Starting a Business: Legal Requirements You Must Know

Learn the legal steps and documents required to start your business.

Starting a business is an exciting venture, but it comes with significant legal responsibilities. Whether you're launching a startup in Pakistan, the UK, or planning to operate in both countries, understanding legal requirements from the beginning prevents costly mistakes and sets your business up for long-term success.

Choosing Your Business Structure

Your business structure affects taxation, liability, and operational flexibility. Common structures include:

In Pakistan

Sole Proprietorship: Simplest structure where you are the business. Easy to set up but you have unlimited personal liability for business debts.

Partnership: Two or more people share ownership. Governed by Partnership Act 1932. Partners share profits and have joint and several liability.

Limited Liability Partnership (LLP): Partners have limited liability protection. Governed by LLP Act 2017. Good for professional services.

Private Limited Company: Separate legal entity with limited liability for shareholders. Must be registered with SECP (Securities and Exchange Commission of Pakistan). Most common structure for small to medium businesses.

Public Limited Company: Can sell shares to public. Stricter regulations and reporting requirements. Subject to Listed Companies (Code of Corporate Governance) Regulations.

In the UK

Sole Trader: You run the business as an individual. Simple tax returns but unlimited personal liability.

Partnership and LLP: Similar to Pakistan, with partnerships having unlimited liability and LLPs offering limited liability protection.

Private Limited Company (Ltd): Most popular structure. Limited liability, must be registered with Companies House. Subject to Companies Act 2006.

Public Limited Company (PLC): Can offer shares to public, minimum capital requirements, stricter regulations under UK listing rules.

Business Registration Requirements

Pakistan Registration Process

Name Reservation: Search and reserve your business name through SECP's online portal. Names must be unique and not misleading.

SECP Registration: File incorporation documents including:

• Memorandum and Articles of Association
• Form 1 (particulars of directors and registered office)
• Form 21 (declaration of compliance)
• Required fees

National Tax Number (NTN): Register with Federal Board of Revenue (FBR) for tax purposes.

Sales Tax Registration: If turnover exceeds threshold or dealing in specific goods/services, register for sales tax.

Provincial Registrations: Depending on your business, you may need:

• Punjab Revenue Authority (PRA) registration
• Sindh Revenue Board (SRB) registration
• Other provincial tax registrations

UK Registration Process

Register with Companies House: Online registration typically completed within 24 hours. You'll need:

• Company name
• Registered office address
• At least one director and shareholder
• Details of share capital
• Memorandum and Articles of Association

Register for Corporation Tax: Must register within 3 months of starting business. Done through HMRC.

VAT Registration: Required if turnover exceeds ??85,000 threshold (2024), or voluntary if below.

PAYE Registration: If employing staff, register as an employer with HMRC.

Business Rates: Register with local council for business premises.

Essential Licenses and Permits

Depending on your industry and location, you may need specific licenses:

Pakistan

• Trade License: From local municipal corporation or cantonment board
• Import/Export License: For trading businesses
• Food Authority License: For food businesses (Punjab Food Authority, etc.)
• Drug License: For pharmaceutical businesses
• Environmental Clearance: From provincial EPA for manufacturing
• Professional Licenses: For medical, legal, engineering services
• Industry-Specific Permits: Banking, telecommunications, etc.

UK

• Trading License: From local council for certain businesses
• Food Hygiene Registration: For food businesses
• Alcohol License: For selling alcohol
• Music License: For playing music in business premises
• Waste Carrier License: For waste management businesses
• Professional Registrations: FCA for financial services, Care Quality Commission for healthcare, etc.

Employment Law Compliance

Pakistan

Labor Registration: Register with provincial labor department if employing 10+ workers.

Employment Contracts: Written contracts specifying terms, conditions, wages, and benefits.

Social Security: Register with Employees' Old-Age Benefits Institution (EOBI) and Provincial Social Security Institutions.

Workers' Compensation: Compliance with Workmen's Compensation Act 1923.

Minimum Wage: Comply with provincial minimum wage notifications.

UK

Employment Contracts: Must be provided within 2 months of starting work, detailing terms and conditions.

National Minimum Wage: Ensure compliance with age-appropriate minimum wage rates.

Workplace Pension: Auto-enrollment for eligible employees.

Health and Safety: Comply with Health and Safety at Work Act 1974 and relevant regulations.

Anti-Discrimination Laws: Equality Act 2010 protects employees from discrimination.

Intellectual Property Protection

Protect your business assets:

Trademarks: Register your business name, logo, and brand with IPO-Pakistan and/or UKIPO to prevent others from using them.

Patents: Protect inventions and innovations through patent registration.

Copyrights: Automatic for original works, but registration provides stronger evidence of ownership.

Trade Secrets: Use confidentiality agreements (NDAs) to protect proprietary information.

Insurance Requirements

Mandatory Insurance

• Workers' Compensation: Required in many jurisdictions for businesses with employees
• Employer's Liability Insurance: Mandatory in UK for most employers
• Vehicle Insurance: If using vehicles for business

Recommended Insurance

• Public Liability Insurance: Covers claims from customers or public
• Professional Indemnity: For professional services businesses
• Property Insurance: Protects business premises and assets
• Business Interruption: Covers loss of income due to disruptions
• Cyber Insurance: Increasingly important for all businesses

Data Protection and Privacy

Pakistan: Personal Data Protection Bill (when enacted) will govern data protection. Meanwhile, follow best practices for customer data security.

UK: UK GDPR and Data Protection Act 2018 impose strict requirements for handling personal data:

• Register with Information Commissioner's Office (ICO) if processing personal data
• Implement appropriate security measures
• Have privacy policies and procedures
• Appoint Data Protection Officer if required
• Report data breaches within 72 hours

Financial Compliance

Business Bank Account: Open a separate business account to maintain clear financial records.

Accounting Records: Maintain proper books of accounts as required by law. In Pakistan, retain for 6 years. In UK, retain for at least 6 years.

Annual Returns: File annual returns with relevant authorities:

• SECP annual return in Pakistan
• Companies House confirmation statement in UK
• Annual tax returns in both jurisdictions

Audit Requirements: Depending on size and structure, you may need annual audits by qualified auditors.

Contracts and Agreements

Have properly drafted legal documents:

Partnership Agreements: If operating with partners, clearly define roles, profit-sharing, decision-making, and exit procedures.

Shareholder Agreements: For companies with multiple shareholders, establish rights, responsibilities, and transfer restrictions.

Customer Contracts: Terms and conditions for your products or services.

Supplier Agreements: Contracts with suppliers and vendors.

Employment Contracts: Clear terms with all employees.

Confidentiality Agreements: To protect sensitive business information.

Ongoing Compliance

Running a business requires ongoing legal compliance:

• File timely tax returns and pay taxes
• Maintain statutory registers and records
• Hold required board and shareholder meetings
• Update registrations when changes occur
• Renew licenses and permits as required
• Stay informed about regulatory changes
• Maintain corporate governance standards

Common Legal Pitfalls to Avoid

Operating Without Proper Registration: Can result in fines, penalties, and inability to enforce contracts.

Ignoring Employment Laws: Labor disputes and penalties can be costly.

Inadequate Contracts: Verbal agreements or poorly drafted contracts lead to disputes.

Neglecting Intellectual Property: Failure to protect IP can result in loss of brand value and competitive advantage.

Mixing Personal and Business Finances: Compromises limited liability protection and complicates taxes.

Non-Compliance with Tax Requirements: Can result in penalties, interest, and legal action.

Conclusion

Starting a business involves navigating complex legal requirements, but proper compliance from the beginning protects your venture and sets the foundation for growth. Whether launching in Pakistan, UK, or planning international operations, understanding and meeting legal obligations is not optional???it's essential for success.

Our business law team helps entrepreneurs and companies with all aspects of business formation, registration, compliance, and ongoing legal needs. From choosing the right structure to drafting contracts and ensuring regulatory compliance, we provide comprehensive legal support for your business journey. Contact us today to discuss your business plans and legal requirements.