A Wholly Owned Subsidiary Company is an entity of which 100% shares are held by another company. When foreign company makes 100% FDI (Foreign Direct Investment) in Pakistan, the Pakistani company becomes the Wholly Owned Subsidiary of that Foreign Company.

A Wholly Owned Subsidiary of Foreign Company can be defined as an entity whose entire share capital is held by the foreign corporate bodies. A Wholly Owned Subsidiary Company can be formed as a private, limited, limited liability company. Considering the various exemptions available to a private company limited by shares under the Pakistan’s Companies Ordinance 1984, it is recommended that a Wholly Owned Subsidiary Company be established as a private company.

Pakistan’s investment and corporate laws permit wholly-owned subsidiaries with 100% foreign equity in all sectors of the economy including manufacturing, trading and service sectors with full repatriation rights as to capital and dividends remittable through a commercial bank without the frequent need to access the State Bank of Pakistan (Central Bank).

Foreign investors have also been provided added legal protection against nationalization, expropriation and currency inconvertibility and for such contingencies the foreign investor would be entitled to fair compensation at the prevailing market value.

Limited liability Company has Two Categories:

  1. Private Limited Company
  2. Public Limited Company (unlisted or listed)

Private Limited Company:

A private company is required to have a minimum of 2 members and 2 directors. It may commence its business immediately after its incorporation. A private company, through its Articles of Association (AoA) restricts the right to transfer its shares, limits the number of its members to fifty (50) and prohibits any invitation to the public to subscribe for its shares.

Single-Member Company:

Single Member Company as is evident from the name is the type of the company with only one member who is the sole director of the Company as well. All the shares are vested with single member; however, it is mandatory for the single member to nominate an individual as nominee director, to act as director in case of his death, and an alternate nominee director who will act as nominee director in case of non-availability of nominee director. A corporate entity cannot become its member or director.

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Public Limited Company:

A public unlisted company must have at least 3 members and 3 directors. It does not become entitled to commence its business unless it obtains ‘Certificate of Commencement of Business’ from the Registrar of Companies, Securities and Exchange Commission of Pakistan. There is no restriction on the maximum number of members and transfer of shares. A public company has option to list its securities/shares at Pakistan Stock Exchange. It must then have at least 7 members and 7 directors. Its minimum paid up capital should be Rs. 200 million and it is also required to make a public offer/issue of its shares which must be subscribed by at least 500 applicants. The post issue paid up capital is required to be at minimum Rs.500 million.

A comparison of the each type of companies is provided below:

Type of Company Minimum number of shareholders /
members
Maximum number of shareholders /
members
Minimum number of directors Transfer of Shares
Single Member  Company 1 1 1 Restricted
Private Limited Company 2 50 2 Restricted
Public Limited  Company  (unlisted) 3 unlimited 3 No restriction
Public Limited Company (listed) 500 unlimited 7 No restriction

Incorporation of a Private Limited Company:

A private limited company can be incorporated either as a wholly owned subsidiary of a body corporate or as joint venture company with local investors. It is incorporated in Pakistan under the Companies Ordinance, 1984 and the Companies General Provisions and Form Rules, 1985. The process involves preparation and submission of constitution and identity documents of the investing company and directors of the proposed company, to the Securities and Exchange Commission of

Pakistan (SECP). The process of incorporation starts from reservation of company’s name and ends with the issuance of Certificate of Incorporation. The SECP usually does not require more than 1 week for incorporation, from the filing of the required documents and submission of prescribed fee.

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Step 1: Obtain permission from Board of Investment:

A foreign company is first required to obtain a permission letter from the BOI, Government of
Pakistan with a specific validity period for opening and maintaining of place of business in Pakistan. Copy of such permission letter is required to be furnished with the documents meant for registration.

Step 2: Seek availability of company name:

A foreign company is required to seek “Availability of Name” of proposed company from Securities
and Exchange Commission of Pakistan (SECP). The proposed name should not be:

  • Inappropriate
  • Designed to exploit or offend the religious susceptibilities of the people.
  • Identical or having close resemblance with already existing company.
  • Suggesting connection with any Government or its organization or any international organization.

Step 3: Documentation:

After seeking company name availability, next step is documentation. A foreign company is required
to file the following documents, within thirty days of establishing a place of business in Pakistan
(Sections 450 to 458 of the Companies Ordinance 1984), to the registrar concerned:

  1. Forms (38-43) as prescribed under the Rules:
  • Form 38: Certified copy of the charter, statute or Memorandum and Articles of the company.
    The certification is to be given by:
    (a) the public officer in the country where the company is incorporated in whose
    custody the original is committed; or
    (b) a notary public of the country where the company is incorporated; or
    (c) an affidavit of a responsible officer of the company in the country where the
    company is incorporated.
    In first two situations, at (a) and (b), certification is required to be authenticated
    by a Pakistan diplomatic consular or consulate officer, while in third situation at
    (c) above, affidavit shall be signed before a Pakistan diplomatic consular or
    consulate officer. [Rule 22 of Companies (General Provisions and Forms) Rules,
    1985]
  • Form 39: Address of registered office or principal office of the company.
  • Form 40: Particulars of directors, Chief Executive and Secretary, if any, of the company.
  • Form 41: Particulars of principal officer of the company in Pakistan.
  • Form 42: Particulars of person(s) resident in Pakistan authorized to accept service on behalf of the foreign company along with the certified copy of the appointment order, authority letter of board of directors’ resolution and consent of the principle officer.
  • Form 43: Address of principal place(s) of business in Pakistan of the foreign company (Section 451).
  1. Authority letter in the name of authorized representative of the foreign company.
    III. Fee Challan to be filed to SECPEvery Company formed or incorporated outside Pakistan which has established a place of business in Pakistan and delivers the aforesaid documents shall be assigned a Corporate Universal Identification Number (CUIN) and be issued a certificate of registration of documents.
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Contractual Capacity & Right to Invest:

Immediately upon registration with SECP, the entity becomes eligible for entering into contracts or arrangements with resident or non-resident entities or individuals. The right to invest is an inherent right of a limited liability company within or outside Pakistan.

Commencement of Business:

A Certificate of Incorporation issued by the Registrar of Companies is a conclusive proof of establishment of the entity in Pakistan. This also entitles a PLC to commence its business.

Exit Mechanism:

Exit mechanisms available for foreign investors are i.e. transferring / selling of shares or winding-up / liquidation of the company. These are however subject to statutory requirements under the Companies Ordinance, 1984 and taxation laws. The eligibility to repatriate proceeds under FERA is established upon of completion of the requirements of the relevant mechanism.