, if entered into, is required to be filed with SECP.





Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

Around US$500.


What are the general corporate tax rates? (Specify if there is a national versus local distinction).

Corporate tax is 29% of declared profits throughout Pakistan.





Summary of any specific matters, e.g. recent or prospective major legal developments

None.




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Contact a member firm:
Ahmed Farooq
Meer & Hasan
Pakistan