United Law Company

Investment in Pakistan

Pakistan is located towards the North West of the Indian Sub continent. Pakistan is the 3rd fastest growing economy of Asia, next only to China and India. In the present age, the economic boost of Pakistan is such that it is considered as the third seeded nation in terms of the fastest GDP. Pakistan being one of the rapidly developing economies of the world has always attracted foreign investors throughout the globe. Foreign investment is considered to be the driving force behind the economic development of the nation. There are ample of foreign investors and organizations working who find it a good option to invest money in the economy of developing nations and regards it as a value investment.

We are one of the leading providers of consultancy and support services in broad range of subjects including business start-up, hiring & firing of workers, audit, risk advisory, tax, banking, financial advisory and litigation in Pakistan. With a global approach to service delivery, we respond to clients' complex business challenges with consistent methodologies and common tools to provide services across industry sectors and national boundaries.

Pakistan has in the recent years emerged as a favored destination for investment in various sectors like Power Generation, Heavy Machinery, Real Estate & Construction, Ports & Shipping, Infrastructure Project, Telecom, Communication, Software etc.

Non-Resident Pakistanis and Multinational Companies have to follow certain rules and regulations prior to investment. Following summary cover up basic Governmental Guidelines on the procedure to start up business, overview of the policies and facilitate investment in Pakistan.

Opportunities for International Investors

Foreign Exchange Controls

Capital Markets


Financial Services Sector

Business Entities


Opportunities for International Investors

Pakistan’s Investment Policy has been formulated to create an investor-friendly environment, with a focus on further opening up the economy and marketing the potential for direct foreign investment. Various incentives have been offered to attract foreign investments including full repatriation of capital, capital gains, dividend and profit.

Earlier, only the manufacturing sector was open to foreign investment. Now, the Policy Regime is much more liberal with most other economic sectors also open for foreign investment and with significant efforts at mobilizing domestic financial resources towards long term investment.

Foreign Investors are permitted to hold 100% of the equity of industrial projects without any permission of the Government.

No Government sanction is required for setting up any industry in terms of field of activity, location, and size, except for the following:

a) Arms and Ammunitions;

b) High Explosives;

c) Radioactive Substances; and

d) Security Printing, Currency and Mint.

e) No new unit for the manufacture of alcoholic beverages or liquors will be allowed.

There is no requirement for obtaining NOC from the Provincial Governments for locating the project anywhere in the country except in areas that are notified as negative areas.Foreign investment on a repatriable basis is allowed in the Service, Infrastructure, Social and Agriculture Sectors. They will have to simply register their company with SECP under the Companies Ordinance, 1984 and to inform State Bank of Pakistan, provided the relevant conditions are fulfilled.

Services sector

The amount of foreign equity investment in the company/project shall be at least US$ 0.15 million.

Infrastructure sector

The amount of foreign equity investment in the company / project shall be at least US$ 0.3 million.

Social sector

The amount of foreign equity investment in the company / project shall be at least US$ 0.3 million.

More Sectors


Tourism has been given the status of Industry.

Housing and Construction

a) This sector has also been declared as Industry.

b) Local and Foreign Companies involved in real estate projects will not market these projects unless the title of the property is transferred in the name of a locally incorporated company and the “Commencement of Business” certificate is issued by the SECP..

Information Technology

a) IT has also been declared as Industry.

b) Custom duty exemption is available on import of machinery & equipment used in the field of IT.

c) Computer software and other items related to IT can also be imported at zero rate of import duty.

Corporate Agriculture Farming

Corporate Agriculture Farming has been declared as industry; henceforth it would be eligible for all the incentives and facilities available to industries in the country. According to the CAF policy, such local and foreign companies would be entitled to become CAF legal entity that is locally incorporated under the Companies Ordinance, 1984. In case of foreign companies, 60% foreign equity is allowed with minimum investment of US$ 0.3 million. Value added and exports industries

The units which export minimum 50% (average) of their annual production for ten years or have minimum value-addition of 40% of production value (which may be specified from time to time) will be treated as value-Added or Export Industry respectively. The list covers sectors like Ceramic Products, Articles of Iron and Steel, Chemicals and Allied Industries, Engineering and Allied Textiles, Pharmaceuticals, Photographic or Cinematographic goods and other miscellaneous industries. Industry Specific Incentives

To keep Pakistan competitive in international markets and to support the viability of investments in the country, the following incentives are available to both local and foreign investors:

Category A: Value Added or Export Industries;

Category B: Hi-Tech Industries;

Category C: Priority Industries (engineering and chemicals); and

Category D: Agro-based Industries


Manufacturing Sector

a) Zero Rated Customs Duty on imported raw materials used in producing for exports.

b) 5% Customs duty levied on imports of plant, machinery and equipment (not manufactured locally) for Value Added Export and Hi-Tech Industries

c) 10% Customs duty levied on imports of plant, machinery and equipment (not manufactured locally) for Priority and Agro-based Industries.

?Other Sectors (Non-Manufacturing)

a) 10-25% Customs Duty on imported plant, machinery and equipment (not manufactured locally)

b) Zero% Customs Duty on import of agriculture machinery (not manufactured locally) for specific machinery and equipment.

Privatization Program

The Government has promulgated Privatization Commission Ordinance, 2000 with the aims to ensure level playing field for existing and future entrants, protecting consumer and taxpayer interests and dealing with public employees in a fair manner. The modes of privatization that PC can opt for have been prescribed in the Ordinance as follows:

Sale of assets and business;

Sale of shares through public auction or tender or public offering of shares through a stock exchange;.

Management or employees buyouts by the management or the employees of a state owned enterprise;

Lease, management or concession contracts; or

Any other method as may be prescribed.

In addition to the above, the Policy has defined sector specific goals for banking, industry, oil and gas, power and telecommunication.

Privatization opportunities

List of privatization transactions currently included in the privatization program can be viewed at www.privatisation.gov.pk, the official website of privatization commission.

Protection to economic reforms

In order to provide legal protection to the process of Privatisation of public sector enterprises, the Government promulgated the Protection of Economic Reform Act in 1992, main features of the Act provides that the ownership, management and control of any company or business establishment transferred by the Government to any party shall not again be taken over by the Government for any reason. Protection to Domestic Manufacturing

The objective of keeping domestic manufacturing competitive will continue to be actively pursued through suitable adjustments in the tariff structure. Imported finished products will attract higher rates than imported raw materials / inputs. The incidence of duties and taxes on locally produced goods will be less than that on finished imported goods. Reasonable tariff protection will be available to domestic manufacturing depending upon value addition.

Protection to Investment

The economic policies and the existing legal cover for foreign and Pakistani investment will be extended to new areas and sectors. The benefits and incentives for investment provided by the Government shall continue to be in force and will not be reduced or altered to the disadvantage of investors. Accordingly, the Protection of Economic Reforms Act 1992 was amended on December 16, 1999.

The main features of existing Act are as follows:

Act to over-ride other laws

The provisions of this Act shall have effect notwithstanding anything contained in the Foreign Exchange Regulation Act, 1947, the Customs Act, 1969, the Income Tax Ordinance, 2001 or any other law for the time being in force. Freedom to bring, hold, sell and take out foreign currency

All citizens of Pakistan resident in Pakistan or outside Pakistan and all other persons shall be entitled and free to bring, hold, sell, transfer and take out foreign exchange within or out of Pakistan in any form and shall not be required to make a foreign currency declaration at any stage nor shall any one be questioned in regard to the same. However, under the foreign exchange regulations, there are certain restrictions on amount of foreign currency that can be taken out of the country. Protection of fiscal incentives for setting-up of industries

The fiscal incentives for investment provided by the Government through the statutory orders shall continue in force for the terms specified and shall not be altered to the disadvantage of the investors. Protection of transfer of ownership to private sector

The ownership, management and control of any banking, commercial, manufacturing or other company, establishment or enterprise transferred by the Government to any person under any law shall not again be compulsorily acquiredor taken over by the Government for any reason whatsoever. Protection of foreign investment

No foreign, industrial or commercial enterprise established or owned in any form by a foreign or Pakistani investor for private gain in accordance with law, and no investment in share or equity of any company, firm, or enterprise, and no commercial bank or financial institution established, owned or acquired by any foreign or Pakistani investor shall be compulsorily acquired or taken over by the Government. Secrecy of banking transactions

Secrecy of bonafide banking transactions shall be strictly observed by all banks and financial institutions, by whosoever owned, controlled or managed. Protection of financial obligation

All financial obligations incurred, including those under any instrument, or any financial and contractual commitment made by or on behalf of the Government shall continue to remain in force, and shall not be altered to the disadvantage of the beneficiaries. Equal treatment

Industrial undertakings having foreign private investment shall be accorded the same treatment as accorded to similar industrial undertakings, having no suchinvestment in the application of laws, rules and regulation, relating to import and export of goods.


Foreign Exchange Controls

Foreign exchange dealings are regulated under the Foreign Exchange Regulation Act 1947. Foreign currencies are made available to persons / companies doing business in Pakistan for all purposes under rules which have been clearly defined by the State Bank of Pakistan. There are no restrictions on availability of foreign currency for imports (except for import of banned items or for imports from Israel). Business houses can buy foreign currencies for all other commercial transactions like payments for export claims, commission payment to foreign agents on exports royalty / franchise, technical fees and dividends (as subsequently described in details), software license / maintenance / support fee, advertisement abroad including advertisement through electronic media, business travel, etc. Foreign investment in Pakistan enjoys full protection and repatriation facilities.

The Foreign Private Investment (Promotion and Protection) Act, 1976 provides guarantees for repatriation of foreign investment to the extent of original investment, profits earned on such investment, and appreciation of capital.

Immigration Procedure

Salient Features of Existing Visa Policy

To facilitate travel to and staying in Pakistan for foreign businesspersons and investors, business visa policies have been considerably relaxed.

Work Visa Procedures

A uniform facility has now been in place and foreign technical and managerial personnel have been exempted from obtaining work permits in the newly opened sectors of the economy, viz. agriculture, service and social sectors. This was already enjoyed by such personnel for working in the manufacturing / industrial and infrastructure sectors. They are now only required to obtain work visas.

Work visas are granted subject to a constructive plan to train Pakistani personnel to take over the technical and managerial responsibilities over a reasonable period of time.

The work visa is issued for a period of up to 5 years or up to the date of expiry of the applicant’s passport. The concerned Pakistani Mission abroad will grant work visas to the applicant, whereas extension in work visa is endorsed by the Regional Passport Office of the city, where the expatriate is working upon authorization by the Ministry of Interior.

In case of multiple entry visas, the number of entries will not be restricted.

Business Visa Conversion into Work Visa

For the purpose of changing the category of visa of foreign national employees and investors from business visa to work visa, the concerned expatriate is no more required to leave the country for this purpose. The Ministry of Interior will process such requests, upon receiving verification from the BOI.

Registration of Foreigners with the Police

All foreigners are exempted from registration with the police, except for nationals of countries on the negative list.

Even in the case of countries on the negative list (except for Indians and foreigners of Indian origin), foreign nationals in the managerial category who are issued work permits/ visas are exempted from police registration.


Capital Markets

The capital market in Pakistan consists of three stock exchanges located in three major cities, i.e. Karachi, Lahore and Islamabad. The principal securities traded on these exchanges are ordinary shares. However, other securities such as mutual fund certificates, Modaraba certificates, government and corporate bonds are also being traded. A number of listed companies have also offered TFC’s.

The Government has also enacted Rules for the establishment and regulation of Non-Banking Finance Companies, which include Asset Management Companies,

Discount Houses, Housing Finance Companies, Investment Advisers, Investment Finance Companies, Leasing Companies and Venture Capital Companies. The stock exchanges are governed under the Securities and Exchange Ordinance,

1969. The Ordinance prohibits the dealing in listed securities outside the stock exchange by any person and transaction in securities listed on the stock exchange by a person, other than a member of the stock exchange. Over the past few years, SECP has taken measures to restore confidence of the foreign and domestic investors by endeavoring to ensure that the market functions in a smooth and transparent manner. The SECP has actively pursued a capital market reform program geared towards the development of a modern and efficient corporate sector and capital market, based on sound regulatory principles that provide the impetus for high economic growth.

Stock Exchange Regulations

A company that seeks to offer its shares to the public and wishes to apply for a listing on the Stock Exchange must comply with the listing requirements of the Exchange, in addition to compliance with the provisions of the Companies Ordinance, 1984. The requirements of the Exchange relate to management and company procedures, disclosures, provisions concerning the issue of prospectus for the issue of shares to the public, distribution of financial statements and other matters to keep the public and the exchange(s) adequately informed on all aspects of the affairs of the company, which may affect the market value of its shares.



Income Tax

The Income Tax Ordinance, 2001 is the tax code of Pakistan w.e.f. 01 July 2002, which governs the taxation of income. The procedures thereof are mainly contained in the Income Tax Rules, 2002. The financial policies and taxation measures are annually announced in accordance with the policies of Government and a Finance Act to this effect is promulgated. The Ordinance extends to the whole of Pakistan however, in terms of Article 247 of the Constitution of Pakistan; the Ordinance is not applicable to Federally Administered Tribal Areas and Provincially Administered Tribal Areas.

Foreign source income

If an individual, due to his employment becomes resident in Pakistan and his presence in Pakistan is for a period or periods not exceeding three years, his foreign income will not be taxed unless this income is derived from a business established in Pakistan or it is brought or received in Pakistan.

Foreign source income of a resident (who is a citizen of Pakistan but was not resident in any of the four tax years preceding the tax year in which he became resident) shall be exempt from tax for two years, that is to say, in respect of the tax year in which he became resident and the next following tax year.

Any foreign source salary received by a resident individual is exempt from tax if the individual has paid foreign income tax in respect of the salary.

Any foreign source salary earned by an individual (who is a citizen of Pakistan) during the tax year in which he leaves Pakistan and remains abroad is exempt from tax.

Income from Property

Income from property includes rent received or receivable by the owner of land or a building as a consideration for the use or occupation of the said property. Tax liability of income from property is computed after deducting the allowable expenses, which includes repair to building, insurance premium, local rate, tax or cess on property etc.

Income from Business

Income from business or profession is taxed under the following regimes:

Normal Tax Regime

Presumptive Tax Regime

Normal Tax Regime

Under the normal tax regime, taxable income of the taxpayer is determined after reducing the related allowable expenses out of which some of the important allowable expenses are discussed below:

Depreciation Allowance

The Ordinance provides for the allow ability of depreciation allowance on the assets used in a business during a tax year. No depreciation is allowed in the year of disposal of the asset, whereas full year depreciation is allowed in the year of purchase. If the asset is used partly for business purposes and partly for any other purposes then depreciation shall be charged only for the months in which the asset was in use for business purposes. A transfer or export of the asset out of Pakistan shall be treated as a disposal of that asset and the cost of the asset shall be deemed to be the consideration received for that asset.

Presumptive Tax Regime

Under the Presumptive Tax Regime (PTR), the tax deducted or collected at source is deemed to be final tax in respect of income from sources chargeable under PTR.

Income from Other Sources

Income in a tax year if not included in any other head, shall be chargeable to tax under the head Income from Other Sources. Some of the income included under this head are dividend, royalty, profit on debt, ground rent etc.

In computing income from other sources, a deduction shall be allowed for any expenditure paid by the person in the year to the extent to which the expenditure is paid in deriving income chargeable to tax under this head.

Modes of Payment of Tax

A taxpayer makes payment of tax at four stages, i.e.:

Deduction at source (withholding tax);

advance payment of tax;

Payment of tax with the return of total income;

Payment of tax on demand;

Determination of Tax Liability

A registered person is entitled to claim input tax paid on goods used or to be used for taxable supplies made by him against output tax liability. However, the Federal Government is empowered to specify goods in respect of which input tax cannot be claimed.


Every registered person is required to furnish a monthly sales tax return on or before 15 day of the month, following the tax period. Tax period has been defined as a period of one month. The format of the return has been specified which contains details in respect of purchase and supplies made during the tax period and input / output tax in respect of such purchases and supplies.


Financial Services Sector

Pakistan’s financial services sector consists of public, private and foreign commercial banks, NBFC’s, and Modaraba companies.


State Bank of Pakistan

The SBP, the Central Bank of the country was established in 1948. In addition to SBP monitoring the implementation of Banking Companies Ordinance 1962, it specifies regulations relating to the monetary system, credit and banking policy and supervises their implementation.

Commercial Banks

The commercial banks in addition to providing working capital and long-term financing to the investors, offer a range of vital services, such as, remittances of profits / dividends, currency accounts, etc. The specialized development institutions provide credit for investment in various sectors.

The main law governing the Banking Companies in Pakistan is the Banking Companies Ordinance, 1962 that regulates and governs the establishment and running of banking companies in Pakistan, in addition to business of commercial banking. The Ordinance also specifies the types of businesses in which a banking company may manage Banking License.

The setting up of a bank (including opening of branches by a foreign bank) requires a banking license from SBP. An application containing prescribed information is required to be submitted in accordance with the provisions of the Banking Companies Ordinance, 1962 for obtaining a Banking License.


Before granting a license to a foreign banking company to operate in Pakistan, the SBP may require to be satisfied that the Government or law of the country in which the banking company is incorporated, provides the same facilities to banking companies registered in Pakistan, as the Government or law of Pakistan grants to foreign banking companies. Some Important Regulations Governing the Banking Companies in Pakistan The Banking Companies Ordinance, 1962 and State Bank of Pakistan Act, 1956 specify various regulations, some of which are specified below:

Capital and reserves requirements

At present, all scheduled banks operating in Pakistan are required to maintain a minimum paid up capital (net of losses) of Rs. 1,000 million. Under a recent circular issued by the SBP, the minimum paid up capital requirement is to be raised up to Rs. 1,500 million by December 2004 and up to Rs. 2,000 million by December 2005. Additionally, they are also required to maintain capital and unencumbered general reserves, the value of which is not less than 8% of their risk weighted assets, both on consolidated as well as stand alone basis.

Cash reserve

Banks are required to maintain a cash reserve of a percentage of their demand and time liabilities excluding the paid-up capital, reserves and balance in the profit and loss accounts with SBP. The ratio is changed in accordance with the demands of the monetary policy and currently stands at a weekly average balance of 5%, subject to a daily minimum of 4%. No interest / profit is paid by the SBP on these funds.

Liquid assets

Banks are required to maintain liquid assets consisting of unencumbered approved securities at a specified ratio to their demand and time liabilities.The existing ratio is 20% and it includes the cash reserve requirement.

Assets outside Pakistan

Banks are required to maintain assets of not less than 80% of the total time and demand liabilities in Pakistan.

Annual accounts and audit

Under the Banking Companies Ordinance, a banking company is required to maintain the calendar year as its financial year, and its financial statements are required to be audited in accordance with 2nd Schedule of the Banking Companies Ordinance, 1962. The audited financial statements along with auditors' report are required to be published in the prescribed manner and copies of accounts are also required to be submitted to SBP, within 3 months of the financial year end.

Remittance of profits

Foreign Banks operating in Pakistan are allowed to remit the net profit earned in Pakistan, subject to approval of SBP, after fully providing for classified assets and tax liabilities.

Number of branches

As per the Branch Licensing Policy issued by SBP, there is no restriction on the number of branches to be opened by any scheduled bank operating in Pakistan, subject to fulfillment of the SBP criteria. The Policy requires that each bank shall submit its Annual Branch Expansion Plan, 30 days before the commencement of each calendar year during which it plans to open new branches. The eligibility of a bank to open a new place of business will be decided by SBP based on the specified criteria.

Modaraba Companies

Modaraba as defined in "The Modaraba Companies and Modaraba (Floatation & Control) Ordinance, 1980 means "a business in which a person participates with his money and another with his efforts or skill or both his efforts and skill and shall include unit trusts and Mutual Funds by whatever name called". A Modaraba Company is defined as a company engaged in the business of floating and managing Modaraba, and "Modaraba Fund" means fund raised through floatation of Modarabas. "Modaraba" is an Islamic Mode of financing and has become popular in recent years as a means of providing Islamic modes of finance for investment in stock exchange and trade and industry.

Types of Modarabas

Modarabas may be of two types namely:

Multipurpose Modaraba

This may have more than one specific purpose or objective.

Specific purpose Modaraba.

This may have one specific purpose or objective.

Further, Modarabas may be either for a fixed period or for an indefinite period (i.e. perpetual).

The majority of Modarabas presently quoted on the stock markets are Multipurpose Perpetual Modarabas.

A Modaraba cannot engage in business activities, which are opposed to injunctions of Islam and a Modaraba before being floated requires a certificate from the "Religious Board" that the proposed Modaraba is not a business opposed to the injunctions of Islam.

Eligibility for registration

A company shall be eligible for registration as a Modaraba Company if it fulfils certain specified conditions including the minimum capital requirement (which stands at Rs. 5 million at present if it is managing only Modaraba and Rs. 7.5 million if it is conducting any other business), qualification and experience of the directors, etc.

Floatation of Modaraba

A Modaraba Company after being registered can float any number of modarabas. For this purpose business plan, prospectus being incorporating document and feasibility study is required to be submitted along with other prescribed information to Registrar Modaraba and shall have to be cleared from the Religious Board. The management of a Modaraba rests in Modaraba Management Company which is required to subscribe in each Modaraba floated by it not less then 10% of Modaraba Certificates offered for subscription contribute. A Modaraba Company is entitled to a maximum of 10% of the annual profits as management fee. In the case of a Modaraba applying for listing on the stock exchange, 30% of the total paid up capital shall be subscribed by the sponsors or their associates or friends, relatives and associated undertakings and the balance 70% shall be offered to the general public.


Business Entities

Types of Business Entities

Business activities may be carried on through a company, Modaraba, branch, partnership or sole proprietorship. Companies incorporated in Pakistan and branches or liaison/representative offices of foreign companies are regulated by the Companies Ordinance, 1984, administered by SECP. The Registrar of Companies operates under the SECP.

Forms of Companies

The Companies Ordinance, 1984 provides for the following types of companies:

Companies Limited by Shares:

Where the personal liability of the shareholders is limited to the amount (if any) unpaid on their shares. Effectively, the shareholder's liability does not exceed the amount he is committed to, when taking up the shares in the company.

Company Limited by Guarantee:

A company having the liability of its members limited by memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its winding up. The company Limited by Guarantee is usually formed on a ‘no profit basis’.

Unlimited Company:

The law also allows for an unlimited company to be formed. From a practical point of view, the limited liability company with a share capital would be the type of company contemplated by a non-resident interested in investing in Pakistan.

A company incorporated in Pakistan, limited by shares may either be a "Public limited" (public company) or a "Private limited" (private company).

Advantages of a private company:

a) Least restrictions are imposed on borrowing by directors from a private company.

b) No restrictions are imposed for inter-corporate investment.

c) No restriction is imposed on carrying on competitive business by chief executive of a private company.

Disadvantages of a private company:

a) It is prohibited from obtaining an invitation from public to subscribe for shares or debentures; and

b) Restricted by its constitution (Articles of Association) to the rights of its members to transfer shares, limit its membership to 50.

Advantages of a public company:

a) Public companies are able to invite subscription from the public, tosubscribe for shares and debentures;

b) A public company does not have any restriction on transfer of shares.

Disadvantage of a public company:

Ordinance prohibits investment in associate companies and undertaking, except under the authority of a special resolution

Advantages of Listed Companies:

a) A listed company can raise capital by inviting subscription from the public to subscribe for shares and debentures.

b) By inviting the public to subscribe for shares and debentures, the original shareholders are able to reduce additional injections by themselves.

c) Invitation to subscribe to the public results in enhancement of equity, which in turn increases the maximum borrowing limit available to the company.

d) Becoming listed enhances public image.

Disadvantage of Listed Companies:

A listed company has to comply with a much extensive set of corporate and secretarial requirements and with the inclusion of general public as shareholders, the element of social responsibility and accountability increases.

Other Corporate Legislation Banking Companies Ordinance, 1962

The main law governing the establishment and operations of banking companies in Pakistan is the Banking Companies Ordinance, 1962. In addition to banks, other financial institutions such as Modarabas, Leasing Companies, Housing Finance Companies, Investment Banks and Insurance Companies (general and life) have also been allowed to be formed in to private Sector.

Securities and Exchange Ordinance, 1969

The main law relating to the Stock Exchanges, Brokerage Houses, Central Depository and Credit Rating Agencies in Pakistan is the Securities and Exchange Ordinance, 1969 which regulates and governs the establishment and running of these entities in Pakistan.

Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970

The Monopolies Ordinance provides measures against “concentration of economic power,” “growth of unreasonable monopoly power” and “unreasonable restrictive trade practices", which are injurious to economic well being, growth and development of the country. A company is required to get itself registered with the Monopoly Control Authority under specified conditions as given in the Ordinance.

Modaraba Companies and Modarabas (Floatation and Control) Ordinance, 1980

No Modaraba can be floated unless an authorization is obtained by the Registrar Modaraba Companies under the provisions of Modaraba Companies and Modarabas (Floatation and Control) Ordinance, 1980.

Formation of a Company Company's name

The promoters of any proposed company have to obtain confirmation from the company’s registration office that the proposed name of the company intended to be set up is available and is not identical with the name of any existing company or the proposed name is not deceptive, inappropriate, etc

Memorandum and Articles of Association

A company is governed by its Memorandum and Articles of Association, which specify its objectives, purpose and location of its registered office.

Share Capital

A private company should have a minimum of one issued share and a public limited company a minimum of three. The par value of each share of a company should not be less than Rs. 10/-. There are no restrictions as to maximum capital for any form of company.

Registration Fees

Registration fee is paid in accordance with the provision of Sixth Schedule of the Companies Ordinance, 1984.


To form a private and a public limited company, there is a minimum requirement of one and three members respectively, as amended by the Companies (Second Amendment) Ordinance 2002. For unlisted public company, the minimum number of members should be three and seven in case of a listed company. The number of members of a private company shall not exceed fifty. There is no such restriction for a public company.


A single member company is required to have one director, whereas every other private company should have no less than 2 directors. A public company is required to have no less than three directors in case of an unlisted company and 7 in case of listed company. All the directors must be natural persons.

Registration of a Company

Three or more persons associated for any lawful purpose may subscribe their names to a Memorandum and Articles of Association of the company and complying with the requirements of the Ordinance in respect of the registration, form a public limited company, and any one or more persons, form a private limited company. The promoters of the following types of companies having special businesses are required to obtain the letter of intent / permission from Ministries / Departments indicated below against each category:


Banking Company, Permission has to be taken from: Ministry of Finance (Investment Wing) / State Bank of Pakistan.

Non-Banking Finance

Securities & Exchange Commission of Pakistan

Insurance company, Permission has to be taken from: Securities & Exchange Commission of Pakistan

Provident society

Permission has to be taken from: Securities & Exchange Commission of Pakistan All manufacturing concerns, employing more than 10 persons, are required to register with the respective Provincial Chief Inspector of Industries under the Factories Act, 1984. Companies are required to register with the concerned income tax department and obtain a NTN. Rules for Offering Capital to General Public The SECP has issued rules for compliance by the companies offering capital to the general public and listed companies. The Stock Exchanges have been entrusted the function of monitoring compliance. Under the Code of Corporate Governance (CCG), every company proposed to be listed on the stock exchanges shall offer to the public not less than Rs. 100 million or 20% of the share capital, whichever is higher. However, stock exchange may relax the limit with the approval of SECP. Management The management of companies is vested in the Board of Directors, and they may exercise such powers as are specified in the Articles of Association and the Ordinance. The Ordinance has vested in members certain powers, which cannot be exercised by the directors. The first directors are appointed by the subscribers to the Memorandum, and thereafter, by the members for a period of three years from the date of first AGM. The first Chief Executive is appointed within 15 days of the appointment of the directors. The CCG has specified the qualification, roles and responsibilities of directors, Board of Directors in case of listed companies.


First AGM of the members (shareholders) is required to be held not later than eighteen months from the date of incorporation and subsequently, once in every calendar year within a period of four months following the close of its financial year. The shareholders or directors may also requisition an extra ordinary general meeting of shareholders. The Companies Ordinance, 1984 prescribes notice period to be given to shareholders in respect of all general meetings.

Registered Office

Every company is required to have a registered office to which all notices should be addressed and at which various documents / books are required to be maintained as prescribed under the Ordinance.

Filing Requirements

The Companies Ordinance, 1984, requires companies incorporated in Pakistan to file various statutory returns relating to meetings of members, issue and allotment of shares, appointment and change in directors and chief executive, annual audited accounts, annual list of members etc. with the Registrar within the prescribed time limits. Similarly, foreign companies are also required to file various statutory returns relating to their incorporation, principal place of business and particulars of Directors and Principal Officer, etc.

Accounts and Audit

Every company is required to keep proper books of account with respect to all sums of money received or expended by the company, all purchases and sales by the company, and assets and liabilities of the company. Every company is required to prepare annual accounts including balance sheet, profit and loss account, cash flow statement and notes. These financial statements are required to comply with the disclosure requirements, which are more elaborate for listed companies as compared to public unlisted and private companies. Every company shall ensure that annual audited financial statements are circulated not later than four months from the close of the financial year. Every company under the tax laws is required to have its accounting year-end at 30 June, unless an exemption is obtained from Central Board of Revenue. The mandated financial year end for manufacturers of sugar and cotton textiles is 30 September.

Every listed company is required to submit a report semi-annually (including accounts) to Registrar of Companies and its members. The semi-annual report is required to be submitted within two months of the close of the half-year, and the annual report is due within 4 months of the accounting year end.

Every listed company is required to submit within one month of the close of every quarter of its year of account, its quarterly accounts to the members, stock exchanges on which it is listed, Registrar and SECP. Every company in Pakistan is required to have its accounts audited. A public company and a private company, which is a subsidiary of a public company or having a paid-up capital of Rs. 3 million or more, is required to have its accounts audited by a Chartered Accountant or a Chartered Accountants Firm.

Further, the Income Tax Ordinance 2001 requires that accounts of a private company (definition in Income Tax Ordinance) having a paid-up capital of Rs. 500,000 or more should be audited either by a Chartered Accountant or a Cost and Management Accountant. However, the CCG by SECP imposed additional conditions for appointment of auditors for listed companies.

In case of listed companies and public unlisted companies, annual audited financial statements, together with information regarding shareholders and directors, are required to be filed with Registrar of Companies within 45 days of the annual shareholders’ meeting.

Under CCG, listed companies are required to publish and circulate quarterly un-audited financial statements along with Directors’ review. Listed companies are also required to ensure before publication and circulation that half yearly financial statements have all been subjected to limited review by the statutory auditors. Moreover, listed companies shall ensure that annual audited financial statements are circulated not later than four months from the close of the financial year.

In case of a private limited company, there is no requirement to submit annual financial statements to Registrar of Companies; however, information relating Investment in Pakistan to directors and shareholders is required to be submitted to Registrar of Companies within 14 and 30 days of the AGM respectively. Further, every company is also required to attach the audited accounts of its subsidiaries with certain specific details.

A directors' report to the shareholders on the company's state of affairs, recommendation for dividends, and other matters should be attached to the financial statements but these need not to be audited. Public company and a private company, that is a subsidiary of a public company, is also required to give additional matters in the Directors’ report like qualification in auditor's report, etc., and also communicate with it information about pattern of shareholdings.


A company may under certain conditions be wound up voluntarily by a special resolution of its members. A liquidator will then be appointed by the members to realize the company's assets, discharge its liabilities and to distribute any surplus assets to the shareholders. A company may also be involuntarily wound up by the court, if inter alia it is unable to pay its debts on statutory demand by a creditor.

Opening of Project/Branch/Liaison Offices of Foreign Firms

Foreign companies that intend to undertake export activities in Pakistan will be registered without any formality. Permission to companies engaged in contractual obligations of contracts with public sector entities will be granted on production of valid documents without circulating to governmental departments. For companies that wish to open their branch/liaison or representative offices in Pakistan may apply to BOI for permission on prescribed form. The BOI will process and decide such cases within a period of 6 to 8 weeks. Details on the required documentation, etc, are available at all offices of BOI. Permission for opening of branch/liaison office may be granted by the BOI for a period of 3 to 5 years. Further extensions will be granted by the BOI after reviewing and examining the past performance of foreign companies. Request 10 Investment in Pakistan for renewal or extension will be processed by the BOI within two weeks, provided the requests are supported with complete documentation.

Accounts of Branches/Liaison Offices

The requirements relating to preparation of accounts, audit and submission of accounts to Registrar of Companies are also applicable to the branch / liaison office of a foreign company.



Labour laws

Different laws have been promulgated by the Government for the benefit of labour force. Some of these laws are briefly discussed below:

Companies Profits (Workers' Participation) Act, 1968

A company engaged in industrial undertaking, if the number of workers employed at any time during a year is 50, or more, or the paid up capital as on the last day of the accounting year is Rs. 2 million or more or the value of fixed assets as on the last day of the accounting year is Rs. 4 million or more, is required to establish a Workers' Profit Participation Fund and pay to it, 5% of its profits every year. The workers' share in the fund depends on the category of his average monthly salary, subject to a maximum of Rs. 5,000.

Industrial Relations Ordinance, 1969

This Ordinance relates to the formation of trade unions, the regulation of relations between employers and workmen and the avoidance and settlement of any differences or disputes arising between them or related matters. Besides, the Ordinance also deals with the Registration of trade unions, Collective Bargaining Agents, Worker's Council, Management Board, etc.

The Factories Act, 1934

The Factories Act is applicable to almost all the industries. According to the Act,

"Factory" means any "premises" or "Precincts" thereof, where ten or more workers are or were working, in which a manufacturing process is being ordinarily carried on with or without the aid of power. The Act deals with following aspects relating to working conditions for workers:

Daily and weekly working hours

Intervals for rest

Weekly holidays

Compensatory holidays

Extra pay for overtime

Annual holidays

Casual leave or sick leave

Special provisions for adolescents and children

Health and safety measures, etc.


Employees' Cost of Living (Relief) Act, 1973

Employees’ Cost of Living (Relief) Act, 1973 provides for the payment of cost of living allowance to employees getting wages not exceeding four thousand and sixty Rupees per month. The Act is applicable to an establishment to which West Pakistan Shops and Establishment Ordinance, 1969 applies. The amount of cost of living allowance varies based on the wage level of employees. The amount of allowance has been increased from time to time through amendments in the Act.

West Pakistan Shops and Establishment Ordinance, 1969

The Ordinance provides for the maintenance of statutory records of wages, leave, holidays, working hours, overtime, etc. It applies to all shops and establishment where any workman is employed.

Employee’s Old Age Benefits Act, 1976

The Act is applicable to every industry or establishment employing ten or more persons. The employer is required to insure the workers who draw wages up to Rs. 3,000 per Month. However, in case where an employer opts for self-assessment scheme, the maximum wage limit of the employees required to be insured under this Act is Rs. 5,000. The contribution is made @ 5% of workers’ wages by the employer and such contribution cannot be recovered in any manner from the employee.

West Pakistan Industrial and Commercial Employment (Standing Orders) Ordinance, 1968

Every industrial or commercial establishment where 20 or more workmen are employed is required to comply with the conditions of employment of workmen and other incidental matters contained in the standing orders. An industrial or commercial establishment includes, all kinds of commercial establishments, such as, advertising agency, hotel, restaurant, bank, insurance company, etc., and industrial establishment includes factory, mine, construction industry, etc. The standing orders cover the following matters relating to employment of workmen: Classification of workmen into permanent, temporary, probationers, etc.

Terms and conditions of service to be given in writing.

Publication of working time and holidays.

Details as to shift working, terms of attendance, leave, terms of wages, group incentive schemes.

Compulsory group insurance of permanent workmen against death injury or disability not covered by Workmen Compensation Act, 1923.

Terms and conditions governing stoppage of work, and closure of establishment, and terms relating to termination of employment, governing payment of gratuity or other termination benefits.

Workers' Welfare Fund Ordinance, 1971

Under the Ordinance, any industrial establishment as defined in the Ordinance, whose total income is not less than Rs. 100,000, is required to pay 2% of so much of its total income as is assessable under the Income Tax provisions, to the Workers' Welfare Fund.

Workmen's Compensation Act, 1923

Under this Act, the employer is liable to pay compensation to workers for accidents arising out of and during the course of employment. The rates for compensation for death, permanent total disablement, permanent partial disablement and temporary disablement have been given in the Act.

Provincial Employees Social Security Ordinance, 1965

This Ordinance is applicable only to such areas, classes of persons, industries or establishments with regard to such benefits, as the Government may specify from time to time in this behalf. The benefits provided by this scheme are medical care, maternity benefit, death grant, pre-natal and post-natal care, injury benefit, disablement pension, disablement gratuity, Survivor's pension, etc. The benefits under the scheme are available to the workers drawing wages up to Rs. 5,000. The employer is liable to pay contribution at such rates and subject to such conditions as may be specified.

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