Understanding Partnership Law in Pakistan

When two or more people join to carry on a business together under an agreement, it is a partnership. In Pakistan, business registration as partnerships is popular as they are simple and flexible in structure. They are sometimes an ideal choice for small to medium business setups. Partners’ relations, their rights and interests, as well as the registration and further compliance of the firm are dealt with under Partnership laws of Pakistan, such as the Partnership Act, 1932.

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Definitions of Association of Persons (AOPs), Firm, Partnership Agreement

A partnership is when two or more people become joint owners to carry on a business together and share the profits and losses in agreed proportions of their investment ratios; they are in a partnership agreement.

Whereas, Association of Persons (AOPs) includes a firm, any artificial juridical person, and any body of persons formed under a foreign law, but does not include a company.

However, “Firm” means 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.

Definition of "Partnership", "Partner", "Firm" and "firm Name"

According to section 4 of the Partnership Act, 1932, the “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. Persons who have entered into partnership with one another are called individually “partners” and collectively “a firm” and the name under which their business is carried on is called the “firm name”.

Understanding the Partnership Act, 1932 in Pakistan

It would be fitting to say that the Partnership Act of 1932 is the parent law that deals with everything related to partnership, a firm, or an Association of Persons (AOPs). Following is the birds-eye view of the contents of the Partnership Act,1932:

Scope and Applicability in Chapter I

The first chapter of the Act defines the Act’s scope, applicability, and basic definitions.

The Nature of Partnership in Chapter II

This chapter defines the partnership, partner, firm, and firm name. It also explains the distinction between a partnership formed by contract and other types, such as family businesses, and outlines special types like “partnership-at-will” and “particular partnership.”

Relations of Partners to One Another in Chapter III

This chapter details mutual rights, duties, and obligations among partners, including indemnification, business conduct, profit-sharing, personal gains, and property usage.

Relations of Partners to Third Parties in Chapter IV

This one deals with outside the firm’s dealings, i.e., how the firm will handle third-party interactions, including authority, restrictions, liability for firm actions, misapplication of assets, and handling liabilities. It also covers minors’ rights when admitted to partnership benefits.

Incoming and Outgoing Partners in Chapter V

This chapter outlines the procedures for introducing new partners, retirement and expulsion of existing partner(s), and the impact of insolvency or death firm.

Dissolution of a Firm Chapter VI

This chapter specifies how and when a firm may be dissolved i.e., a mutual agreement, legal contingencies, or court order can dissolve it. It also covers responsibilities of partners, their rights and obligations, and settlement of accounts after the dissolution of the firm.

Registration of Firms in Chapter VII

This important chapter governs the registration process, including document submission, updating records on partner or firm changes, and inspection rules. It also  clarifies the consequences of non-registration.

Governing Partnership Law in Pakistan

Other legislations are interconnected while addressing critical aspects of partnership structure, registration, and compliance

1. The Partnership Act, 1932

This foundational law defines partnerships, the rights and duties of partners, and procedures for partnership formation, management, and dissolution.

2. The Punjab Partnership (Registration Of Firms) Rules, 1932

This deals with the registration of firms in Punjab.

3. Income Tax Ordinance, 2001

This ordinance mandates tax filings and compliance requirements for partnerships, Associations of Persons (AOPs), and sole proprietorships.

4. Stamp Act, 1899

This act outlines the necessary stamp duty for partnership deeds and stamps when conducting different functions in partnership.

Association of Persons (AOP): Structure and Definition

A firm includes an AOP, which is formed when two or more individuals come together to conduct business to share profits and losses according to their share ratio. The individuals (or entities) involved in this partnership become joint owners and collectively manage the business. The Partnership Act, 1932 further defines a “firm” as  Persons who have entered into partnership with one another are called individually “partners” and collectively “a firm”.

How to Register a Partnership Firm in Pakistan

Registering a partnership firm involves submitting the partnership deed and other documents to the relevant Registrar of Firms. The essential steps include:

1. Preparation of Documents

Required documents include the partnership deed on stamp paper for partnership deed, Form 1, CNIC copies of partners, and the address of the business.

2. Submission to Registrar

These documents are submitted to the Registrar of Firms in the respective province. However, in the digital world nowadays, it can be done online. Further in this article, you will learn how to register a partnership firm online in Pakistan.

3. Verification and Approval

Upon verification, the firm’s name is registered, and the partnership obtains a registration certificate, which is typically known as Form-C, which shows that the form is now officially registered with the registrar of firms.

4. Support by LEX

For partnership registration, LEX offers dedicated legal assistance tailored to protect partners’ interests. Our team aids in drafting partnership agreements, meeting documentation requirements, and ensuring compliance with updated laws. Reach out for professional support that simplifies and secures your partnership registration.

Documents Required for Partnership Deed Registration

To register your partnership with local authorities like the Registrar of Firms, the documentation required is based on the nature of the partners (local or foreign). Below is a detailed checklist:

For Local Partner Including Company as A Partner

  1. Partnership Deed (Partnership Agreement): Attested deed of partnership on a stamp paper.
  2. Form-1: Signed printout of the online form.
  3. Copies of CNICs of Partners: Attested scans are also acceptable.
  4. Bank Challan: Original and scanned copies as proof of fee payment.
  5. In case of a Company Partnership, Memorandum and Articles of Association, Board Resolution, List of Directors, and Incorporation Certificate, all attested by the Securities and Exchange Commission of Pakistan (SECP) are required.

Partnership Deed Stamp Paper in Pakistan

Rupees 1000 stamp paper is required for the partnership deed to be printed for submission.

For Foreign Partner Including Foreign Company

  1. Form-1: Signed printout.
  2. Partnership Deed: Attested scanned copy.
  3. Passport of Foreign Partner: Scanned copy, attested.
  4. NOC from Home Department: Original copy.
  5. Affidavit from Pakistani Partner: Declaring reliability for foreign partner(s).
  6. Additional Documents for Company Partnerships: Translated Memorandum & Articles of Association, Board Resolution, List of Directors, and Incorporation Certificate, attested by the respective embassy.

Essentials of Partnership Agreement in Pakistan:

A partnership deed, also known as a Partnership Agreement, should clearly outline core elements, such as the following:

  • Commencement Date
  • Firm’s Name and Nature of Business
  • Place of Business
  • Investment
  • Capital Structure
  • Profit and Loss Sharing
  • Books of Accounts
  • Annual Accounts
  • Duties and Attention to Business
  • Consequences upon Death of a Partner
  • Dissolution and Winding Up
  • Payment of Taxes
  • Dispute Resolution

 

A partnership deed is the most important document for this type of business i.e., Association of Persons (AOPs), serving as its constitution. It is always recommended not to use preformatted or stereotyped deeds; instead, a well-tailored partnership agreement should be drafted, considering the business’s nature, and the partners’ intentions, to avoid future complications. Our experienced lawyers in Pakistan can assist you seamlessly in this regard.

Firm Registration Fees in Pakistan

To register with the Registrar of Firms, a service fee of PKR 2000 is required, which can be paid via Bank Challan or online transfer to the National Bank of Pakistan under the designated head account. The application is processed by the Registrar of Firms, with an approval and delivery time typically within 24-48 hours.

Why Register Your Partnership with the Registrar of Firms?

It is mandatory to register a firm with the Registrar of Firms under The Partnership Act, 1932, Pakistan, as an AOP (Association of Persons) cannot legally exist without such registration. Its registration legitimizes the partnership, providing it a legal status.

Online Registration and Verification of Partnership Firms

In Pakistan, partnership firm registration has been digitalized through online portals such as the Punjab Ease of doing Business Online Registration Portal. This allows owners to register their partnership firms online. Even though once registered, the registration can also be checked and verified online.

Tax Rates for AOP

The below shows the income tax on taxable income for partnership firms, AOP, and sole owners:

The tax rates for individuals & associations of persons (AOP) (U/S 4) for the tax year 2025 are outlined in [Division I, Part I of the First Schedule].

Taxable Income Range Tax Rate
Upto Rs.600,000
0%
Rs.600,000 to Rs.1,200,000
15% of the amount exceeding Rs.600,000
Rs.1,200,000 to Rs.1,600,000
Rs.90,000 + 20%
Rs.1,600,000 to Rs.3,200,00
Rs.170,000 + 30%
Rs.3,200,000 to Rs.5,600,000
Rs.650,000 + 40%
Exceeding Rs.5,600,000
Rs.1,610,000 + 45%

Surcharge on Tax Payable

If the taxable income of an individual or AOP exceeds 10 million, a surcharge of 10% on the tax payable is applied.

Further Registration with Other Departments

  • Federal Board of Revenue (FBR): All partnerships must register with FBR to obtain a National Tax Number (NTN) and, if applicable, a Sales Tax Number (STN).
  • Labour Department, Punjab: Registration with the Labour Department is option  under the Pakistan Shops and Establishment Ordinance, 1969 or Factories Act, 1934, depending on the business type and workforce size.
  • Punjab Employees Social Security Institution (PESSI): Establishments with five or more employees must register with PESSI under the Provincial Employees Social Security Ordinance, 1965.
  • Professional Tax: The Excise and Taxation Department enforces a professional tax on businesses through the Punjab Finance Act, 1977, requiring annual payments by registered firms.

Form 1, Form D and Form C in Partnership Registration

Form 1 is generally required for registering a new partnership firm. Whereas, Form D is used for any subsequent modifications, such as adding new partners etc. Form C is the certificate of registration issued by the registrar of Firms.

A Partnership Deed Sample PDF

You can download a specimen or sample partnership deed by clicking here.

Partnership Format in Urdu and English

Partnership deeds can be prepared in Urdu or English to accommodate local languages and legal standards.

Online AOP Registration With FBR

The Federal Board of Revenue (FBR) allows online AOP registration with tax regulators, which facilitates tax registration and compliance, making it convenient for both local entrepreneurs and overseas Pakistanis.

Examples of Partnership Businesses in Pakistan

Many successful businesses in Pakistan operate as partnerships, such as law firms, consultancies, and small manufacturing units. Partnerships provide flexibility and shared decision-making, suitable for businesses with shared expertise and collaborative goals.

Conclusion

In summary, partnerships in Pakistan are a simple and easy business structure for small to medium-sized businesses. Registering under the Partnership Act, 1932 gives legal recognition and protects the rights of the partners. As laws keep changing, expert guidance can ensure that agreements, documentation, and registration are in line with current standards and reduce future risks. At Lex, we support you every step of the way, from registration to daily operations, so your partnership is well-managed and legally sound.

Note:

M/s Legally-Ethically-Expertly (LEX), a leading law firm with experienced lawyers, provides this article’s information for public awareness through our website, lex.com.pk. We strive to offer valuable insights to the general public but emphasize that this content should not be considered legal advice. Additionally, please note that the information provided here may be outdated as laws are amended regularly or may contain human error; therefore, we recommend not relying solely on this content. For personalized guidance or the most up-to-date information, we encourage our valued readers to contact our expert family lawyers in Pakistan by calling or WhatsApp at +92-310-8888539 or emailing info@lex.com.pk. We are here to assist with tailored solutions.

Frequently Asked Legal Questions

Q: What are the key benefits of registering a partnership firm in Pakistan?

It is a flexible and easy-to-setup type of business, ideal for small to medium-sized enterprises that do not want to incorporate a company.

Q: Is the firm of AOP an independent legal entity?

Yes, a partnership gives birth to a separate legal entity that can sue and can be sued.

Q: How are profits and losses typically shared in a partnership firm in Pakistan?

Profits and losses are shared per the agreed ratio of partners' shares as per the partnership agreement. Gbh

Q: Is it mandatory for all partnerships to register with the Federal Board of Revenue (FBR)?

Yes, it is necessarily essential for a firm or AOP to register itself with FBR for its tax compliance.

Q: How does LEX assist in setting up and managing a partnership firm in Pakistan?

LEX is the home of some of the best lawyers in Pakistan who can assist you in managing your business from registration to its management till the existence of your business.

Q: What is required to register a partnership firm in Pakistan?

A partnership agreement between partners on proper valued stamp paper, and its registration with the registrar of firms.

Q: What are the differences between an Association of Persons (AOP) and a partnership?

People who join together in a partnership are called "partners" individually and "a firm" as a group. An Association of Persons (AOP) includes a firm; both terms refer to the same thing.

Q: Is online registration available for partnership firms in Pakistan?

Yes, it is available. A firm or a company can be registered online hassle-free and fast.

Q: What is Form-C, and why is it important for partnership registration?

Similar to the letter of incorporation, Form-C is issued that confirms the legally registered status of a Firm.

Submit Your Query

Note:

While we strive to provide accurate information, please note that the details in this article may contain human errors and are not meant to serve as legal opinion or advice. This content is purely for informational purposes. If you have a specific legal query or need further clarification, we warmly invite our valued readers to reach out to us by calling or WhatsApp at +92-310-8888539, or email at info@lex.com.pk. We are here to assist with tailored solutions.

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