Types of Businesses in Pakistan: Which is the Right One For You?

When thinking of starting a business in Pakistan, choosing the right business type might be as difficult as choosing the business option. However, multiple people are thinking of starting the business, but are still unaware of the types of businesses in Pakistan. Whether you want to opt for the business structure completely owned by yourself or want to have a partnership, the blog has everything that you need to know. Let’s have a look!

Sole Proprietorship

This type of business is completely owned by a single entity, and no partner or investor is included. The one running the business is responsible for its growth and has complete control over the finances, growth, losses, or profits. Furthermore, know that many small businesses in Pakistan are sole proprietorships, as the owner has complete authority, which allows businesses to flourish.

In this business type, it completely depends on the owner how much to invest and how to work to generate profit from the business. However, a sole proprietorship can be a business of either 1 lakh, Rs. 50,000 investment or a zero investment business in Pakistan. Besides this, it might also be a suitable option for students starting their businesses and being completely responsible for their growth and investment. 

Advantages and Disadvantages of Sole Proprietorship

Now that you are aware of the sole proprietorship, have a look at its advantages and disadvantages in the given table: 

Advantages	Disadvanatges
The owner has complete control of the business.	Unlimited liability for all the debts and obligations.
Quick and easy business setup compared to the other types.	Higher risk of disturbing personal assets in case of any loss.
Fewer legal formalities.	It might take time to flourish and grow due to resource limitations.
The profit generated is only owned by one entity (the owner).

Who Can Start a Sole Proprietorship Business in Pakistan?

If you are somebody thinking of starting your own business in Pakistan, here is who can be a sole proprietor:

• Anyone who is 18 or above and can bear legal or financial responsibilities.
• You must have a valid CNIC to show your Pakistani citizenship.
• If you can manage debts, handle payments, and take care of the personal and business expenses can run a sole proprietorship.

Registering a Sole Proprietorship in Pakistan

Made up your mind to start a sole proprietorship? Here is what you need to consider for registering your sole proprietor business in Pakistan: 

• Select a unique business name that stands out and does not match any other running business. 
• You can get a letterhead, a stamp, and business cards that depict your business’s authentication. All of this might also be required for the business registration. 
• Go to the FBR website to get your sole proprietorship business registered by completing the online application at IRIS. You will get your National Tax Number (NTN) required for tax compliance and banking. 
• After this, you can visit any bank and get your business bank account created with the help of this registered number. 

Partnership Business 

The partnership business, as the name conveys the meaning, is run by two or more entities on agreement, whether written or oral. The Partnership Act 1932 in Pakistan explains this type of business and has all the essential information a person needs to consider. 

According to the law, a Partnership is ‘the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.’

Furthermore, the following are some important factors to be considered for a partnership business in Pakistan: 

• Each partner acts as an agent for the other. 
• At least two partners are required for a partnership business. But more than 20 people acting as business partners is considered illegal. 
• It is important to have a contractual relationship among the partners. This means that the partners need to have a verbal or written contract. 
• Always consider getting a written contract to avoid possible disputes in the future. 
• When a partner dies, retires, or quits to be part of the business, and the remaining partners decide to still run the business, it will lead to the dissolution of the partnership. On the other hand, if the remaining partners decide to close the business, it is termed the dissolution of the firm. 

Rights of Partners in Partnership Business 

According to Section 13 of the Partnership Act, 1932, the following are the rights and liabilities of the partners in the Partnership Business: 

• The partners have an equal share of profits and losses in the firm. 
• The partner is not paid for his services; instead, he is only entitled to the profit of the firm. 
• The partner will get the interest on the amount he has invested in the business only if the business makes a profit. 
• If a partner invests extra money (other than the amount decided by the partners), 6% interest on the amount will be paid to the partner annually. 
• If a partner’s negligence or carelessness leads to the loss of profit, the partner needs to pay it. 

The Partnership Business is classified into further types 

General Partnership

As the name suggests, this type of business is run by two or more people. All the business activities and decisions are carried out by the partners, and the profit is divided among them as well. Therefore, unlike a sole proprietorship, a partnership business lacks complete control by one entity. Furthermore, in a general partnership, all the business partners share equal responsibilities, such as legal or financial.

Advantages and Disadvantages of General Partnership Business

The following are the advantages and disadvantages of the partnership business in Pakistan: 

Advantages	Disadvantages
Inclusion of different opinions and skills	Higher chances of disagreements
Low setup costs	No independent legal status
Shared burdens such as taxes, etc.	Shared profit among partners
Easier to begin due to shared investments	Decision-making might be difficult

Limited Liability Partnership (LLP)

It is a business structure, also considered a type of partnership business in Pakistan, in which the partners do not have unlimited personal risks; instead, only the business assets are at risk. This means that if a company experiences a loss due to one partner, his personal assets would not be harmed to make a recovery; instead, the business assets will be at risk. 

Advantages and Disadvantages of Limited Liability Partnership (LLP)

To see if this business structure best suits you, have a look at the given advantages and disadvantages:

Advantages	Disadvantages
Protection of personal assets	Risk in the business investment
Limited personal liability	Partner’s personal information is available, which may be uncomfortable
Tax benefits

Association of Persons (AOP) Vs. Limited Liability Partnership (LLP)

This business structure was introduced under the Limited Liability Partnership Act 2017. With the help of this Act, it appeared as a separate business entity in Pakistan. The main purpose of the act was to find an alternative to the traditional partnership business (Association of Persons AOP) with unlimited liability. The following are the major differences between these two structures: 

Association of Persons (AOP)	Limited Liability Partnership (LLP)
Not a separate legal business structure	Separate legal entity and business structure
Unlimited liability	Limited liability

Who Can Start a Limited Liability Partnership (LLP) in Pakistan?

Those in high-liability professions, such as accountants, lawyers, architects, IT firms, and medical practitioners, are likely to opt for this business structure.

Limited Partnership

The limited partnership is another type of partnership business that is a combination of the general partnership and the limited liability partnership business structures. In this type, at least one partner is a general partner with full liability, and the other is a limited or a silent partner whose liability is limited to the investment only. 

Types of Partners in Limited Partnership Business

General Partners: They are responsible for carrying out the business activities and performing day-to-day activities required for business operations and growth. 

Limited Partners: They are only responsible for investing assets and money in the business and are not responsible for carrying out other activities required for the business management or growth. 

Advantages and Disadvantages of Limited Partnership

Have a look at the following advantages and disadvantages of the limited partnership business in Pakistan: 

Advantages	Disadvantages
A general partner does not bear financial weight	Unlimited liability to general partners
Flexibility management for the general partner	Not suitable for high-risk business structures
Sharing of profit as per the agreement	Risk of conflict among partners

Who Can Opt For a Limited Partnership Business? 

The following are the businesses that might opt for this business structure: 

• Real estate developers
• Restaurants and food chains
• Import or export trading firms
• Family businesses
• Agricultural businesses

Sole Proprietorship Vs. General Partnership Vs. LLP in Pakistan Vs. Limited Partnership

Now that we have explored all the types of businesses in detail, the following is the difference between sole proprietorship, general partnership, limited liability partnership, and limited partnership: 

Factors	Sole Proprietorship	General Partnership	Limited Liability Partnership (LLP)	Limited Partnership (LP)
Definition	A business owned by a single person.	A business run by 2 or more owners with an equal share of profit and loss.	A business structure that offers limited liability to both the partners.	A hybrid business structure with a general partnership and LLP.
Number of Owners	1 owner	2 or more owners, but not more than 20	Minimum 2 partners	1 general partner and 1 limited partner
Business Control	Completely controlled by the owner	All partners are included in the business control and decisions	All partners can take part in the business decision	The general partner is responsible for business activities, whereas the other acts as the investor
Earned Profit	By the owner	Equal share among the partners	According to the agreement	Both the partners get share
Who Can Opt?	Home-based businesses, students, freelancers, small businesses, etc.	Small business startups	Accountants, lawyers, architects, IT firms, medical practitioners, etc.	Real estate, agricultural businesses, other businesses that need investors, etc.

Conclusion

To sum up, Many people are opting for businesses; therefore, it is important to know the types of businesses in Pakistan, such as sole proprietorship, partnership business, and limited liability partnership etc. Businesses such as the DIY jewellery business, the event management business, the mobile phone accessories business, etc., are popular in the country, but you need to opt for the proper business structure and branding to carry out the business smoothly. Furthermore, before making a decision, you need to see whether you can work with a partner or would want to run a business on your own. 

Not to forget! OLX is a great platform for those wanting to start their own business. 

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