Under this digitization drive, corporations can set up new companies, or foreign companies can set up site offices in Pakistan as a limited liability company. Graana.com, Pakistan’s smartest property portal, takes a look at how organizations can set up a limited liability company in real estate.
What is an LLC?
LLC stands for Limited Liability Company and is a popular business structure whereby a parent company registers a subsidiary in another country to expand its operations.
Besides LLC, Pakistan also allows companies to register a Free Zone Company (EPZ company), Limited Liability Partnership (LLP), Public Limited Liability (joint stock company), and representative office among others.
How to Set up an LLC in Pakistan
Organizations can follow the following steps to set up an LLC in Pakistan:
- Get the name of your company approved by the Securities and Exchange Commission Pakistan (SECP).
- Pay the applicable fee through designated banks.
- The company will open a bank account.
- They will then complete a declaration of compliance and the company memorandum with signatures.
- Then, the company is required to submit a list of company leaders.
- Next, the company will be required to get a digital signature from the National Institutional Facilitation Technologies (NIFT).
- The company is required to be registered with the Regional Tax office of the Federal Board of Revenue (FBR).
- The company will also register with social security institutions and with the labor department.
Limited Liability Company for Real Estate
A real estate LLC is a legal entity formed to own real estate assets. For entrepreneurs, investment property owners, real estate investors, and regular homebuyers, this type of structure can make owning real estate holdings far less stressful.
An LLC in real estate of this type can be a regular real estate business looking for tax breaks, a multi-member venture for people looking to invest in real estate together, or the work of a single first-time property owner looking to protect their personal finances and assets if legal issues arise with their real estate.
Why You Should Form an LLC in Real Estate
Many single-member LLC owners form a real estate LLC to protect their personal assets from liability. The LLC structure enables them to hold their assets under the LLC name rather than their personal name.
In this case, if legal issues arise, only the assets associated with the business name are subject to seizure through the legal system. Some people may even choose to form separate LLCs for various assets.
Assume you are a landlord who does not have your own LLC. If a disgruntled tenant sues you, your personal assets and finances will be at stake because you are the sole owner of the rental property.
Limited Liability Company Laws in Pakistan
Before setting up an LLC, it is important that organisations go through the LLC laws of Pakistan. This is necessary because laws may vary from location to location. Typically, LLCs are registered with two directors and two shareholders while the capital required is the US $1000.
The directors and shareholders can be non-residents, but they are required by law to register for an NTN number with the local taxation authority. Furthermore, if the company has a capital share of more than US $5000, the company is required by law to have a legal advisor who must be residing in Pakistan.
It can take between 4 to 6 weeks to incorporate an LLC in Pakistan. It must be noted that the process of approval for incorporation of the LLC in real estate is also subject to approval from the Board of Investment and from the Ministry of Interior.
Benefits of Setting up a Limited Liability Company
A company that sets up an LLC can enjoy the following benefits:
- Primarily, it is done to expand the business as organisations can legally operate in the said country.
- Once the LLC is incorporated, the organisation can hire a local workforce.
- Organisations can form business relationships.
- The LLC can form its own operations and company culture as it operates as a separate entity from the parent company.
- The parent company does not have to worry about incurring any liabilities from the LLC.
- Setting an LLC can also provide tax benefits in the form of pass-through taxation.
- LLCs, profits “pass-through” the business to the members who report their individual share of earnings on their personal income tax returns
This was a brief look at the process of setting up an LLC in Pakistan. However, it is advised that corporations keep a realistic look on the timeline as the process can get delayed by a day or two. In order to read more on the type of companies that can be set up in Pakistan, visit Graana blog.