Association of Persons (AOP): How to Register a Partnership Firm in Pakistan
An AOP (also referred to as a Partnership) is a firm managed by all partners according to the agreement or partnership deed signed by the partners at the time of registration. It is not a separate legal entity and partners have unlimited liability which means that all partners can be held liable in case of a default on debt or any other liability or any other form of misconduct even on behalf of one partner.
There is only one layer of taxation which means only the partners OR the partnership pays the taxes, unlike the Private Limited Company where there are two layers of taxation. In a private limited company, tax is paid by the company on profit and the shareholders pay the tax separately on the salaries or dividends drawn from the company as prescribed by the law. Tax rates on an AOP vary with the income slabs. A lesser percentage rate applies on lower income/profit brackets while a higher tax rate applies on AOPs with higher income.
AOPs have low compliance requirements which is why it is preferred by many small businesses at the start.
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Name of the AOP
You can give any name to your partnership firm as long as it satisfies the below mentioned conditions:
- There is no other firm with a similar name in the same line of business
- The does not contain words that show sanction or approval of the government
The Partnership deed is an agreement between the partners in which rights, duties, profits shares and other obligations of each partner are mentioned.
It is important to bring all terms in writing to avoid any conflict in future.
It is advisable to add (at a minimum) the following details in the partnership deed:
- Name and address of the firm and all the partners
- Nature and scope of business
- Capital injected by each individual partner and the date on which it is or will be injected
- Ratio of profit and loss sharing
- Mechanism for addition and removal of Partners
- Duration of Partnership, if any.
Other than the general details mentioned above, it can be useful to mention some more specific details, if any. Following are some examples.
- Details of any loans provided by partners to firm
- Details of drawings from the firm. Whether the partners will withdraw all profits or keep a defined minimum amount of cash in the firm?
- Salaries, commissions, or any other amounts payable to partners.
- Any details about active or sleeping partners and any special rights enjoyed by more active partners.
- Duties and responsibilities of partners.
- Process to be followed in case of retirement or death of a partner.
How to Register an Association of Persons (AOP) or a Partnership Firm
A partnership firm is registered with the registrar of firms in your respective district or city. The process of registration is governed by the Partnership Act, 1932.
The application for registration has to be signed by all partners.
Following documents constitute the entire application:
- Written Partnership deed on a Rs. 1000/- stamp paper (should be prepared by a lawyer–we can do this for you).
- Filled partnership form.
- Bank challan against the submitted fee
- Rental agreement for office in a commercial area along with proof
- CNICs of all partners along with CNIC of all witnesses. One witness is required for every partner.
- Affidavit regarding accuracy of submitted papers
- Copy of all the above documents duly notarised by a notary public.
If the registrar is satisfied with the application and documents, he will issue the certificate of registration.
FAQs around Partnership Registration in Pakistan
Can you have an unregistered Partnership?
Yes, it is not legally mandatory to register a partnership/AOP with the registrar of firms. A valid Partnership firm may be formed without the formal registration of the Partnership Deed. However, it is always recommended that a Partnership firm is registered as no suit to enforce a right arising from a Partnership Deed can be instituted in any Court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partners in the firm. Secondly No suit to enforce a right arising from contract can be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm.
If all partners wish to end the partnership, how can they do so?
Yes, the Partnership Deed signed between the Partners provisions for the termination of the Partnership as a whole as well as for the removal or termination of a single partner, as appropriate.
How much time does it take to register a partnership?
Usually, a partnership may be registered with the registrar of firms within a period of two weeks.
Can my certificate of registration be cancelled?
A partnership can be compulsory dissolved if all the partners or of all the partners but one is declared as insolvent by a compenat forum or by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership or on the direction of a court in a suit brought by one of the Partners.
What is the scope of liability when it comes to partnerships?
Each Partner is collectively and jointly liable for the liabilities accrued by the Partnership.
The process of registering a firm can be daunting for many business owners. But there is no need to worry. Just schedule a FREE call with our expert consultant and we will take care of it for you.
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