WHAT IS A SOLE TRADER?
A sole proprietorship also known as a sole trader/sole owner, or simply proprietorship is a type of business entity which is owned and run by one individual and where there is no legal distinction between the owner and the business. All profits and all losses accrue to the sole owner (proprietor / trader). All assets of the business are owned by the owner (proprietor / Sole trader)and all debts of the business are his/her debts and he/she must pay them from their personal resources. This means that the owner has unlimited liability. It is a “sole” proprietorship in the sense that the owner has no partners (partnership).
This is the most straightforward structure for a business. Basically it means the business decisions are being made by one person. Of course, it doesn’t necessarily mean that the business has only one worker. The sole trader can employ others to do any or all of the work in the business.
A sole proprietor may do business with a trade name other than his or her legal name. This also allows the proprietor to open a business account with banking institutions.
WHAT ARE THE ADVANTAGES OF FORMING A SOLE PROPRIETORSHIP IN PAKISTAN?
The main advantages of a sole proprietorship (sole ownership) are that:
- Sole Proprietorships are easy to start up
- Sole Proprietorship are subject to fewer regulations relative to other types of businesses,
- the Sole Proprietorship owner has full autonomy with regard to business decisions,
- Sole Proprietorship are easy to discontinue as well.
- Another significant advantage is that one takes all the profits of the business. This is the main reason that most businesses are of this type.
- A sole proprietor usually has a quick decision process and doesn’t have any opposition when making a decision as he / she has total control of his or her business. All profits and losses accrue to the owner.
- The owner does not have the tension regarding conflicts among the partners as there are no partners. Also it’s easy to set up, with having little paper work to fill in and little money spent on setting up, this is one of the easiest types of business to start.
WHY THIS TYPE OF BUSINESS?
- This type of structure is ideal if the business is not complicated, especially if it does not require a great deal of outside capital.
- There isn’t much paperwork in establishing this type of structure.
- You don’t want to use your own name and would like to create a brand name. (See also Trademark registrations under intellectual property).
- There are less stringent reporting obligations compared with other structures.
- Sole Owner/Trader is entitled to all the profits and the ownership of assets.
- Sole proprietorship’s are relatively straightforward to wind up.
DOES WORKING AS A SOLE PROPRIETORSHIP HAS ANY DRAWBACKS?
There are a number of disadvantages because of which such forms are finally transferred to better structures such as partnerships and limited liability companies which include:
- Sole Owner/Trader is personally liable for all debts.
- Personal property may be vulnerable for debts, other business liabilities and/or revenue department payments.
- Large sums of capital are less likely to be available to a Sole Owner/Trader , and Sole Owner/Trader may have to rely more on overdrafts and personal savings. Thus increasing his or her cost of borrowing and less rate of return.
- A business may require enormous investments of time without the normal employee recreation leave and other benefits. Sole Owner/Trader being the only beneficiary is also on the other hand the only person standing to bear the losses.
- There may be issues of continuity of business in the event of death or illness.
- A business organized as a sole trader will likely have a hard time raising capital since it has to make up for all the business’s funds. The owner of the business has unlimited liability as he/her is responsible for the business’s debts because she/se has control over the business.
- A disadvantage of a sole proprietorship is that as a business becomes successful, the risks accompanying the business tend to grow. To minimize those risks, a sole proprietor has the option of forming a corporation, or, a partnership to mitigate such risks.
- Sole Owner/Trader may have only one specialist skill therefore it may hamper diversification of the business.
- Sole Owner/Trader may have the investment but lack the time and resources to look completely into the management of the business.
ARE THERE WAYS OF LIMITING THE LIABILITY OF BUSINESS, SOMEHOW?
Yes, Talk to our attorneys, lawyers and accountants working at Masood & Masood specializing in business formation about the legal ownership of personal assets or the use of trusts to limit liability and reduce tax burden.
For instance, the family home may not be exposed if it is in the name of your spouse — you must get legal advice before you do this, because there are other consequences, especially if the spouse dies or you divorce. Also, you may not be able to do this if your sole purpose is to avoid a creditor.
HOW IS A SOLE OWNER/TRADER TAXED IN PAKISTAN
A sole trader pays tax in their own right, as part of their personal income tax return at the personal rate of income tax.
A sole proprietorship is not a corporation; it does not pay corporate taxes, but rather the person who organized the business pays self employment taxes on the profits made, and files his or her tax returns under section 114 of the Income Tax Ordinance, 2001.
A sole proprietorship also does not have to be concerned with double taxation, as a corporate entity would. Better Tax Planning before commencement of business can significantly reduce/manage the tax burden on the business such as you may be able to deduct tax losses from personal income.
Masood & Masood specializing in business formation and better prompt tax planning to help secure you a prosperous business. we may be assist you in the following:
Pre feasibilty study
Accountancy Support (How to maintain your accounts)
Business name registration
Legal aspects of succession planning
Tax implications as a sole trader
Do let us know and we will be pleased to assist you.
Comments on “Sole Trader/Sole Proprietorship in Pakistan”
I am interested in openning a software house in Karachi with a minimum investment as i dont have any investors. I was reading about the sole proprietorship business and thought it to be the suitable type for me. I would like to know the process and aproximate cost to set everything up.
Also, what would be the fee for such setup for your firm.
About myself: I am an oversees Pakistani with a Degree in Computer Engineering. I think it is time for me to invest in Pakistan but would like to start something very small as I am myself is an employee and can not afford large investments. I was reading on the net and came across your website.
I hope to listen from you soon.
Engr. Mohammad Adnan Gangat.
Dear Mr. Adnan Gangat,
We are pleased to know that you have chosen M&M to start your IT related business.
You will only require to be registered with the tax department and you can register your business name with IPO.
To complete the above two M&M will charge you Rs. 10,000/- excluding out of pocket expenses which will be billed at actual. Out of pocket expenses can range from five to ten thousand pak ruppees.
Once you give us the go ahead we will generate an invoice in your name and let you know the exact expenses and documents required.
M&M hopes to be a winning partner in your business endeavours.
Sir plz tell me some names of sole ownership business (famous only), and the business’s web address, i need for my assignment….thanks in advance.
I am working in a company and interested to start a side business. Can I start sole proprietorship business with trade name using my personal NTN?
Many name is Iqbal Yousaf Khan and I want to start Export business from Pakistan. The main Items I want to export from Pakistan is “Herbal Medicines”. I want to know flowing mainly:-
1- What is the procedure to register such a company who wish to start export business of Herbal Medicines
2- Advice the main Govt. Formalities for the registration of Sole Proprietorship based company.
3- Govt. Departments / Local bodies certification/ registration
4- Financial Charges of MasoodNMassood
5- Fee of each department involved to get register the Herbal Based Medicines Export.
Your quick answer will be highly appreciated.
Many Thanks & Regards
Iqbal Yousaf Khan
0307 444 11 49
Your Questions are too specific to be answered on this public forum.
You may contact Mr. Hasan Masood, Partner (firstname.lastname@example.org) regarding the same.
We are also intimating this to Mr. Hasan who will be responding to you soon.
In pakistan i am started my own website but i want to make it huge like a busniess name i want to register as a busniess so please help me how can me do this
Assalam o Alaikum!
I m from Khushab and i want to trade forex online with some international broker like http://www.fxcm.co.uk . I need to open a foreign currency account with my local bank to send my funds abroad(UK). But bank says i should have a business to open such account which i don’t have I m just a student. Then I thought I should register a business of “individual forex trader” in my own name and then apply for foreign currency account with bank. Forex trading is highly risky investment please let me know should I be charged tax even if suffer loss. Please tell me what are your fees for my case and what are expenses for registering my name as an individual online forex trader. Let me clear that I shall not take investment for trading from anyone I want to be registered as an individual trader who trades forex from his own funds with the help of a forex broker.
Thank you in anticipation.
Sir my name is M.Noman khan. i have done BBA and now planning to do a business.
i m planning to open a fitness gym in karachi defense phase 2 EXT area, definitely in sole proprietorship. i would like to know that what are the legal procedures and requirement for it?
Sir, I want to know that I have started a company and the company with the same name exists in Japan and Korea. I didn’t realize that but after getting my company’s URL on .com domain i found the same named company registered in .jp and .kr domains. If i continue the company would it be alright or will cause difficulty in future.
I’m currently blogging for a (poor) living for someone else… but I like it. You’ve inspired me to keep doing it, and look to doing it for myself soon
i m going to start a small size busniess i want it register can you please tell me in detail the cretaira,time it will take and charges for registration
M Muneeb Ullah
My name is Hassan Abid.I want to open a sole Proprietorship business, i know this information.please gide me some more abot these procedures & registration of Sole business.
i. Decide on and select a Business Name;
ii. Print Letter Heads, envelopes and your business/visiting card;
iii. Write an Account Opening Request to your Bank, stating that this is your business and you are the sole proprietor of it;
iv. Open an account at a local bank’s branch close to you;
v. Next request the bank to issue a letter stating that this is your account and business;
vi. Submit the bank certificate and your application with the Tax Authority i.e the FBR (Federal Board of Revenue) Federal Board of Revenue (FBR) formerly known as the CBR Central Board of Revenue;
vii. If you are on a job, you already have a NTN (National Tax Number) – the same NTN will be used for your Sole Proprietorship status.
viii. Once the status is added, you are a registered legal entity.
With thanks & Regards.
0333-4183227 ( Hassan Abid )
Alrready repled vide email.
Hey, i am interested to open a small software house as a Sole Proprietor in Lahore. Please guide me what should i do? which offices i would have to visit to finally get my software house register. thank you!
I am planning for organizing a n international event on my own which definitely needs a legal identity. is this possible for a sole trader? and what other legal requirements i will have to fulfill in order to start my business? initially i will be having less capital and approximately what cost i will have to bear for starting up the procedure?
please give me response as soon as possible and if possible so mail it on my personal id.
Dear Hassan Masood Sahib, AoA
Please let me know that can any foreigner do a sole proprietorship business as he/she also have the same kind of in another country.
Your early response will be highly appreciated.
Syed Sajjad Hussaini
I intend to offer interpretation services simply over-the-phone or internet. Apparently, I can work as a sole proprietor for this purpose.
However, I have a legal concern. What if a client contacting me for my services has committed a crime, and from his phone records it is shown that he has been contacting me. How can I prove, as a sole proprietor, that I am simply offering a over-the-phone service and got nothing to do with him personally?
In such a scenario, what legal measures (i.e. form a single member company) should I adopt to protect myself?
It will be very kind of you to give it a thought!
I want to register as a Sole Proprietor in Rawalpindi, i am running a website development business, its a one man show and i am doing it in my house which is a rented place. i have following questions.
Q1. If i register with FBR, will the Gas and Electricity bill of the house become commercial.?
Q2. Do i need an NOC from the owner of the house.?
Q3. Will i be able to change my address in FBR forms, if i shift the business to any-other place/shop.
Q4. Will i be able to change the nature of business to Pvt.Ltd afterwards?
Q5. Do i need to register for Income Tax only OR also for Sales Tax also,?; as i make banners for local companies.?
Q6. How can you assist me in all this, and what will be your fee for registration NTN and GST.
Q7. You are in Karachi, how can you help me in Pindi.?
Q8. What are the chagres of FBR/CBR etc. for this process.?
Answered Via Email.
DEAR M & M,
First of all, great work & thank you for being available online.
Please mention a “step by step procedure” to get a sole proprietor firm registered in one’s name for all cases possible.
Thanks & Regards,
Hasan M. A. Q.
It would depend on the type of business and area of business for determining requisite registrations.
Is Sole proprietor is responsible to deduct income tax on taxable salaries of his employees or employees are responsible to pay tax directly to fbr?
Yes,every employer has to deduct and deposit in govt treasury.
I am based out of Islamabad and I need your services in registering a sole proprietorship for my IT/web consulting business. We make websites and provide consulting services to generate business on social media to our clients.
I have the following questions similar to what Mr. Wajid Ali asked in the comments on your blog.
1. Will i be able to change the nature of business to Pvt. Ltd afterwards?
2. How can you assist me in all this, and what will be your fee for registration NTN and GST.
3. You are in Karachi, how can you help me in Islamabad?
4. What are the charges of FBR/CBR etc. for this process?
5. Is there anything else I should know before proceeding with this?
Please help with the questions.
Replied Vide Email
I need to start an export business as sole proprietorship. I already own NTN and till now my only taxable income is from salary which is duly deposited against this NTN. My questions are
1- Can I use same NTN for starting sole proprietorship business?
2- Whether it is necessary to trademark a business name for sole proprietorship?
3- What kind of documents are required to registration with SECP?
4- What further documentations are required for starting such business?
5- Guidelines for formation of books of accounts (tax purpose)
6- And lastly fee for your services?
These are specific questions that may not be be answered on this portal. Therefore, below you can find my contact details.
Kamran P. P.
Replied Vide Email.
Dear Mr. Masood
Is a sole proprietor always legally required to 1) register his business, 2) get NTN and 3) get Sales Tax number, or do these become compulsory only if he earns a certain amount during the past one year?
I am asking this because I was wondering whether it was legally permissible for me to avoid going into all the registration/tax hassles from the very beginning, and to just start a business, see how it runs for a year and then if it satisfied the criteria for registration and the payment of taxes, only then register it and get NTN etc.
Also, please let me know the criteria which would make a sole proprietor legally obliged to perform the above three processes (1) registration of business, 2) getting NTN, 3) getting sales tax number).
I was searching for some help for my new start up and came across your website. I have been working as Freelance developer and now want to work under a registered company and have NTN. I have no invester no capital. I have few queries.
1. Can I use my personal NTN for my company too?
2. Should I go to sole proprietership or Pvt limited is better choice at start of the business.
3. One some later stage can a sole proprietership be coverted to Pvt limited.
M&M great job. I need to start an multipurpose consultant plus export business. Would sole proprietorship work for me as I donot have investors nor any capital in initial stage for setup. I withdraw salary but have no idea about my NTN number. Maybe I have one as I am working (which I shall confirm from the boss) but can I register for the similar or new NTN #? My questions are
1- Can I use same NTN for starting sole proprietorship business?
2- Whether it is necessary to trademark a business name for sole proprietorship? If yes, How do we do it and what is its cosT?
3- What kind of documents are required to registration with SECP and what are its prerequisites?
4- What further documentations are required for starting such business?
5- Shall i get it registered with fbr or secp i.e. as sole proprietor or otherwise?
5- Guidelines for making bank account for online transactions i.e over the internet payment.
6- And lastly fee for your services?
I shall be very thankful to you for your valuable feedback.
I want to know about the procedures of opening a sole proprietor business in Karachi. How to register as a Sole proprietor what major concerns and things are required, could you let me know about the whole process.
Assalam o Alaikum
I recently started as a free lancer. I DO have an NTN but i do not want to get into the hassle of registering a business name with FBR. Can i simply claim my income and work related expenses on my tax return without business name?
Dear Masood / concerned,
Here are some brief facts and background:
I want to start a distribution business as a Sole Proprietor. Presently i am a residing in my parents house in Rawalpindi since coming back to Pakistan in August 2013. I have non resident status for tax year 2012-13 but i realize that i have to change my Non resident NTN from RTO Rawalpindi to a resident. I want to use my parents house in Rawalpindi for establishing the sole proprietor business but the distribution business opportunity i am getting is for Islamabad Capital Territory. i.e. Sole Proprietor business address would be in Rawalpindi but distribution godown would be situated in Islamabad.
Need consultation regarding some of the questions i have regarding start of business;
Q1. As the distribution godown will be in Islamabad Capital Territory, should i register with RTO Islamabad or keep it with RTO Rawalpindi with just an application for change of Non resident status?
Q2. Can i engage in distribution business in Islamabad, while i am registered with RTO Rawalpindi. Who will be dealing with my tax matters, RTO Rawalpindi or RTO Islamabad will also be involved due to jurisdiction issue?
Q3. As i intend to use my parents home in Rawalpindi for sole proprietor business in RTO Rawalpindi, will the Gas and Electricity bill of the house become commercial?
Q4. Do i need to register for STRN also?
Q5. Do i need to prepare a Wealth statement as at June 30, 2013 for sources of funds?
Q6. How can you assist me in all this, and what will be your fee for registration NTN, STRN and Wealth statement, if required. Please quote separately for each service?
I want to know about Sole Proprietor Profit and loss statement does the depreciation expense of building and equipment will charge profit and loss account. When the building is in the name of Proprietor/Owner. though he file wealth statement.
Please help me.
As far as i think depreciation expense will not show in profit and loss statement due to the building is in the name of Proprietor/ Owner and is responsible for the building and taxes related to building. This building is not in the name of Company.
Please correct me if I am wrong.
My name is Ali Hassan. I have a fast food outlet in Islamabad/Rawalpindi. I want to register my business as a sole proprietor and would also want to have my fast food name and/or my logo secured.
Please tell me the specific requirements and costs associated with each stage mentioned above. Also confirm if registering a business and registering a brand name or logo are two different things and what are their importance.
previously i was employed as a senior executive in an MNC. I do have an NTN. now i have left that job and currently freelancing as a management consultant. i want to establish my own consulting business entity as a sole proprietorship.
generally on the assignments that i undertake the client deducts 6 to 7% tax before payment. if i establish my own business, what would be the tax rate ? the tax that the client deducts, is hat the final tax liability or is it something else? i understand that FBR will use my personal NTN and issue a number with an additional digit. is that correct?
i am proprietor in asif traders and i am working under the name and style of asif & company.my ntn is registered with asif traders and i am doing business with name of asif & company.i just want to know is it legal with different
I am going to start a registeration of sole trader company for bulgaria country, can you please tell me in detail the cretaira, time it will take and charges for registration.
Tarique Hussain Mangi
Hi .. can one person hold two sole proprietorship firms to his name ?
Sir I want to know is their any example of a business that started as a sole proprietor and changed to a complete business setup?? can u give any name??
I am a salaried individual and pay tax over that using my CNIC #. Now, i want to get NTN for me. What is your fees for NTN registration and NTN certificate.
And what documents should i need to submit. And i have 3-4 bank accounts but there is no material transaction in 3 bank accounts. Only 01 bank account has transactions due to salary credit each month from employer.
great comment nice sharing
My uncle having a sole proprietorship business died in Aug-2014. Wanted to know the formal procedure for closure of business and whether a tax return is required to be submitted. He has no children. Thanks.
I have registered the NTN with the name of Fahad ali (personal name) but now i want to register NTN My proprietorship name Fahad & Sons.
what,s documents are required to change the name or new registration?
What’s are your charges ?
how can i close a sole proprietorship company?
Email on email@example.com for technical legal matters.
Dear Sir , Can you guide me that a sole proprietorship can enter into contract with government for execution of projects or other assignments ? as required proper registration by the companies/organizations while doing so.
I want to start a company single man for internet services providing
like Article publishing.
and the producer required. in Pakistan Lahore.
asalam o alikum masood m rehman i need some information regarding advertising company .i am a sole properiter. i wana start this business plz help with these questions
i want know about
how i can register my company
whats the procedure for running my company like legal requirements
and tell me about this business regarding law
we have our own business setup in dubai in which we deal in any kind of business license and we authorized in ajman free zone we want to open the branch office here in Karachi Pakistan and also we will do export business in the same office.
what will be the procedure and from where we have to be registered and what kind of documentation we have required
Please let us know with your fee as well.
Thanks and Regards
I already have an NTN and running a sole properitership bussiness. How can i start another bussiness under same NTN.
I want to register as sole proprietor,single member company
(sme) to start homemade soap products on small size in my town
(near to burewala city) vehari.
I have some questions.
Q1.I was reading about the sole proprietorship business and
thought it to be the suitable type for me?
Q2.I would like to know the process and approximate cost
to set everything up.Also, what would be the fee for your
firm .(including SECP charges)
Q3.And also your charges to register for the income tax and
Q4.How long your firm take for procedure?
Q5.Can u assist my company for taxation?How much will you
charge for your service?
I hope to listen from you soon.
imtiaz ul hassan
I want to start my business as a sole proprietorship, kindly guide me about the procedure & fee for registration which you are charge…
i want to start my business as sole propriter with name SUFIAN & BROS. i want to need your help in this regard. what are the necessary documents and Govt approvals required.
I want to register a business based in Islamabad, as side business in addition to my job.
– How and where can I register my business?
– What will be the cost of registering the business?
– Do I have to declare some paid up capital and how registration fees depend upon paid up capital?
– What if I don’t do any business activity under this name? Can it create problems in satisfying tax authorities?
Waiting for your kind reply.
Good Morning Sir,
I would like to know the information regrading registering as business as sole proprietorship.There for i need all details regarding registering Business what documents are required,Fees,Process time and i need your services to complete all this process. kindly assist me in this thanks Regards Yasir
My name is m.yousuf memon . i want to start a business as trader to sell generator and utilities services of other companies on commissioning basis in Karachi. I want to start as sole trader/sole owner with name as MEMON POWER SYSTEM (MPS). Please mention a “step by step procedure” to get a sole proprietor firm registered in one’s name for all cases possible.
M. YOUSUF MEMON
Very helpful!! Thank you.
Dear Team ,
I am Non Resident Pakistan having small scale business out side Pakistan. Now, I am planning to established small scale business of Intending, said business shall deal with its foreign clients and provide its service out side Pakistan as a commission/brokerage agent and against its services company will charge its clients or generate its invoices in U.S Dollar. Furthermore, that company will not take a part in any trade whatsoever within Pakistan, to Private or public sector.
In this regard , we solicit your expert advise for the following :
1) Can we establish this company as a Sole-Proprietor?
2) Can we easily generate our invoices in US Dollar without any trouble?
3) Can we able to open-up Bank account in the name of Sole-Proprietor with Foreign Currency.
Please email to firstname.lastname@example.org for response
My name is Talha Saeed. I had registered my sole-proprietorship company as an exporter. Can I also sell in the local market or on social media platforms? is there any additional registration required?
Please guide me.
Yes, you can sell. For further info contact email@example.com