Types of Companies under the Companies Act, 2017 (Pakistan)
The Companies Act, 2017 governs the incorporation, regulation, and winding up of companies in Pakistan. It replaced the Companies Ordinance, 1984, and introduced reforms to align Pakistan’s corporate regulatory framework with international best practices. One of the foundational aspects of the Act is the classification of companies. Understanding the types of companies under the Act is essential for entrepreneurs, legal professionals, investors, and regulators.
Below is a comprehensive overview of the types of companies defined under the Companies Act, 2017.
1. Company Limited by Shares
This is the most common type of company. It has a share capital, and the liability of its members is limited to the amount unpaid on their shares.
Sub-types:
a) Private Limited Company
Restricts the right to transfer its shares.
Limits the number of members to 50 (excluding employees).
Prohibits public invitations to subscribe to its shares.
Example: Small to medium-sized enterprises (SMEs), family-owned businesses.
b) Public Limited Company
Can offer shares to the public.
Must have at least three directors.
Requires compliance with more rigorous disclosure and governance standards.
Example: Listed companies on Pakistan Stock Exchange (PSX).
2. Company Limited by Guarantee
These companies do not have share capital. Instead, members guarantee to contribute a specified amount towards liabilities in case the company is wound up.
Common in non-profit organizations, clubs, and associations.
Liability is limited to the amount guaranteed by each member.
Example: NGOs, charitable institutions, educational foundations.
3. Unlimited Company
In this type, there is no limit on the liability of the members. In case of winding up, members are personally liable for the debts of the company.
Rarely used due to the high risk to members’ personal assets.
May be suitable in specific scenarios requiring trust, like certain law or audit firms.
4. Single Member Company (SMC)
Introduced to promote sole proprietorships into the corporate structure, a Single Member Company has only one member/shareholder.
Must convert into a private limited company if the number of members increases.
Allows for limited liability and separate legal entity status for sole proprietors.
Key Features:
Only natural persons can form an SMC.
Requires nomination of a nominee director in case of the founder’s death.
5. Foreign Company
A company incorporated outside Pakistan but establishes a place of business within Pakistan.
Required to register with the SECP within 30 days of establishing business in Pakistan.
Must comply with specific reporting and disclosure requirements.
Example: Multinational corporations operating branches in Pakistan.
6. Not-for-Profit Company (Section 42 Company)
These are companies formed to promote commerce, art, science, religion, charity, or any other useful object.
No dividend distribution to members.
Requires a license from the Securities and Exchange Commission of Pakistan (SECP).
Can be either a company limited by guarantee or shares.
Example: Educational institutions, research organizations, social development agencies.
Conclusion
The Companies Act, 2017 provides a robust framework catering to a wide range of business structures. Each type of company serves different needs, from small entrepreneurial ventures to large public enterprises, and from philanthropic organizations to international corporations. Choosing the right type of company structure is crucial, as it affects legal liability, compliance obligations, taxation, and fundraising capabilities.
For businesses and stakeholders in Pakistan, understanding these distinctions helps in making informed decisions, ensuring compliance, and optimizing corporate governance.
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2017 (Pakistan)
Company Limited by Shares
Limited by Guarantee
Public Limited
Types of Companies under the Companies Act
Unlimited