Sole Proprietorship in Pakistan: An Overview
A sole proprietorship is a type of business entity owned and run by a single person. It is different from a single-member company. It is also known as a sole trader or sole owner, or it is often called simply a proprietorship.
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Sole Proprietorship in Pakistan Law
Legally, there is no difference between the owner of the business and the proprietorship, as all profits and losses that the business earns or incurs accrue to the sole owner/proprietor personally. In this type of business, the owner and the business are considered the same entity. A sole proprietorship does not create a separate legal entity distinct from its owner.
A sole proprietorship is not a separate legal entity, so neither can it sue nor be sued as a juristic person. Rather, the sole proprietor, as a natural person, can file or defend legal proceedings on behalf of the business. Ref: 2022 CLC 668
Nature of Liability
This business is owned by an individual who holds all its assets. Thus, any debts the business incurs are also the liability of the owner, meaning that the owner is personally liable. It differs from a single-member company or partnership firm, so this structure gives the owner unlimited liability.
Scope of Sole Proprietorship in Pakistan
The scope of this type of business is quite limited, as it allows only one individual to be the owner. It does not create a separate legal entity; instead, the owner and the proprietorship are essentially the same, just under two different names.
Liability for Business Debts
As there is no legal separation between the owner and the business in a sole proprietorship, the proprietor is personally liable for all debts of proprietorship.
Decision-Making Powers in a Sole Proprietorship
In a sole proprietorship, the owner has all decision-making authority. It is straightforward and simple; the owner has the complete control over operations.
Sole Proprietorship Registration in Pakistan
Registering a sole proprietorship is the simplest process among the various types of business structures. Unlike registering a single-member company or a partnership firm, it does not involve complex formalities. Instead, the sole requirement is for the owner to register with the Federal Board of Revenue (FBR) for tax purposes. The essential steps for registering a sole proprietorship are as follows
Business Name Registration Pakistan
A sole proprietor can operate under a trade name other than his own. Unlike companies, there is no separate procedure for name search or reservation for a sole proprietorship. As long as legal requirements and business ethics are observed, a proprietor can choose a suitable name for his business.
Easy with LEX
LEX also specializes in sole proprietorship registration, guiding single-owner businesses through every legal step. We help with required documentation and ensure compliance with the latest regulations, making registration straightforward. Contact us for personalized assistance in establishing your sole proprietorship in Pakistan.
Documents Required for Sole Proprietorship Registration
Essential documents required for Sole Proprietorship Registration are:
- Proprietor’s CNIC (Computerized National Identity Card)
- Business Address: ownership documents in case of owned premises and tenancy agreement if the place is rented.
- NTN Certificate: Issued by the Federal Board of Revenue (FBR).
- Licenses or Permits: These may be required, depending upon the nature of the business.
FBR Sole Proprietorship Registration
The first and foremost step in setting up a sole proprietorship is registering the sole owner in the taxation system. The owner must obtain a National Tax Number (NTN) by registering with the Federal Board of Revenue (FBR) and, if applicable, a Sales Tax Number (STN) for tax purposes.
Labour Department Registration in Punjab
Depending on the type of business and the number of employees, registration with the Labour Department may be required. This is mandated under the Pakistan Shops and Establishment Ordinance, 1969, or the Factories Act, 1934.
Registration with Punjab Employee Social Security Institution (PESSI)
Businesses with five or more employees must register with PESSI under Sub-Section (3) of Section 1 of the Provincial Employees Social Security Ordinance, 1965.
Sole Proprietorship Registration SECP
The SECP does not require a sole proprietorship to be registered with it.
Sole Proprietorship Bank Account Pakistan
A sole proprietor in Pakistan can operate under a trade name different from his name, which allows him to open a business bank account under that name. This helps the proprietor keep personal and business finances separate. Most banking institutions in Pakistan permit sole proprietors to open business accounts under their chosen trade name, provided they meet the bank’s documentation requirements.
Tax on Sole Proprietorship in Pakistan
A proprietor is liable to pay all taxes accrued from the business operations. Different taxes apply to the owner depending upon the nature of the business. These may include:
- Income Tax: Sole proprietors are taxed on the business income as personal income since there is no legal distinction between the owner and the business.
- Sales Tax: If the business supplies taxable goods or services, the proprietor must register for a Sales Tax Number (STN) and collect sales tax from customers.
- Withholding Taxes: Depending on transactions and payments made, the proprietor may be required to withhold taxes on salaries, services, and contracts.
Payment of Professional Tax
Professional tax is mandatory and is regulated by the Excise and Taxation Department under the Punjab Finance Act, 1977.
Sole Proprietorship Tax Rate in Pakistan
The below shows the income tax on taxable income for individuals and AOP.
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.
Difference Between Sole Proprietorship and Single Member Company
Here are the five key differences between a sole proprietorship and a single-member company:
| Sole Proprietorship | Single Member Company (SMC) |
|---|---|
|
It is not a separate legal entity; the owner and business are the same. |
Separate legal entity distinct from the owner. |
|
The owner has unlimited liability; personal assets are at risk. |
Limited liability: The owner’s liability is limited to share capital. |
|
Not required to register with SECP |
Must be registered with SECP under the Companies Act 2017. |
|
Not required to register with SECP |
Can have one shareholder (owner) with a nominee in case of death. |
|
Business income is taxed as personal income. |
The company is taxed separately from the owner. |
Examples of Sole Proprietorship in Pakistan:
Some typical examples of sole proprietorship businesses in Pakistan include:
- Retail Shops: Grocery stores, clothing boutiques, electronic items, etc.
- Freelance Services: Graphic designers, writers, and web developers
- Consulting Services: Finance, education, legal, and healthcare consultants
- Food Vendors and Cafes: Small food stalls, street vendors, and locally-owned cafes
- E-commerce and Online Sellers: Online businesses on platforms like Daraz or social media like Instagram or Facebook, etc.
- Local Service Providers: Tailors, car repair shops, plumbers, beauty salons, etc.
Conclusion
In essence, a sole proprietorship offers simplicity and full control, though it comes with personal liability. For a hassle-free setup, LEX provides guidance and assistance from experienced lawyers, to ensure legal compliance and a smooth registration process, so you can focus on growing your business and let LEX do the legal management.
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: Why Sole Proprietorship is Most Common in Pakistan
Q: How Do You Calculate Taxes for a Sole Proprietorship?
Q: Do I need to do much paperwork to start a sole proprietorship?
Q: Can I run my business under a different name, or does it have to be my name?
Q: If my business has debts, will I be personally responsible for them?
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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.
