Why we do business:

The objective is to maximize Entrepreneur/Shareholders wealth. Any activity undertaken with a view to earn profit is called a business.
FORMS OF BUSINESSES Sole Proprietorship- the business done by one

person. Partnership Two or more person pool up their resources to run a business. Company- An artificial person who has a separate legal status from its owners.

 A sole-proprietorship is a business with only one owner.

It is the simplest and most flexible business structure. Advantages:

Quick & Easy Setup Easy to Manage (Sole Decision Maker) Exclusive Use of Profit (No sharing) Lower rate of taxation

Disadvantages: Bears all Risks and Costs Unlimited Liabilities- sell off personal assets (e.g. house, car, shares, etc.) to pay off debts and losses Limited availability of Funds Limited Borrowing Power Business may come to a standstill/end when the owner falls sick or dies.

 Partnership is the relation between persons who have agreed to share

the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually partners and collectively a firm, and the name under which their business is carried on is called the firm name. There is a limit of maximum 20 partners under partnership Act 1932.
Advantages: Easy to Form Better Decision Making More Availability of Funds Sharing of Risks and Costs Disadvantages: Unlimited Liabilities- sell off personal assets (e.g. house, car, shares, etc.) to pay off debts and losses Disagreement amongst partners may lead to dissolution of firm Profit Sharing No Separate Legal Entity Transfer of Shares- only with prior permission of rest of the partners Higher rate of taxation

 What is a company?

A company can be defined as an "artificial person", invisible, intangible, created by or under Law (Companies Ordinance 1984), with a separate legal entity, perpetual succession and a common seal. Kinds of Companies:
A Single Member Company- Only one member
Private Company- Minimum two, Maximum fifty Public Company: Un-Listed Minimum three , Maximum no limit Listed- Minimum Seven, Maximum no limit

 Advantages: Separate Legal Entity Separate from its members

Perpetual Existence It is not affected by the

death, insanity or insolvency of an individual member.

Limited Liability As per Memorandum & Articles
Transferability of Shares- Easy transfer of shares

Disadvantages: Higher Rate of Taxation Owners have little to say in the affairs of the business. To meet deadlines for Statutory Compliance.

Factor

Sole Proprietorship
Easy

Firm/Partnershi Company p
Difficult More Difficult

1. Formation 2. Liability 3. Risk & Cost 4. Profit 5. Finance 6. Taxation

Unlimited Not Shared

Unlimited Shared

Limited Shared

Enjoy Whole Profit Very Limited Low rate

Shared

Shared

Limited Moderate

No Constraint High rate

Promoters Conceive a Business Idea and Decide the Type of the Company i.e. Single/ Private /Public Company Application for availability of name Certain Companies are Required to take prior Approval from Relevant Ministry /Department Submission of 4 Copies of Memorandum and Articles of Association with CRO duly signed by each member in the presence of witness with CNIC Copies of each