Company formation differs globally based on the jurisdiction, but there are common principles and processes that apply in most countries. For our customers, GFLA provides an overview of company formation with global considerations:

Types of Business Entities

Each country offers different legal structures for companies, such as:

  1. Sole Proprietorship: Owned and operated by one person (common in most countries).
  2. Partnerships: Owned by two or more individuals, can be general or limited (e.g., LLPs in the UK/ Pakistan).
  3. Limited Liability Company (LLC): Combines features of a corporation and a partnership (common in the US, EU, and other regions).
  4. Corporation (Inc./Ltd./Pvt Ltd): Separate legal entity, ideal for larger businesses.
  5. Public Limited Company (PLC): Can issue shares to the public (common in the UK, India, and others).
  6. Branch or Subsidiary of a Foreign Company: For international expansion.

Key Steps in Company Formation Globally

While the exact steps vary, these are general stages followed worldwide:

A. Choosing a Jurisdiction

  1. Domestic or Offshore: Companies can register domestically (in their home country) or in favorable jurisdictions like Singapore, Delaware (US), or the Cayman Islands.
  2. Tax Incentives: Many countries offer low corporate tax rates or exemptions to attract foreign investors.

B. Selecting a Business Name

  1. Must be unique and not infringe on existing trademarks.
  2. Some jurisdictions require approval of the name before registration (e.g., UK, Canada).

C. Filing Incorporation Documents

Documents typically include:

  1. Articles of Incorporation/Constitution (Company Charter)
  2. Memorandum of Association and Articles of Association (MOA and AOA) in countries like USA, UK.
  3. Details of shareholders, directors, and registered address.
  4. Filed with a government body (e.g., Companies House in the UK, SEC in the Philippines, SECP in Pakistan).

D. Appointing Directors and Officers

  1. Most jurisdictions require at least one director, though some require multiple (e.g., Singapore requires at least one local director).
  2. Companies need to maintain corporate records of appointments.

E. Opening a Corporate Bank Account

  1. Mandatory for most jurisdictions to separate personal and business finances.
  2. Some countries, like Singapore, have stringent Know Your Customer (KYC) requirements.

F. Registering for Taxes

  1. Obtain a tax identification number (TIN) or equivalent (e.g., EIN in the US, VAT in the EU).
  2. Some countries require additional registrations for GST, VAT, or other local taxes.

G. Licenses and Permits

  1. Industry-specific licenses may be required (e.g., financial, import/export licenses).
  2. Zoning and environmental approvals in some countries.

Country-Specific Highlights

United States

  1. Formation: Companies are registered at the state level (e.g., Delaware for business-friendly laws).
  2. Common Entity: LLC or C Corporation.
  3. Taxation: Federal and state taxes apply.

United Kingdom

  1. Formation: Register with Companies House.
  2. Common Entity: Limited Company (Ltd).
  3. Unique Features: Company directors are publicly listed.

Singapore

  1. Formation: Register with the Accounting and Corporate Regulatory Authority (ACRA).
  2. Common Entity: Private Limited Company (Pte Ltd).
  3. Advantage: 0% tax on foreign-sourced income if managed properly.

United Arab Emirates (UAE)

  1. Formation: Free Zones or Mainland Companies.
  2. Popular for: 100% foreign ownership in Free Zones.
  3. Taxation: Generally 0% corporate tax, with some VAT.

China

  1. Formation: Foreign entities typically register as a Wholly Foreign-Owned Enterprise (WFOE).
  2. Challenges: Compliance with local regulations and strict capital requirements.

Global Trends in Company Formation

  1. Digital Incorporation: Many countries allow online company registration (e.g., Estonia’s e-Residency program).
  2. Simplification of Procedures: Nations like the UAE and Singapore streamline processes to attract foreign businesses.
  3. Cross-Border Compliance: Multinational companies face complex tax and legal compliance (e.g., OECD BEPS guidelines).
  4. Rise of Offshore Entities: Jurisdictions like the Cayman Islands and Luxembourg are popular for tax optimization and confidentiality.

Benefits of Global Company Formation

  1. Market Access: Expanding into new markets.
  2. Tax Efficiency: Using jurisdictions with lower tax rates or treaties.
  3. Asset Protection: Limiting liability and separating personal and business assets.
  4. Global Credibility: Operating internationally builds trust with investors and clients.

In Pakistan, company formation is governed by the Companies Act, 2017, and the process is overseen by the Securities and Exchange Commission of Pakistan (SECP). Here’s a comprehensive guide on company formation in Pakistan:

Types of Companies in Pakistan

You can choose from several business structures, depending on your needs:

  1. Sole Proprietorship: Owned by a single individual; simplest structure.
  2. Partnership: Governed by the Partnership Act, 1932; suitable for small businesses.
  3. Private Limited Company (Pvt Ltd): Most common structure for SMEs and startups. Limited liability for shareholders.
  4. Public Limited Company:

            •  Listed: Can raise funds from the public by listing shares on the stock exchange.

            •  Unlisted: A public company but not listed on the stock exchange.

  • Single Member Company (SMC): A type of private company with only one shareholder.
  • Branch Office (BO)/Liaison Office (LO): For foreign companies to operate in Pakistan without incorporating locally.

Key Steps for Company Formation in Pakistan

The following steps outline the process of registering a company with SECP:

Name Reservation

  1. Choose a Unique Name:

            •          Must comply with SECP’s guidelines (no prohibited or deceptive words).

            •          The name should not be similar to an existing company.

  1. Apply Online:

            •          Submit the name reservation application through the SECP’s eServices portal.

            •          SECP typically approves or rejects the name within 1-2 days.

Drafting Incorporation Documents

  1. Memorandum of Association (MOA): Defines the company’s objectives and scope of operations.
  2. Articles of Association (AOA): Specifies the internal rules for governance and operations.

            •          SECP provides templates for MOA and AOA for various sectors.

Filing for Incorporation

  1. Log into the SECP eServices portal.
  2. Submit the following documents:
  3. Name reservation letter.
  4. MOA and AOA.
  5. CNICs/Passports of directors, shareholders, and the company secretary.
  6. Proof of the registered office address.
  7. Copies of National Tax Number (NTN), if available.
  8. Pay the Incorporation Fee:
  9. Fee varies based on the company’s authorized share capital.

Issuance of Certificate of Incorporation

  • Upon approval, SECP issues a Certificate of Incorporation, granting legal status to the company.

Post-Incorporation Requirements

  1. Obtain a National Tax Number (NTN):

            •     Register with the Federal Board of Revenue (FBR) for taxation purposes.

  1. Sales Tax Registration (if applicable): Required for businesses dealing with goods or services subject to sales tax.
  2. Employee Registrations: Register employees with Social Security Institution and EOBI (Employees’ Old-Age Benefits Institution).
  3. Bank Account: Open a corporate bank account using the Certificate of Incorporation.

Costs of Company Formation

  1. Name Reservation Fee: PKR 200 (online) or PKR 500 (offline) which can be changed.
  2. Incorporation Fee: Depends on authorized share capital (e.g., PKR 1,500 for share capital up to PKR 100,000).
  3. Professional Fees: GFLA professional team will help you in all process.

Timeline for Company Formation

  • Name reservation: 1-2 days approximately.
  • Filing and approval: approximately 3-5 days after submission.
  • Total time: Approximately 1-2 weeks, if all documents are in order.

Foreign Company Formation in Pakistan

Foreign businesses can establish a presence in Pakistan by registering as:

  • Branch Office (BO): Can engage in limited commercial activities.
  • Liaison Office (LO): Used for market research, networking, and non-commercial activities.
  • Requires approval from the Board of Investment (BOI).

Process for Foreign Offices:

  1. Submit an application to the BOI along with required documentation.
  2. Obtain permission to operate (usually valid for 1-5 years).

Register with SECP and FBR for taxation purposes.

Benefits of Incorporating in Pakistan

  1. Limited Liability: Protects personal assets of shareholders.
  2. Credibility: Enhances trust with clients and investors.
  3. Tax Incentives: Special Economic Zones (SEZs) and Export Processing Zones (EPZs) offer tax benefits.
  4. Market Access: Pakistan is a growing economy with over 230 million people.

Challenges in Company Formation

  1. Regulatory Compliance: Businesses need to comply with SECP, FBR, and labor laws.
  2. Bureaucracy: While digitization has improved processes, some steps still involve delays.
  3. Taxation Complexity: Navigating federal and provincial tax systems can be challenging.