HOW TO INCORPORATE A COMPANY IN PAKISTAN

This article explains the procedure for incorporation of a company in Pakistan as well as the requirements imposed on foreigners. The procedure for registration of a company is provided in the Companies (Incorporation) Regulations 2017 (“Incorporation Regulations”) promulgated by the Securities and Exchange Commission of Pakistan (“SECP”) under the Companies Act 2017 (“Companies Act”). In addition to the aforesaid, please note that, for foreigners intending to incorporate a company in Pakistan, additional requirements are to be complied with in terms of security clearances to be sought, additional information to be provided, as well as requirements for registration of shares on a repatriable basis with the State Bank of Pakistan (“SBP”).

Before elaborating on the process for incorporation of a company, it is critical to elaborate on the different types of entities that may be incorporated.

Types of Corporate Entities

Under the Companies Act there are three key types of limited liability corporate entities that have their own legal personality:

1.    Private Limited Company

2.    Single Member Companies

3.    Public Company (which may be listed or unlisted on the stock exchange)

The main distinction between the aforementioned corporate entities is in their reporting, corporate governance, and compliance obligations. 

Private Limited Company

Under the Companies Act two or more persons may form a private limited company. A private limited company is defined under the Companies Act as a company which by its Articles of Association (i) restricts the right to transfer its shares (save as otherwise provided under the Companies Act); [1] (ii) limits the number of its members to fifty; (iii) prohibits any invitation to the public to subscribe to its shares, debentures, or redeemable capital.[2]

Please note that a private limited company must have a minimum of two shareholders[3] and two directors on its board of directors.[4] Moreover, if a shareholder proposes to sell its shares, the other non-selling shareholders have a pre-emption right to buy the selling shareholder's shares before the selling shareholder may sell them to a third party buyer.[5] 

Single Member Company

Under the Companies Act one person may form a single member company by complying with the requirements in respect of registration of a private company and such other requirements as may be specified by the SECP. A single member company under the Companies Act is defined as a company which has only one shareholder.[6] Such company is to have a minimum of one director who may also be the chief executive.

In comparison to a private limited company, a single member company has a less formal corporate governance structure, as an example, a single member company is not required to hold annual general meetings, which are required for a private limited company.[7] Consequently, the single shareholder, who may be the director, as well as the chief executive, may act on behalf of the firm and exercise complete control. Under the Companies Act a nominee is also to be appointed by the subscriber who in the event of death of the subscriber shall be responsible to (i) transfer the subscriber’s shares to the legal heirs of the deceased as per the applicable law; and (ii) manage the affairs as a trustee, till such time the title of shares are transferred.[8] The person to be nominated shall not be a person other than the relatives of the member, namely, a spouse, father, mother, brother, sister and son or daughter.[9]

As for the reporting obligations, a single member company is subject to the same basic reporting and record-keeping obligations as other types of corporate entities.

Public Company

Under the Companies Act three or more persons may form a public limited company. A public company is defined under the Companies Act as a company which is not a private company.[10] As mentioned above, a public company may be listed or unlisted on the Pakistan Stock Exchange. A listed public company is essentially an entity that is listed on the Pakistan Stock Exchange (“PSX”)[11] and may sell its shares to the general public which any person may purchase. An unlisted public company, on the other hand, is an entity that is not listed on the PSX.[12]

 A public limited company must have at least three shareholders and three directors[13] (a minimum of seven directors in the case of a listed public company)[14] on its board of directors. Moreover, such a company needs to appoint a company secretary.[15] In comparison to other entities, a public company is subject to more onerous compliance and reporting obligations. It is pertinent to mention that certain types of specialized companies, such as non-banking financial institutions, may only be created as a public limited company.

Procedure for Incorporation

A company is incorporated through a standard two step procedure: (i) filing an application for reservation of a name for the company;[16] (ii) filing an application for incorporation of the company.[17] Please note that under the Incorporation Regulations a combined application for both name reservation and incorporation of a company may also be made.[18] For the reader’s understanding and to provide a clear roadmap, the two steps are further broken down under the headings provided below. 

Name Reservation Application

An applicant may file a name reservation application and propose up to three names in order of priority for reservation of any of them.[19]

Step One: Conducting a company name search

Before making a name reservation application, it is advisable to carry out a company name search in the database of the SECP to check for any conflicting names that are already in use by other companies. Conducting such a search is essential as the use of a name that is identical with or similar to an existing company duly incorporated is prohibited under the Companies Act.[20] The search may be conducted online through the following link:

https://eservices.secp.gov.pk/eServices/NameSearch.jsp 

If a company or entity exists with an identical or similar name the same may be used if there is a relationship between the company incorporated and the proposed company. In such a case a board resolution / no objection certificate is to be provided which shows that the company incorporated has no objection on the use of the name by the proposed company.

Step Two: Checking whether the proposed name(s) is/are prohibited

Upon confirmation that the proposed name is not in use by any other company, the applicant needs to determine whether the proposed name is allowed to be used as a company name under the Companies Act and the Incorporation Regulations. For the sake of brevity this article will not list all the restrictions on company names laid down. The reader is advised to look at section 10 of the Companies Act and Regulation 4 of the Incorporation Regulations for the complete list of restrictions which prohibit certain names to be used for companies.

The Companies Act inter alia prohibits names that are:[21]  

(i)            identical with or similar to the name of an existing company;

(ii)          inappropriate;

(iii)         undesirable;

(iv)         deceptive; or

(v)          designed to exploit or offend religious susceptibilities of the people.

In addition to the above, certain words such as “Foundation”, “Society” and “Group” may only be used subject to fulfilment of the criteria as mentioned in regulation 4(2) of the Incorporation Regulations. As an example, the word “Foundation” may only be used for companies established on grant of a license by the SECP under section 42 of the Companies Act or which are licensed by the Directorate General of Trade Organizations under the Trade Organizations Act 2013.[22]

Step Three: Filing a Name Reservation Application

After verification that a name is not prohibited under the Companies Act and the Incorporation Regulations, the applicant may file a name reservation application, along with the prescribed fees, online (through https://eservices.secp.gov.pk/eServices/) or through physical application as per Inc. Form I under the Incorporation Regulations with the Company Registration Office (“CRO”), SECP. The Inc. Form I (name reservation application format) may be accessed from the following link by downloading the document titled “Availability of Name”: https://www.secp.gov.pk/company-formation/formsapplications-schedule-of-filling-of-returns/applications/. 

For filing an online name reservation application please refer to the following guide published by the SECP: https://eservices.secp.gov.pk/eServices/Guides/userguide_sa_cnr_ci.pdf.

The prescribed fee for filing a name reservation application physically is PKR 500/- and electronically PKR 200/-.[23] 

Step Four: Examination of the Name Reservation Application by the CRO

If the CRO is satisfied that any one of the proposed names, in the order of priority, fulfills the criteria specified under the Companies Act and the Incorporation Regulations, it may issue a letter of name availability.[24] The applicant is then to file an incorporation application (as detailed below) within sixty days of the name reservation by the CRO.[25] On the other hand, in case of refusal of the name reservation application, the CRO shall issue an order of refusal to the applicant.[26]

Please note that prior to making a decision the CRO may require the applicant to furnish additional information as deemed appropriate which is to be filed within fifteen days of such requirement or such further time as may be allowed.[27]

Company Incorporation Application

Step One: Filing the Incorporation Application

The applicant is to file the incorporation application, either online or physically as per Inc. Form-II under the Incorporation Regulations,[28] along with the prescribed fee, within sixty days of the name reservation by the CRO. For making an online application please refer to the following guide issued by the SECP available at: https://eservices.secp.gov.pk/eServices/Guides/userguide_sa_cnr_ci.pdf. [29]

It is pertinent to mention that the incorporation application form is inter alia to contain the number of directors, as determined by the subscribers (subject to the minimum number required under the Companies Act),[30] and the particulars of the first directors and chief executive officer.[31] Additionally, through a recent amendment made to the Incorporation Regulations by the SECP, in case a subscriber holds twenty-five percent or more shares, voting rights or controlling interest in the proposed company, directly or indirectly, on behalf of some other natural or legal person, the particulars of the ultimate beneficial owner(s) are to be provided.[32]

The incorporation application is also to be accompanied with the following documents, which are to be witnessed, where required[33] as per the Incorporation Regulations, (scanned copies are to be uploaded for incorporation applications [34]where required under the SECP’s  website): [35]

(i)            Memorandum[36] and Articles of Association[37] of the proposed company (signed physically or electronically by each subscriber[38]);

(ii)          copy of name availability letter issued by the SECP;

(iii)         copies of valid NIC/NICOP (national identity card / national identity card for overseas Pakistanis) of the subscribers, directors, chief executive officer or copies of valid passport, in case of a foreign subscriber, director or chief executive officer;

(iv)         in case of a single member company a copy of valid NIC / NICOP of nominee or copy of valid passport in case of a foreigner;

(v)          in case of physical filing of the incorporation application, copy of NIC (national identity card) of the witness that is required to witness certain documents to be submitted along with the incorporation application;

(vi)         in case of physical application, an authority letter authorizing an individual to take all actions required for incorporation of the proposed company (such letter is to be in compliance of the requirements laid down under the Incorporation Regulations);

(vii)       no objection certificate / letter of intent / license (if any) / approval letter of the relevant regulatory authority in case of specialized business as mentioned in regulation 4(2) of the Incorporation Regulations;

(viii)      in case of physical application, original paid bank challan or other evidence of payment of fee as specified in Seventh Schedule of the Companies Act. To calculate the incorporation fee the reader may refer to the following link: https://www.secp.gov.pk/company-formation/fee-calculator/company-incorporation-fee-calculator/;

(ix)         in case the subscriber(s) to the proposed company is/are a body corporate, a copy of valid NIC/NICOP/Passport of a person duly authorized by the body corporate member’s board of directors, along with a copy of the board resolution[39] through which such person is authorized. The reader may refer to the following link which contains a draft of the board resolution required: https://www.secp.gov.pk/document/sample-bod-resolution-when-a-company-or-a-body-corporate-is-a-shareholder/?wpdmdl=41968&refresh=62603166104031650471270; and

(x)           in case one of the subscribers to the proposed company is a limited liability partnership, a copy of valid NIC/NICOP/Passport of designated partner empowered to act as its authorized agent, along with a copy of the instrument so authorizing such person.

Additional requirements for foreign subscribers

In case the proposed company is to have foreign subscribers, there are additional requirements that have to be complied with:

(i)            in case the subscriber(s) is/are a foreign body corporate, further information is to be provided to the SECP which inter alia includes (a) the profile of the foreign company, (b) details of its directors, (c) the nationality and country of origin of its directors, and (d) certified copies of its charter, statute / memorandum and articles, and (e) any other information as may be requested by the SECP.[40]

The information from (a) to (c) is to be provided through the Company Profile form available at the following link: https://www.secp.gov.pk/document/foreign-company-profile/?wpdmdl=41967&refresh=62603166142fc1650471270.

The copies of the constitutive documents mentioned in (d) on the other hand are to be certified to be a true copy by:[41]

                       I.        the public officer in the country where the foreign company or foreign body corporate is incorporated;

                     II.        a notary public of the country where the foreign company is incorporated; or

                   III.        an affidavit of a responsible officer of the foreign company in the country where the company is incorporated.

(ii)          Provided that the signature and seal of the official referred to in (I) or the certificate of the notary public referred to in (II) is to be authenticated by a Pakistan diplomatic consular or consulate officer. Provided further that an affidavit as mentioned in (III) is to be signed before a Pakistan diplomatic consular or consulate officer;

(iii)         in case the subscriber(s) is/are a foreign body corporate, board resolution(s) of the subscriber(s) are to be provided to the SECP that specify its intention to incorporate a company in Pakistan with the proposed shareholding and nomination of a person who will represent the foreign company;

(iv)         in case the subscriber(s) is/are foreign individual(s), five copies of the curriculum vitae/bio data of each foreign subscriber and officer of the proposed company (along with five passport size photographs) are to be provided to the SECP as per the form provided in the following link:  [42]

https://www.secp.gov.pk/document/bio-data-for-foreigner/?wpdmdl=41966&refresh=62603166184521650471270; and

(v)          the SECP is to obtain security clearance(s) from the Ministry of Interior for companies having foreign subscribers or officers.[43] Until security clearance(s) is/are granted, however, a company may still be incorporated on the basis of undertaking(s) on requisite stamp paper, duly signed, notarized and witnessed to that effect), as required under the Incorporation Regulations, to be provided to the SECP by the foreign subscriber(s) and officer(s) (other than individuals who are Indian nationals, or have origin from India) of the proposed company stating that in case security clearance is not provided by the Ministry of Interior the subscriber shall transfer her/his shares. 

For a draft version of the undertaking by a foreign individual subscriber or officer please refer to the following link:

https://www.secp.gov.pk/document/format-of-undertaking-by-foreign-director/?wpdmdl=38358&refresh=62603700bf53c1650472704.

For a draft version of the undertaking by an authorized representative of a foreign subscriber which is a corporate entity please refer to the following link:

https://www.secp.gov.pk/document/undertaking-of-foreign-subscriber-company/?wpdmdl=41969&refresh=626031660c59e1650471270.

On the other hand, if the proposed company is to have foreign Indian nationals or foreign individuals of Indian origin as subscribers or officers, the company is not to be incorporated until security clearance is granted.[44] Please note that until 18 April 2022 Afghan nationals, as well as individuals of Afghan origin were also restricted in the same way as Indians. [45]

Please note that the SECP may, in addition to the above, demand any further information as deemed necessary. [46]

Step Two: Examination by the CRO

Upon submission of the incorporation application along with the required documents the CRO shall examine the application. [47] If the CRO is satisfied that all requirements are met it shall register the Memorandum of association and other documents delivered.[48] 

In case any discrepancy/deficiency is observed by the CRO, the same shall be communicated to the applicant in writing for resolution.[49] The applicant is to address the objections raised by the CRO within seven days of the receipt of the objections.[50] If no response is received within the aforesaid time the CRO is to send two reminders each of which shall provide an additional seven days for the applicant to reply.[51] In case no response is filed upon the extensions provided under both reminders the company incorporation application may be refused.[52] 

Step Three: Issuance of Certificate of Incorporation

Upon registration of the Memorandum of association, the CRO shall issue a certificate of incorporation, under the signature or official seal of the relevant registrar.[53] For the reader’s knowledge, the certificate of incorporation is conclusive evidence that the requirements of the Companies Act and the Incorporation regulations have been complied with and that the company is duly incorporated.[54]

Foreign Exchange Restrictions

If the subscribers to the proposed company are to be foreign individuals/companies it is essential to register the shares on a repatriable basis with the State Bank of Pakistan (“SBP”) under paragraphs 6 of Chapter XX of the Foreign Exchange Manual (“Forex Manual”). Please note that section 13 of the Foreign Exchange Regulation Act 1947 prohibits the issuance, transfer or export of any security from a register in Pakistan to a foreign country, except where general or special permission is provided by the SBP. Paragraph 6 of Chapter XX of the Forex Manual provides such general exemption for shares registered with the SBP on a repatriable basis.

The aforesaid registration is to be done through authorized dealers which are essentially one of the scheduled banks in Pakistan. It is critical to note that such registration, in addition to issuance of shares to foreign subscribers, is essential for dividends and disinvestment proceeds to be remitted outside Pakistan, subject to fulfillment of the requirements of the Forex Manual.[55]

The procedure for registration of shares on a repatriable basis is provided in paragraph 7 of the Forex Manual. The Forex Manual generally provides that for registration of shares on a repatriable basis the issue price of shares is to be paid in foreign exchange through normal banking channels by remittance from abroad or out of a foreign currency account maintained by the foreign subscriber in Pakistan.[56] The purchase price is not to be less than the break up value of shares, as certified by a practicing Chartered Accountant, for unlisted companies.[57] For listed companies the purchase price is to not be less than the price quoted on the stock exchange.[58]  There are also other requirements that have to be complied with to register shares on a repatriable basis with the SBP.

Upon payment by the foreign subscriber into the Company’s bank account, the incorporated company is to: [59] (i) issue shares to the foreign subscriber; (ii) obtain proceeds realization certificates (“PRC”) from the authorized dealer, which is evidence of subscription money having been repatriated to Pakistan. The shares issued to the foreign subscriber are to be intimated by the incorporated company to the designated authorized dealer within sixty days of issuance of shares on the form prescribed for onward registration with the SBP.[60] The aforesaid form also needs to be inter alia accompanied with the documents as mentioned in paragraph 7 of the Forex Manual which inter alia includes the Memorandum and Articles of Association as well as the PRC. [61] 

This article is for informational purposes only and does not constitute legal or professional advice and is not intended to and does not create or constitute an attorney-client relationship between the reader and the author. The reader is to conduct his/her own research on the applicable company law, or engage an attorney for the purposes of incorporating a company in Pakistan or any other matter related to this article. 

The information provided herein may not be republished, sold, relied on, or be used, in any form, without the written consent of the author. 

For further information, please feel free to reach out to me (bahramkhan95@gmail.com).

[1] Section 2(1), Companies (Amendment) Act 2021. 

[2] Section 2(1)(49) & Section 14(1)(b), Companies Act.

[3] Section 15, Companies Act.

[4] Section 154(1)(b), Companies Act.

[5] Section 76, Companies Act.

[6] Section 14(1)(c), Companies Act.

[7] Section 132(4), Companies Act; See also section 134(11) of the Companies Act.

[8] Section 14(1)(c), Companies Act.

[9] Section 79(3), Companies Act.

[10] Section 2(1)(52), Companies Act.

[11] Section 2(1)(38), Companies Act.

[12] Section 14(1)(a), Companies Act.

[13] Section 154(1)(c), Companies Act.

[14] Section 154(1)(d), Companies Act.

[15] Section 194, Companies Act.

[16] Regulation 3, Incorporation Regulations.

[17] Regulation 5, Incorporation Regulations.

[18] Regulation 5(3), Incorporation Regulations; Please note that under regulation 5 the facility of combined application shall not be available for companies to be formed to carry on or engage in any business which is subject to a licence or registration, permission or approval as required under the respective law.

[19] Regulation 3(3), Incorporation Regulations.

[20] Section 10(1)(b),

[21] Section 10, Companies Act.

[22] Regulation 4(2)(i), Incorporation Regulations.

[23] Paragraph (1), Item X, Seventh Schedule, Companies Act.

[24] Regulation 3(4), Incorporation Regulations.

[25] Regulation 3(5), Incorporation Regulations.

[26] Regulation 3(6), Incorporation Regulations.

[27] Regulation 3(7), Incorporation Regulations.

[28] Regulation 5(2), Incorporation Regulations.

[29] Regulation 3(5), Incorporation Regulations.

[30] Regulation 8(3), Incorporation Regulations.

[31] Regulation 8(3), Incorporation Regulations.

[32] Regulations 9(2) and 9(3), Incorporation Regulations. The amendments were made through notification no. S.R.O. 927 (I)/2020 dated 28 September 2020.

[33] Regulation 10(2), Incorporation Regulations.

[34] Provided that where a document is required to be attested by a notary public or an oath commissioner or class I magistrate, the same shall be witnessed in accordance with the relevant law.

[35] Regulation 5(2), Incorporation Regulations.

[36] The Memorandum of Association of the proposed company is to be in compliance of sections 31 and 41 of the Companies Act and regulation 6 of the Incorporation Regulations, which inter alia include the requirement of it being in the respective form as set out in Tables B, C, D and E in the First Schedule of the Companies Act, as well as stamping it under the Stamp Act 1899, in case of physical application.

[37] The Articles of Association of the proposed company is to be in compliance of sections 37 and 41 of the Companies Act and regulation 7 of the Incorporation Regulations.

[38] Regulation 7A(1), Incorporation Regulations; In case the subscriber is not a natural person, the memorandum and articles of association shall be signed by a natural person on its behalf in the manner as provided in regulation 7A(2) of the Incorporation Regulations.

[39] The board resolution is to contain an attendance sheet.

[40] Regulation 15(1), Incorporation Regulations.

[41] Regulation 15(1), Incorporation Regulations.

[42] Regulation 15(2), Incorporation Regulations.

[43] Regulation 15(3)(i), Incorporation Regulations.

[44] Regulation 15(3)(ii), Incorporation Regulations.

[45] Through Notification No. 530 (I)/2021 dated 18 April 2022 Afghan nationals and individuals of Afghan individuals has been removed from such restriction.

[46] Regulations 15(1) and 15(2), Incorporation Regulations.

[47] Regulation 11(1), Incorporation Regulations.

[48] Regulation 11(1), Incorporation Regulations.

[49] Regulation 11(2), Incorporation Regulations.

[50] Regulation 11(2), Incorporation Regulations.

[51] Regulation 11(3), Incorporation Regulations.

[52] Regulation 11(4), Incorporation Regulations.

[53] Regulation 12(1), Incorporation Regulations.

[54] Regulation 12(1), Incorporation Regulations.

[55] Paragraph 7(vii), Chapter XX, Forex Manual.

[56] Paragraph 6(i), Chapter XX, Forex Manual.

[57] Paragraph 6(ii), Chapter XX, Forex Manual.

[58] Paragraph 6(ii), Chapter XX, Forex Manual.

[59] Paragraph 7(ii), Chapter XX, Forex Manual.

[60] Paragraph 7(vi), Chapter XX, Forex Manual.

[61] Paragraph 7(vi), Chapter XX, Forex Manual; For the complete exhaustive list please refer to paragraph 7(vi) of Chapter XX of the Forex Manual.