Setting-up a Business

There are three main forms of business:

1. Sole Proprietorship2. Partnership3. Company

Sole ProprietorshipIn a sole proprietorship, an individual on his/her own account carries out the business or profession. No formal procedure or formality is required for setting up a sole proprietary concern.

PartnershipA partnership is a business relationship entered into by a formal agreement between two or more persons or corporations carrying on a business in common. The capital for a partnership is provided by the partners who are liable for the total debts of the firms and who share the profits and losses of the business concern according to the terms of the partnership agreement.

Partnerships (other than banking companies) are generally limited in size to twenty partners. The interest of a partner is transferable only with the prior consent of the other partner(s). However, a partner's right to a share of the partnership income may be received in trust for another person.

For taxation purposes, partnerships are classified into:

1. Registered Firms2. Unregistered Firms

The income of the registered firm is subject to Super Tax before distribution to the partners. Also the individual income of the partners is subject to income tax at the usual rates.

For unregistered firms, income tax is levied on the firm's income and the partners are not liable to pay tax on the shares of profit received from the unregistered firm(s).

CompanyA company is a legal entity formed under the Companies Ordinance, 1984. It can have share capital or can be formed without share capital.

A company having share capital may be formed as:

1. A company limited by shares.2. A company limited by guarantee.3. An unlimited company.

Company Limited by SharesThe liability of its members is limited to the extent of their shares in the paid-up capital of the company. These companies may further be classified as public limited and private limited companies.

Public Limited Companies can be formed by at least seven persons by subscribing their names to the 'Memorandum and Articles of Association' of the company. The word 'Limited' is used as the last word of its name.

Private Limited Companies may be formed by at least two persons by subscribing their names to the 'Memorandum and Articles of Association' of the company. A private limited company, by its Articles of Association:

1. Restricts the right to transfer its shares;2. Limits the number of its members to fifty; and;3. Prohibits any invitation to the public to subscribe for shares or

debentures of the company.

A private limited company is required to use the words "(Private) Limited" as the last words of its name.

Company Limited By GuaranteeMeans a company having the liability of its members limited by memorandum to such amounts as the members may respectively undertake to contribute to the capital of the company in the event of its winding up. A company limited by guarantee is usually formed on a 'non profit basis'. Companies limited by guarantee use the words (Guarantee) Limited" as the last words of their name.

Unlimited CompanyMeans a company having unlimited liability of its members.