Private Firm – A private firm is registered under the Private Firm Registration Act of 1958. As per Section 5ka of the act, the registration renewal and other administrative tasks of a private firm should be as per the respective provincial laws. Hence, respective provincial laws should be considered for the registration of private firms.
A private firm is not a separate legal entity. You may have encountered this term a couple of times. It's really not that complicated. That simply means that you and your firm are considered as one person. You might have noticed that when you go to the IRD to register PAN for your private firm, your personal PAN is converted into Business PAN. When you get a loan for your private firm, it's you who is borrowing the loan. So it's your liability to repay the loan because you and your firm are essentially the same persons.
Okay, now that we have got that out of the way let's discuss if this is right for you. Registration of a private firm is simple. You have to go to the registering authority as per the respective provincial law, which might be your ward office or Gharelu Office or Department of Commerce. So if you are the only person doing the business and it's not a big enterprise, you can go for private firm registration. The advantage is that it's simple, less costly, and comes with very little compliances. If your business grows and you want to convert it into a Pvt. Ltd company, you can do it as well. Let's talk about some disadvantages. As it doesn’t come with many compliances, there is not enough monitoring from a government authority for these firms. You might think of it as a good thing, which it is, but also banks don’t trust you much, the public doesn’t trust you much, investors won’t trust you at all. If you want to get funding from investors, registering a Pvt Ltd company is a must, banks prefer Pvt Ltd companies over private firms for funding. If you don’t intend to raise loans or funding or don’t care about public vision as much, definitely go ahead with private firm registration.
Pvt. Ltd. companies – You can get a lot of articles explaining Pvt Ltd companies on the internet, let us not bore you with the basics. If you are here, you probably know about the basic composition of Pvt Ltd companies. Okay, let's discuss it quickly. Registration and administration of companies are done by the Office of Companies Registrar, commonly called the OCR. It is a central authority for the registration of companies, unlike private firms which are province-based. It has more compliances and a better reputation. Transfer of Shares is easy. There are fewer chances of disputes and so on. Should you register a company? If you have more than one partner, it might be better to register a company to avoid future disputes. We have encountered multiple cases where multiple “partners” had disputes amongst each other and where they sold their shares and left the company. It would not have been such an easy process for a private firm. We generally recommend registering a company if there are multiple partners (who would be technically called “Shareholders” if they register a company), if there is a huge room for growth, or if the firm has a “Startup” model i.e. it intends to raise funding from investors, if you are engaged in Export or Import or a business of a nature which has to have some kind of public trust for e.g. Education consultancies.
So analyze your requirements and give us a call for a free consultation. We would be happy to help you.
