Disclaimer: This Article is updated by Yusra Qasim.
It is often mistaken that once a good idea is born, all that is needed is an investor for that idea and the startup is ready to launch. However, this is far from true.
Today an investor won’t invest in the startup unless the startup is a legal entity because he has to take shares in your company; he has to become a shareholder of your startup.
We are here to guide you step-by-step, on how to create a legal entity which will not entangle you in discrepancies in the future. Also, what to do next once your startup is registered.
To register a company it is mandatory for all its directors to have their National Taxation Number [NTN] before they can register a company.
The types of registration startups can go for:
- Sole proprietorship
- Partnership/ AOP
- Limited Liability Partnership
- SMC Pvt Ltd
- Private Ltd
- Public Limited
- Non-Profit Organization
1. Sole Proprietorship
In this type, you and your company are legally the same. For instance, if Ali Faizaan registers a company ‘Legal Solutions’, then Ali Faizaan and Legal Solutions are one entity and they both have the same NTN. Their bank account is different but shares the same liability. It is easy to register a sole proprietorship, go to FBR website and register NTN with company name and you are registered within 24 hours.
Partnership or AOP which is also known as Firm is registered from a local government, in case of Islamabad it is registered from G-11 DC Office. In this type, the shareholding of a partner is equal to the investment in the company.
3. Limited Liability Partnership
It started on 22nd may by SECP. Both AOP and LLP have the same rules and regulations. Shareholders are termed as partners. In both the AOP and LLP, the max partners can be 9 and the min partners can be 2.
4. SMC Pvt Ltd
SMC stands for single member company. In this type, the company is private limited but you are alone so a company Legal Solutions if registered by Ali Faizan as SMC Pvt Ltd. Its name will be written as Legal Solutions SMC Pvt Ltd. It was launched back in 2010. You and your company have different NTN no’s.
5. Private Limited
Private limited company is the most suitable for most of the organizations structure. In this type you can set all your rules and regulations between the partners legally. Like for example if there are 3 partners, so the rule for investment for the partners could be 30-30-40 and you can keep the rule for profit as 50-40-10.
For an investor, private limited suits the best and upon agreement with the investor, the investor becomes a shareholder of the company.
6. Public Limited Company:
It is not very relevant for startups. To register as a public limited company, your size should be very large and you should be registered in stock exchange. So public limited is needed when we have a billion rupees project and we want huge investment for it so we public limited.
7. Non-Profit Organization
This is not relevant for startup but just for the sake of understanding, when an organization works for a non-profit cause, this registration is required. The NPOs that can be registered in SECP are:
Society Act CBO (Community Based Organization)
The rules and regulations for NPO are more or less the same and the main rule that you cannot get profit from this organization. You can generate revenue but you cannot generate profit.
All the registrations from SECP are online. Learn the Process Here
So when a startup is registered what next?
- Opening of Bank Account
After the registration form the SECP, you cannot start your operations yet. The next legal requirement is opening of bank account for the company. There is a whole process for opening a bank account; it is different when you are opening a bank account for an individual. When you complete the process, then you have to provide a NTN to the bank. If you don’t provide it within 1 month, your bank account will be seized.
To open a bank account visit any bank with the following documents:
- Memorandum of Association (food) (Other can be found on this link)
- 5 Letter heads of a Company
- Stamp of a Company
- CNIC of All Directors (Presence of all directors is Mandatory)
- Registering Company National Taxation Number
After the account opening in bank, Company needs to register for the NTN. In sole proprietorship, you and your company share the same NTN. In Private limited, You and Your company are separate entities and separate national taxation number.
Once you get NTN, then you are operational and you can start working.
So Suppose Startupdotpk wants to fund your startup. Startupdotpk will first ask for your NTN and then mark in their books an investment against the NTN and then after they can fund you. So without NTN, you cannot accept any payment.
Once the company NTN is registered, you can open more than one account.
- Sales Taxation Number
Some companies need sales taxation number; it is required when the company is dealing with goods and services. In some cases, like the IT services the sales tax is 0% but you must have to file it even if it is 0.
- Adding a New Director to the Company
When a new director is added to the company, or when an investor invests in your company and he becomes the director of your company. First the SECP is notified about the addition of director, the SECP provides a document know as CTC. Then the document should be sent to FBR and Bank.
- Long Term/Nice to have Things:
- Registration in the Chamber where your company is operating.
- Registration with PESB if you have IT Company.
- Registration with PEC if you have engineering Company.
- Legal requirement for the operation of the company is till the registration of the Sales NTN.
- Intellectual Property:
Intellectual property will be explained in another article coming up. But here is an overview of the intellectual properties that are important:
- Trademark (TM,SM)
The above will be explained in detail later. Trade marking includes the protection of your company logo, now you can even trade mark the way you are offering a service. Like SOPs of catering can be trademarked. In copyrights, you can protect your brand name and tagline. While for new inventions or products we have patents. Before filing a patent, the product should differentiate at least 13% from the other product in its category. Like for example if you are going to patent for a chair, so the chair you are producing must differentiate by 13% that are available in the market.
- Regulatory Compliance:
It is very important and should be given priority. After the incorporation of your company, you have to regularly report to FBR and SECP. It is important that the NTN of the partners/directors is registered before them for the company NTN.
Being a filer and taxation are two different things, if you become a filer it doesn’t mean you have to pay taxes. For the startup founders, they can become a filer but they don’t have any income source yet and they don’t lie in any tax bracket so they don’t have to pay tax.
For startups it should be kept in mind that if you don’t pay your sales tax return on 18th of every month, your bank account will be seized automatically, it doesn’t take into account the public holidays or anything.
Sales tax and withholding tax record is sent on monthly basis to the FBR.
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