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Knowledge Base Articles

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The Companies Act, 2017 was a much-needed update to the company law in Pakistan. At around the same time, the Securities and Exchange Commission of Pakistan (“SECP”) introduced electronic filing of corporate documents and forms. Although the Electronic Transactions Ordinance 2002 (“ETO 2002”) has long since provided for electronic signing and authentication of documents, however, a proper online portal was not launched until the new company law came along.

Launched on 31 March, 2017, the SECP “eServices” management portal is a 24/7 online system which allows users to carry out all corporate filings of forms and documents, incorporate new companies, amongst many other company-related tasks in order to fulfill the requirements set by the Companies Act, 2017 and various Rules / Regulations of SECP. The system is linked with the Company Registration Offices (CROs) across the country, so local applications are processed by the local offices concerned.

The portal has simplified corporate processes and procedures by providing ease of access to the public. SECP has lowered its fees for eServices in comparison to physical / manual (offline) filings to encourage people to use eServices. Therefore, with eServices there is no longer a need to physically go to the nearest CRO to do company filings and submissions or bring witnesses and their documents.
The eServices portal provides for a list of available “Processes” through which companies can the file required forms, returns and applications. The Processes are shown as available or unavailable depending on whether any initial Process has been completed (e.g. after submitting a name reservation application which is usually first step for any new user, the Company Incorporation will show up as an available Process). If it is a new account, the eServices portal will only show the initial options: company name reservation and the combined process application

If a Company has been added, the status of SECP filing requirements at that time will determine what Processes will be available.

The eServices account may be that of a primary user (applicant, directors/subscribers), a secondary user (authorized intermediary or company officer).

At the time of filing any form, return or application, the initial form has to be filled and saved, after which the portal moves on to a “Process Document Listing” page setting out the required documents / links to be filled (options to sign forms, upload attachments, Bank Challans etc.). When all links are saved, a “Sign Form” or “Submit Process” becomes available and the form / application can be submitted. Each Submitted Process will only be carried out by SECP CROs after the applicable payment is confirmed.
Ever since its launch in 2017, the eServices portal has improved and become easier to use. The SECP has removed certain inefficiencies in the process (removal of extra fields in non-statutory forms, streamlining processes, removal of NIFT fees and related procedures). This is why almost 90% of all company registrations are now done online through SECP’s eServices.

Importantly, the SECP has raised filing fees for manual (offline) submissions on purpose so that online filing now costs half as much as manual submissions. Online filing also does not require witnesses (as documents are authenticated electronically) or CNIC of witnesses, or subscriber letter of authority for filing, so extra submission of documents is avoided. With this ease of access, personal appearance before the CROs is no longer required. Most importantly, eServices have a much faster and cheaper turnaround time for filing and registration procedures.
  1. Persons who incorporate a Company are known as “promoters” and “subscribers” of shares of the Company – as they are obligated under the MOA to subscribe to the shares of the incorporated Company. On payment of the subscription amount, the subscriber becomes a shareholder of the Company. The Company is legally required to issue should ensure that each subscriber is issued a share certificate stating the number and class of shares that he/she owns.
  1. After creating an eServices account, the first step for incorporation is to reserve the name of the company, the application for name reservation costs PKR 200/- when filing through eServices (PKR 500/- for manual filing). Once the application is approved, the proposed name will be reserved for a period of 60 days, during which the next steps towards incorporation must be completed. Name reservation is an important step because a new company cannot take a name which is already being used by an existing company or even something similar (which may raise objection).
  1. The kind of name a Company can used is also regulated by the Companies law for instance no inappropriate or deceptive wording, no words which may be offensive to religion can be used in the company name. For the use of some names prior permission of the SECP is required (e.g., approval or justification is required if you want to use words like “Group”, “Society”, “Council”, “Bahria” or “Askari”). The eServices Process for name reservation provides a helpful link to Section 10 of the Companies Act, 2017 and helpful FAQs and notes.
  1. It is also important to note that if a company name includes a word relating to a type of a specific business (e.g. “construction”, “architecture” or “steel mill”), the principal line of the business (this is a drop-down entry in the eServices name reservation & incorporation forms and the combined form) must also match that word as may cause the Companies Registrar to raise objections if for example a company with the word “construction” in its name is instead an IT company.
  1. After a name availability letter / email is received from the SECP, you can then proceed for registration of the Company – the Company Incorporation Process will become visible on the eServices home page after clicking the entry for the proposed Company.
  1. Fees for company registration depend on the authorized share capital of the company – the higher the value of the authorized share capital, the higher the fees charged. Companies which are incorporated with authorized share capital equal to or less than PKR 100,000, the incorporation fee is just PKR 1,000/- (reduced from PKR 1,800) while for manual filing current fees are PKR 2,000. This is why a large majority of companies are incorporated with authorized share capital not exceeding PKR 100,000/-. The SECP has provided a fee calculator at the following link:
Indicative cost of registration based on authorized share capital of PKR 100,000
Step Cost of registration using eServices Cost of manual submission through CRO
Name reservation fee PKR 200 PKR 500
Registration fee PKR 1,000 PKR 2,000
*Valid as of December 2020. Please check SECP website for current figures.
  1. The SECP also has a Combined Process for both company name reservation and incorporation. This is a faster process compared to applying separately, as the Company’s MOA and AOA are auto-generated –  the “principal line of business” entry on the incorporation form auto-generates the MOA while the AOA is auto generated based on the standard Table A Articles of Association prescribed by the Companies Act, 2017. A company can be incorporated within four hours if everything is to satisfaction of the concerned CRO.
  1. If you file the name reservation and incorporation applications separately (i.e. one after the other), the MOA and AOA are not auto generated and are instead uploaded by the user as attachments. Many people do not use the combined process since it allows them to tailor their MOAs and AOAs as per the need and requirement of their business.
  1. All promoters / subscribers of the Company are required to provide scanned PDF files of their CNICs (front and back) / Passports, mobile numbers and email addresses, while they all MUST have their own eServices account, in order to receive individual PIN. When the main user files the company incorporation form, the details of each subscriber is also entered into the system. These details are then automatically linked with the eServices account of each subscriber in order for each to individually sign the incorporation application with the user PIN.
  1. SECP CROs will only work on Submitted Processes when payment is made and confirmed. Online payment is instant, so it is better to use online-enabled credit or debit cards or through Online Banking.  Paying at the bank will take time and effort and through online payments SECP is notified instantly of payment.
  1. Once a Company is incorporated, the subscribers are known as the first Directors of the Company and they hold office until the first general meeting of the Company, when the first election of directors is held and directors are appointed. The user can even choose which subscriber will be the CEO immediately on incorporation of the Company, which saves time and effort.
  1. All subscribers must “subscribe” (i.e. purchase) the shares of the Company as written in the MOA within forty-five (45) days of the incorporation of the Company i.e. the date of the Certificate Of Incorporation (COI) and report the same to the SECP through eServices. If this is not done, the shares may be cancelled by the SECP and/or the signatory and declarant may face financial penalty of up to PKR 25,000/ (up to PKR 500/- per day).
  1. It is also advisable to get started on registering any intellectual property rights (IPRs) that the Company will do business with, especially trademarks. The process for registering is IPRs is not regulated by Companies law and it is an entirely separate subject of law. If the Company is to own any IPRs, this should be done sooner rather than later to avoid coming up against another user of that IPR or a similar IPR. This will likely risk objection during registration of the preferred trademark.
As already highlighted in the above section, the name reservation process is the first step to incorporating a company. The procedure is very simple and is set out below:

Firstly, the SECP has provided an online search facility through which proposed names can be searched against already registered companies ( This step will save some time, especially if it shows that the proposed name has already been taken.

After creating an eServices account and logging in, the user should click on the “Company Name Reservation” process given under the “List of Processes” heading.

The Company Name Reservation form requires three proposed names in order of priority – if the first name is taken, the Registrar will grant reservation for the second name and so on. The Company’s principal line of business must also be entered (it is a drop-down menu selection). The user can also attach optional documents to support the application (e.g. evidence of registered trademark). If a proposed company name is similar to an existing company, but you would still like to use that name, you will have to get a NOC or a Board Resolution of that other company and upload that as an attachment (in any case, it will be unlikely another company will give this approval). After this form is filled, the user should hit the “Continue” button which will lead to the Process Document Listing page.

At this point, the Challan Form is automatically generated and can be viewed and saved on the eServices portal.

Each link in the Process Document Listing page has to be saved on the portal. Only then will the user be able to click the “Submit Process” button.

On the eService main portal page, the Challan Form can be printed from the “Submitted Processes” link on the left side. This can then be paid at the designated branch of MCB/UBL or through the Online Payment link on the left side of the main portal page.

After payment is confirmed, the user will receive an email about status of the application and if there is a problem (rejection or if there is an objection or further information is required). This name availability letter is usually emailed within 4 working days.

After this step, the user has (60) days to incorporate the Company with the reserved name. If no such Company is formed, the reservation is terminates and others are free to reserve the proposed name.
The Company incorporation process on eServices has become much simpler in recent years, even if the combined process is not used. When filing for company name reservation and incorporation separately, the MOA and AOA are drafted and uploaded as attachments along with subscribers’ CNIC copies or Passport (for foreigners, with additional attestation) and the SECP name reservation letter. After the name reservation process is completed, the incorporation process consists of the following simple steps: On the eServices home portal, the Company Incorporation Process will become visible. You will note that the Company’s name will already be filled (based on the Company name which has been reserved) on the Incorporation Form that will appear. The Incorporation Form requires the following information which is eventually transferred to the actual SECP Inc. Form II application for company incorporation. Subscribers information (whether a Director or a CEO, nationality, CNIC and other personal information); The current accounting period (quarterly); Details of nominee (relation of the applicant); Registered address or correspondence address (if there is currently no registered office for the Company) and details of the nature of the office (commercial or residential); Business activity information (i.e. principal line of business drop-down menu), holding company, capacity of applicant / subscriber, and special business information (if Company is regulated by any other authority, approval / NOC letter is required); Capital Structure (class of shares, the per value share, the authorized and paid-up capital); Details of Declarant and Signatory (the applicant / subscriber). The Incorporation Form can be completed in one go or updated later and the Continue button can be selected. At this point the Process Document Listing page will show following links which must be filled and saved: Officer additional information (about subscribers and their positions in the Company); a brief company profile; the Inc. Form II application with entries carried over from the Incorporation Form; Attachment link for above-noted documents in PDF format; and Bank Challan. The Sign Form option will then be activated after all links are saved and attachments uploaded. The user and every other subscriber of the proposed Company must then log-in to eServices and sign the Form by entering personal PIN. No witnesses are required for online filing as the PIN will “authenticate” signing of the actual Inc. Form II and the MOA and AOA of the Company. After the process is submitted, a process reference number will be provided and this should be printed for future reference. At this point, the Bank Challan can either be printed from the “Submitted Processes” link on the left side and paid at the designated bank branch, or if online payment was selected, the Online Payment link should be selected and payment made accordingly. After the Incorporation Process has been submitted and payment made, the application is sent to the relevant CRO for further processing. The main primary address of the applicant receives an email about status of the application and if there is a problem (rejection or if there is an objection or further information is required). After the evaluation of documents by SECP, the Certificate of Incorporation is dispatched to the Company’s registered / correspondence address within 7 working days. After the Company is incorporated, the subscribers are bound to pay the subscription money amount to the Company’s bank account in return for their shares as specified in the MOA and the Incorporation form. The Form 1 – “Receipt of Subscription Money” form must be filed together with a certificate from a chartered accountant or cost and management accountant certifying that the subscription money has been received. If this requirement is not complied with, the subscribed shares may be cancelled by the SECP.

Signing up for SECP’s eServices system is a simple and easy process. However, a new user MUST have an authenticated mobile phone number which is linked to NADRA’s CNIC database – this NADRA linkage is done automatically by biometric verification at the time of receiving a SIM card for a mobile number. 


The sign-up process for eServices is as follows:


  1. On the eServices website, the option to sign up as a new user is given on the right-hand side, either as a Pakistani national or as a foreign national. 


  1. The User Registration Form is required to be filled and submitted with the following information required:
  • Full name, gender and date of birth (must match official NADRA records);
  • Father or spouse full name;
  • Current and permanent address;
  • Phone number (must be verified with NADRA through biometric);
  • Email address;
  • CNIC (for Pakistani nationals) or Passport Number (for Foreign nationals, who are further required to provide attested passport and photograph).


  1. After input of two separate authentication codes (received on mobile number and email address), the SECP automatically emails the PIN for the eServices account. This PIN is required for authenticating electronically submitted documents (such as the incorporation applications and all form filings). 


NOTE: It is because of this PIN that separate witness signatures are not required for online filing through eServices, as per the ETO 2002.


  1. You can then login to eServices through your login ID (your CNIC) and chosen password.


  1. eServices account must be made for each promoter / subscriber (i.e. the first directors) of the Company to be formed. 


  1. The User registration fee is PKR 100/- which is paid at the time of documents submissions for later Processes.


After this short step, the eServices account is up and running.

The Memorandum of Association (MOA) and the Articles of Association (AOA) are the constituent documents of a Company. The MOA and AOA define the Company’s line of work and business, its internal management, its capital structure, and several other important provisions. They are the supreme legal documents forming the company’s constitution.


We have broken down the details of MOA and AOA under Pakistan law and their importance.


(i) Memorandum of Association

The MOA of a Company sets out the “objectives” of the Company, its line of work, registered address, liability of the shareholders (which is limited by the value of the paid-up share capital of the Company), kind and amount of share capital and the initial subscribers / promoters of the Company when it was incorporated.


Before the new Companies Act, 2017 (which replaced the Companies Ordinance, 1984), the MOA was a lengthy document. The objects clause was drafted to include many different types of business activities and objects. This was done so that a Company would not be restricted by its MOA to enter into a new line of work – any work by a company which is not authorized by its MOA is a violation of companies law. Now, the MOA is a simple one-page document which sets out the object of the Company along with a provision that allows the Company to enter into any legal business other than certain specified businesses (e.g. banking, non-banking finance companies (NBFCs), insurance and certain others, which require special approval of the relevant regulator). This has allowed the SECP to provide companies with greater ease of doing business and this is a practice which is already the standard in developed economies.


The SECP has uploaded several templates for MOAs based on the nature of the business, making the drafting of the MOA an easy task: If the Combined Process for company incorporation is selected, the MOA is automatically generated based on the principal line of business entry in the Incorporation form. Otherwise, if separate applications for name reservation and incorporation are filed online, the MOA can be tailored and then uploaded.


The MOA can only be amended after a special resolution at a general meeting of the Company, with additional reporting requirements to the SECP. These filings can be submitted through eServices.

(ii) Articles of Association


The AOA are essentially the by-laws of the Company and they lay down the constitutional division of powers between the Board and the shareholders. They bind the Directors of the Company and the shareholders who cannot act against it and so, the AOA is essentially a statutory contractual arrangement between the Company, the Board and the shareholders.


The AOA covers a wide range of matters regarding the Company, including:


  1. the management of the Company;
  2. appointment, powers and duties of directors;
  3. how board meetings and shareholder meetings will be held (e.g. allowing circular resolutions and video links) and the required “quorum” – i.e. the minimum directors / shareholders required to hold Board or general meetings, respectively;
  4. the way shares are issued, transferred, the classes and kinds of shares (ordinary, preference, debentures), and voting rights;
  5. the distribution of dividends and the Company reserve;
  6. auditing of and preparation of financial statements; and
  7. administrative matters (notices, recording of minutes, keeping of books, inspections).


The vast majority of companies adopt the Table-A Articles of Association which are provided in the Companies Act, 2017. If the eServices Combined Process is used, the AOA are automatically generated based on the Table-A standard Article of Association.


The AOA is an important corporate document because it must be followed at all times, otherwise any corporate actions or decisions which violate AOA requirements risk legal challenge – many such violations are plainly illegal and invalid. For example, if the AOA specifies a certain quorum for board or general meetings, that quorum must be met otherwise any board or shareholder decision will have no legal effect and validity.


In many cases, shareholder agreements set conditions over and above the existing AOA. Whenever this occurs, the shareholder agreement will also require the AOA to be amended to reflect this condition.


Like the MOA, the AOA may only be amended after a special resolution at a general meeting, with additional reporting requirements to the SECP. These Forms can be filed through eServices.

(iii) Certificate of Incorporation


The Certificate of Incorporation (COI) of the Company is conclusive evidence that the Company has been incorporated. The COI lists the Corporate Universal Identification No. of the Company and the Company stands incorporated on the date of certification by the relevant CRO as written in the COI.

The “first shares” of a newly-incorporated Company are the shares that are subscribed by the promoters / subscribers of the Company when it is incorporated. The MOA and the eServices Incorporation Form, lists the number and kind of shares that are to be subscribed.

It is a legal requirement to subscribe to the shares of the Company, which kicks in as soon as the Company is incorporated. Each subscriber must pay the subscription money to the Company bank account in return for their shares as specified in the MOA and the Incorporation Form. A form must also be filed with certified receipt of the subscription money and this includes a certificate from a chartered account or cost and management accountant certifying that the subscription money has been received. If this requirement is not complied within 45 days of company incorporation (i.e. the date of COI), the subscribed shares may be cancelled by the SECP and/or the applicant may face financial penalty of up to PKR 25,000/-.

A recent Presidential Ordinance removed this requirement, however it has since lapsed and this requirement to file the form is currently still in effect.

Once the company is incorporated it is treated as a separate juridical person. In order to run the company and to manage its affairs, certain corporate officers known as “directors” are required. A private limited company must have a minimum of two (2) directors, including a CEO which is legally a Directorship. Every director (other than a CEO and a full-time director) must be a shareholder of the Company.


The Directors of the Company manage the business of the Company and all directors are collectively known as the “Board of Directors”. In closely-held businesses (which is the norm for a large majority of Pakistani private limited companies), the shareholders are usually also the Directors. Alternatively, shareholders can also be represented by a nominee full-time employee director (with 1 share) or several such directors. In large Boards, the position of Chairman is also used, mainly to grant a big seat to another shareholder and to decide a split-vote at a Board meeting.


The AOA sets out the manner of how Board meetings are held, whether there is a separate chairman position and how Board resolutions are passed (i.e., simple majority voting, the necessary quorum for meetings).


(i) Duties


Directors have a fiduciary duty to the Company that they serve. A directorship is a position of power and the person holding this position is under legal requirement to act solely in the best interest of the Company and has a duty of care towards the Company. This is why the Companies Act, 2017 has strict provisions against any corporate actions lacking fiduciary behavior (which is a basis for ineligibility or disqualification by SECP or a Court, or removal by shareholders), and directors’ conflicts of interest and disclosure by such “interested” directors.


This is why Company Directors must not compete against the company they are serving. The company law forbids any conflicts of interests and requires full disclosure, with “interested” directors forbidden to vote in any related Board decision. “Related party transactions” must follow a special policy approved by the Board.


(ii) Powers


The Board is the face of the Company’s management. It has a wide range of powers for operating the business, making business decisions, contracting with other parties, and the overall direction of the Company. This is why the Board has a wide range of powers that include the power to issue additional shares, call general and extraordinary meetings, fix CEO remuneration, maintain books of accounts, yearly and half-yearly accounts and financial statements, incur capital expenditure, recommend dividends and declare interim dividends, invest the funds of the business, give employee bonuses, appoint legal advisors, auditors and the CEO. The Board may also remove the CEO if a Board resolution is passed by a minimum number of directors present at the Board meeting. The Directors are also personally responsible to ensure corporate filings with the SECP.

As a general rule, the Board has the power to do anything which does not require the approval of the shareholders of a Company at a general meeting, or if such power is not restricted by the Companies Act, 2017, the Company’s AOA or any active special resolutions. E.g., the Board cannot by itself resolve to change the name of the Company or amend its MOA or AOA, as that requires special resolution at a general meeting of the shareholders.


(iii) Terms of Appointment, Vacancy and Election


Directors have fixed terms of office which cannot exceed three years from the date of election. If there is a casual vacancy, the Board can appoint a director to that vacancy to hold the position until for the remainder of the 3 years term. Elections of directors are undertaken at a general meeting, with shareholders voting among a list of directorial candidates (list is circulated by the Board to shareholders before the general meeting).

(i) Basics


Board and Shareholder Resolutions are essentially the formal decisions made by the Board at a Board meeting and the shareholders at a general meeting, respectively. They do not concern the day-to-day operations of a company or routine business decisions e.g., a choice to go with a particular vendor of supplies does not need a board resolution (because the Board will always delegate that responsibility to a company officer, like a procurement officer) or a shareholder resolution (since that power is with the Board, which delegates it to officers). Both board and shareholder meetings can be done through video-link.


(ii) Conditions and Restrictions on Board and Shareholder Resolutions


Board Resolutions and Shareholder Resolutions cannot be considered legally valid unless the specified quorum has been met for a Board or general meeting. This is why the AOA are so important as they fix the mandatory quorum for both Board and general meetings.


It is important to understand that Board Resolutions cannot exceed the powers of the Board of Directors of a Company . The Board cannot, for example, amend the AOA or MOA of a Company, sell a substantial part of the Company’s business, convert the Company to another type, issue shares at a discount, or alter share capital, because this requires a shareholder special resolution i.e. passing of a resolution by at least three-fourths (75%) of all of the shareholders present at a general meeting and who are entitled to vote. Furthermore, Directors cannot remove other directors as this can only be done by ordinary resolution passed by shareholders at a general meeting i.e. passing of a resolution by more than 50% of all of the shareholders present at a general meeting and who are entitled to vote.


(iii) Resolutions by circulation


The Companies Act, 2017 allows shareholders of private limited or public unlisted companies to pass shareholder resolutions through circulation i.e. without need to be present at a general meeting, as long as the circular resolution is in writing and signed by all members entitled to vote and sent to all of them. These circular resolutions can be for corporate decisions which require either ordinary or special resolutions to pass. However, circular shareholder resolutions are not possible for:


(a) consideration of financial statements, reports of Directors and auditors;
(b) declaration of dividends;
(c) election and appoint of directors;
(d) appointment of auditors and fixing of remuneration.


The Board of Directors can also pass resolutions by circulation, if the resolution is in writing and signed by all directors entitled to vote (e.g., a disinterested director cannot vote in the relevant board decision) and sent to all of them.


(iv) Minutes


The Companies Act, 2017 requires recording of minutes of the Board and general meetings of a company. Minutes record names of participants (directors or shareholders), they validate circular resolutions already passed (board or shareholder resolutions) and they record the proceedings at Board and general meetings. Importantly, minutes are evidence that the concerned Board or general meeting was validly held and conducted (unless there is conflicting evidence e.g. a statement from any person present that a disinterested director was present at a Board meeting and was purposely left out of the recorded minutes).

Shareholders who are entitled to attend and vote at a general meeting may either cast their votes personally at the meeting or appoint another person as their proxy to attend a general meeting and vote as per their instructions. The proxy so appointed must be an existing shareholder of the Company unless the AOA allow third-parties to be appointed.

The SECP requires companies to notify it of special events, decisions, notices of company changes and other corporate actions, all of which can be filed through eServices. Failure to file such forms and documents with the SECP can expose the Company to financial penalties depending on the severity and importance of the filing requirement.

We have briefly summarized the major types of filings required by the SECP:


  1. Every company is required to file its annual return with the SECP (the Form A), which is a basic annual filing with the Company setting out particulars of the company, including capital structure, names of directors and shareholders, legal advisors, company secretary, auditors, and any transfers of shares undertaken in that relevant year. The annual return must be filed within thirty days of the date of the annual general meeting (AGM). If no AGM is held or if held, is not concluded, then the annual return must be filed within thirty days from the last day of the calendar year to which it relates. A private limited company with paid-up share capital not exceeding PKR 3,000,000/- does not need to file an annual return if there has been no change from the previous year’s annual return – it is only required to notify the fact of no change to the SECP.
  2. Subscribers are required to file forms certifying the receipt of subscription money by the Company in its bank account, along with a certificate from a chartered accountant or cost and management accountant to that effect.
  3. For each issue of further shares by a company, it has to file a return of allotment of shares with the SECP. This is to ensure that the SECP has up-to-date data about the share capital status of a company.
  4. The SECP must be notified if there is a change of more than 25% of the shareholding or voting rights of a company. This is so that the SECP can maintain a record of the transfer of substantial ownership of companies.
  5. The Companies Act, 2017 requires companies to report financial charges (security interests such as liens, mortgages, pledges and hypothecation) which are made on company assets in favor of a creditor. The SECP must be notified about the creation, modification and satisfaction of such charges.
  6. Special resolutions are required under the Companies Act, 2017 for certain important corporate decisions . Naturally, the SECP has an interest in being notified to ensure that good corporate governance is being practiced.
  7. Each Director, CEO, Legal Advisor and Auditor of a company must file his / her consent to act in that position. Companies are required to file consent form and to notify the SECP of any changes in these positions.
  8. Several other filings should also be noted, including: change of principal line of business, registered office and name of a company, filing petition with the SECP for alteration of MOA, filing revised AOA, and filings required for alteration / increase of authorized share capital and consolidation, division or cancellation of shares.

(i) Annual Reports and Approval


The Annual Reports (i.e. the financial statements) of a company relate to a financial year and must be approved by the shareholders at a general meeting. This general meeting usually happens at the beginning of the next financial year. Importantly, private limited companies with paid-up share capital not exceeding PKR 1,000,000/- are not required to have their financial statements audited. This was one of the changes introduced by the Companies Act, 2017 to encourage business growth and reduce red tape.


The first financial statements of a company must be approved at an AGM within sixteen (16) months of the date of incorporation. Each later financial year’s financial statement must be approved at a general meeting within 120 days from the end of that financial year.


The financial statements must give a true and fair view of the state of affairs of the company and must comply with appropriate financial accounting standards. The Companies Act, 2017 specifies the different classes of companies which must follow the applicable accounting framework. Companies are also free to follow the IIFRS (issued by the International Accounting Standards Board).


(ii) Directors’ Report


The Directors’ Report is a report which is attached to the financial statements of a company. The Directors’ Reports are read by shareholders at the time of approval of the financial statements of the company at a general meeting and they provide a picture of the financial health and outlook of the Company.


The Directors’ Report includes recommendations of dividend, amount proposed to be carried to the Company reserve, information about principal activities and projects, major litigation prospects, performances of loans and debt, and a general outlook on the risks and uncertainties facing the Company.


Private limited companies which have paid-up capital not exceeding PKR 3,000,000/- (and which are not subsidiaries of a public company) are not required to have Directors’ Reports.


(iii) Consolidated Financial Statements


Consolidated financial statements are relevant for holding companies which have subsidiaries. They are essentially the financial statements of the “group” as a whole and are presented as if the group is a single enterprise. The auditor of the Company is also required to report on these financial statements.


Importantly, private limited companies which have a subsidiary are not required to prepare consolidated financial statements, as long as the paid-up share capital of any company in the group does not exceed PKR 1,000,000/-.


(iv) Books of Account


Every company is required to prepare and maintain accurate books of accounts, financial statements and other relevant financial books at its registered office. The Company must also allow inspection by the SECP, directors and shareholders.

Once a company is incorporated, it can issue additional shares over and above the paid-up share capital held by the subscribers (or any purchasers of those shares) up to the maximum authorized share capital. A company usually issues shares when building up its capital reserves, inducting new investors or gathering funding from existing shareholders.


The general rule is that additional shares have to be offered to the existing shareholders of the Company in proportion to their existing shareholding. These existing shareholders are entitled to buy these new / additional shares as a matter of right. Thus the general term used to describe such additional share issues is as a “rights issue”.


The issuance of further shares by a Company requires reporting with the SECP, which can be done through the eServices portal.


NOTE: A temporary amendment through Presidential Ordinance in 2020 allowed private limited companies to avoid rights issues, as long as the AOA allowed it and special resolution supported it. This change was made to give greater flexibility to private limited companies to induct new shareholders and investors. The Ordinance has since lapsed.

A Company may issue paid up shares of different classes, as provided by its MOA and AOA. The Board must recommend through Board Resolution an issue of shares of different class (e.g. preference shares) along with specified details. The issue must also be authorized by a special resolution passed at general meeting and is subject to approval of the SECP.

In order to protect minority shareholder rights, the Companies Act 2017 allows affected shareholders to challenge any variation of their rights, as granted to them by the ownership of the class of share owned by them. Such moves, in the form of a special resolution passed for variation of the rights attached to a class of shares, through an amendment of a Company’s AOA, may be challenged by petition before the High Court by at least 1/10th of the number of shareholders of that class within thirty (30) days of the passage of the resolution.
A brief and temporary amendment in the company law through Presidential Ordinance in 2020 allowed private limited companies to issue shares for consideration other than cash (e.g. plot of land, equipment, asset etc.) as long as the AOA allowed it, special resolution supported it, and as per requirements which were to be set by the SECP. The Presidential Ordinance has since lapsed.
The Companies Act, 2017 only allows public listed companies to buy-back its shares (through a special resolution) and they may either be held as treasury shares or cancelled outright.

A brief and temporary amendment was made in the company law through Presidential Ordinance in 2020 allowing unlisted public and private companies to buy back their own shares and cancel such shares. They could not, however, keep such shares as treasury shares. The Presidential Ordinance has since lapsed.

Companies are still able to reduce their paid-up capital through passage of special resolution at a general meeting as long as the AOA allows and after the relevant High Court (Company Bench) approves a petition filed by the Company for this purpose. However, this is not a buy-back of shares but a reduction in share capital and requires confirmation by a Court.
The transfer of shares of a private limited company has been subject to a “right of first refusal” for existing shareholders since 2016, when this restriction was first introduced by the SECP through rules.

The right of first refusal grants protection to existing shareholders of private limited companies. Currently under the Companies Act, 2017, whenever another shareholder wishes to either exit the company or sell a part of his/her shareholder to an outside party (a third party), he/she must first offer the shares to be sold to the existing shareholders in proportion to their shareholding. Therefore, a selling shareholder can only sell to an outside if the existing shareholders decline or “refuse” to purchase his or her shares.

As this requirement is mandated by law, the AOA cannot provide otherwise and neither the Board nor shareholders can avoid this restriction.

After shares have been transferred (usually through a share purchase agreement and execution of duly stamped and signed share transfer deed, format of which is given in the AOA), the transferee of the shares applies to the Company for registration of the shares and issuance of the share certificate. If there is no problem with the share transfer deed, the Company will accept the request, record the transfer in its register of members and legalize the transferee as shareholder of the Company.

Share transfers to “persons resident outside of Pakistan” (including individuals and corporate entities) must be registered with the SBP as per foreign exchange laws and SBP regulations.
A company’s name can be changed by alteration of the MOA and AOA where the name of the company is written. MOA and AOA alteration can only be done by special resolution of the shareholders at a general meeting (so the Board of Directors themselves cannot change the name of a company). There are separate requirements for filing of the special resolution, change of name application, MOA and AOA amendment, which can be done through the eServices portal.

Once an updated Certificate of Incorporation (COI) is issued, the change of name is effective. It is normally required to mention the old name of the company on official documents and notice for a period of sixty (60) days from the date of the COI.
NTN is a unique tax identification number for your company issued by the Federal Board of Revenue (FBR). Every company is required to have an NTN and the FBR uses the NTN to track taxable transactions.
The SECP’s incorporation process on eServices has a dedicated linkage with the FBR and bodies like the EOBI (Employees Old Age Benefits Institution). Each newly incorporated company is automatically registered with the FBR and NTN is allotted, along with IRIS login details which are sent to the SECP-registered email address. There is an option for registration with the EOBI. However, there is no linkage with Customs or Sales Tax departments.

The FBR system checks whether each director / subscriber is already registered and has an NTN. Unregistered subscribers will automatically be assigned an individual NTN. This is because the FBR will run an auto-process to verify if all subscribers are registered taxpayers. For unregistered subscribers, each director will get email and SMS on successful registration.

In addition, for Sales Tax registration or WEBOC (Customs) registration, the application for the Company must be made manually and the Company must have a registered office in a commercial area (otherwise this may raise objections).
Dividends are the income return on investment received by shareholders of a Company. They are always paid out of the profits of the Company for each fully paid-up share and can be transferred by the Company through direct bank transfer, cross cheque or dividend warrant. Dividends can never be paid out of the sale of immovable property or capital assets of the Company, unless selling such type of assets is the principal line of business. Dividends are usually paid in cash, however dividends in-kind (i.e., otherwise than in cash) can be paid in form of the shares of any listed companies owned by the Company.

Dividends, when paid out of profits, leave less of the retained profits for the Board to reinvest or spend, so it is common for companies to declare fewer dividend pay-outs when saving up for some big capital expenditure or project. Generally, closely-held businesses are likely to pay smaller dividend pay outs.

The dividend to be paid out to shareholders per share of a Company is declared at a general meeting, but this cannot be more than the amount per share that is recommended by the Directors. In this way, the Board has the biggest influence on the dividend pay-out, and any shareholder that controls a majority of voting shares controls the Board. At the same time, a CEO will be held liable if a declared dividend is not paid out to shareholders within 15 working days from the date it is declared at a general meeting. In a worst case scenario, a CEO could be legally barred by the SECP from acting as a CEO or director of any company for a period of 5 years.

The Board may also declare interim dividends to shareholders. Bonus shares, however, are not considered distributions in Pakistan.
Currently, unclaimed dividends are deposited with the Federal Government if they are unclaimed for a period of three years from the date of declaration. The Presidential Ordinance briefly reversed this and allowed companies to use only the profits generated from unclaimed dividends for specific purposes (CSR) and on certain conditions (recording all unclaimed dividends and details of absentee claimants), while the dividend amounts would be permanently kept for bonafide claimants.
Corporate reorganization allows companies to renegotiate their liabilities and restructure its capital and reserves in order to achieve financial viability. Foreign investors and entrepreneurs will naturally have an interest in knowing whether Pakistan company laws on winding up process and corporate restructuring will protect their interests, since worst case scenarios of failed investments must always be looked at.

Importantly, the Companies Act, 2017 removed the role of the High Courts in corporate reorganizations, with the role and powers now exercisable by the SECP as regulator, which should be encouraging for foreign investors as the time-consuming Court process is avoided.

Under the Act, the reorganization and restructuring of companies can happen for different reasons. In some cases, creditors seek to recover debts owed and apply to the SECP for reorganization and restructuring of debtor-companies which are not in good financial condition, in order to secure their financial interest. This can occur during winding up proceedings (when stayed by the High Court and if the scheme is eventually approved by the parties) or where creditors and debtor-companies reach agreement before things go too far. In other cases, companies voluntarily apply to the SECP for confirmation of restructuring, which may be done to increase overall profitability, competitiveness of the post-reorganization entities and to achieve economies of scale. In all cases, however, a scheme of arrangement for the corporate restructuring of the Company (or Companies) must be approved by at least 75% of the class of creditors or shareholders at a meeting held as directed by the SECP (meaning that all corporate reorganizations in Pakistan are essentially voluntary).

Mandatory filings and documents are required for this process, with furnishing of material facts of the Company relating to financial position, auditor’s report, latest accounts, affidavits, and the details of any SECP investigations into the affairs of the Company.

Once the scheme is approved and filed with the SECP, this scheme is binding on the company, creditors, shareholders, liquidators and contributories. The SECP must authorize the scheme but generally will not go against the collective agreement of the parties involved – there is usually little complication if the scheme is unanimously approved by all parties concerned. Still, the SECP is required to determine whether all provisions of law are complied with and the scheme is in the interest of the shareholders and creditors (among other factors). The SECP is authorized to enforce schemes of arrangements against the parties.

A New Law for Rehabilitation of Debtor Companies

Recently, the Corporate Rehabilitation Act 2018 (“CRA”) introduced an alternative route to restructuring / reorganization of companies in financial distress, allowing them to restructure debts in order to return to return to productivity. This also avoids the time consuming processes under the Companies Act, 2017 for court-supervised winding-up or SECP-sanctioned corporate reorganization. Efforts in the past have been made largely on creditor friendly recovery laws which resulted in an imbalance of legal remedies for rehabilitation of debtors.

The CRA provides an equal opportunity to certain classes of debtor companies as well as their creditors to try and get a rehabilitation plan approved by a high court(s), through the involvement of professional insolvency mediators. Either side may file a petition in the High Court calling for an order of mediation, along with the rehabilitation plan and the statement of affairs of the debtor company. This leads to Court appointment of SECP-approved insolvency expert(s) to act as mediator for acceptance of the plan of rehabilitation proposed by either the debtor company itself or the qualifying creditors.

In certain cases, qualifying creditors can file petitions before the High Court for appointment of an administrator to manage the affairs of the Company and continue the rehabilitation process under the law. The administrator may adopt or modify a plan of rehabilitation or recommend winding up of the Company. This is why the CRA has provisions for conversion of petitions to winding up petitions under the Companies Act, 2017.

Ultimately, the Court may confirm the plan of rehabilitation and help implement it or dismiss the case, in which case the petition may be converted into a winding up petition (on application).

Similar to foreign investor concerns on corporate reorganization in Pakistan, the legal factors involved in winding up of a Company are fundamental to the longevity and safety of financial investments, especially foreign investments. When things go wrong and corporate reorganization is not possible or desirable, a Company may be wound up in order to settle all outstanding obligations and liabilities.


Under Pakistan law, a Company may be wound up either by the relevant High Court, voluntarily by the Company or through a combination of this process. In all cases, the winding up process is supervised by the relevant High Court by filing a petition for winding up. In cases where the affairs of the Company are investigated by the SECP, the SECP itself may petition the Court for winding up (after the investigation process is concluded and due process followed). 


Grounds for winding up a company include:


  1. voluntary winding up, through special resolution passed by the shareholders at a general meeting resolving to wind up and dissolve the Company; 


  1. default in observing legal requirements under the company law;


  1. when a company is “unable to pay its debts”;


  1. Fraud, illegality, or oppressive conduct towards minority shareholders (subject to detail procedure for SECP investigation into the affairs of the Company).


The primary purpose of the High Court’s supervision of the winding up process is to accurately and definitively determine the solvency of the Company, keeping in mind the outstanding rights of the creditors or shareholders. The winding up process is considered to start when the petition is presented before the High Court and after it is presented, the High Court has the power to grant stays of injunction against any other proceedings against the Company. It is important to note that the petition must, on the face of the facts and documentation presented, make out a case for winding up, which is to be determined by the High Court. In addition, the winding up cannot be prejudicial to the interests of creditors or contributories. 


The High Court, at this point, may dismiss the petition, give interim orders, appoint provisional manager to take over the affairs of the Company or proceed to pass an order for winding up. An official liquidator is appointed after the order for winding up is made. Importantly, when a provisional manager or liquidator is appointed, all legal proceedings against the Company are normally stayed and can be transferred to the High Court, while at this point the custody of Company properties is transferred to the High Court. The liquidator finalizes the winding up process while still being supervised by the High Court. Upon appointment, the liquidator is provided with a statement of affairs of the Company, the directors and employees. The liquidator’s report sets out the recommendations, list of payments and other material facts regarding the winding up process. On examination of the report, the High Court is left with the decision to proceed with the winding process or whether to sell the Company as a going concern. In any case, upon winding up, creditors and contributories are distributed the remainder of the monies received after liquidation of the Company, after paying for process costs and preferential payments. The winding up process is completed, and the Company dissolved, when the affairs of the Company are completely wound up or where it is not possible to liquidate further.

(i) Sale of Company Ownership


The sale of the ownership stakes of a Company can be made by any shareholder provided the required legal requirements are met. The AOA normally controls how the shares of a Company will be transferred. In cases where there is an existing shareholders’ agreement, the terms of that agreement must be followed which may grant pre-emptive rights to other shareholders (tag-along, drag-along and rights of first refusal for transfer of existing shares).


In either case, once the internal corporate procedure is followed, share purchase agreements (SPA) are negotiated and finalized. In some cases, the purchasing party first undertakes due diligence of the target company, which is a legal report examining corporate, commercial, property, labor, regulatory, tax and other major aspects of the business. Once the conditions in the SPA are finalized, the share transfer deeds themselves are executed and the transfer is recorded by the Company and appropriate filings made with the SECP.


In some cases, the acquisition of the entire shareholding of a Company or a portion of its shareholding can be subject to approval of the Competition Commission of Pakistan (CCP), under the Competition Act, 2010 and the rules and regulations of the CCP, depending on the threshold requirements for gross assets, annual turnover, and the value of the transaction.


(ii) Sale of Company Assets


The Companies Act, 2017 requires the sale of a “sizable part” of assets / undertaking of a Company, to be confirmed by the shareholders at a general meeting.  Therefore, the Board of Directors cannot make these types of decisions alone. This is to ensure that the interests of the shareholders are protected through direct approval and there is transparency in disposal of major assets of the Company.


In shareholder agreements, this is usually a “reserved matter” which is required to be approved by the shareholders at a general meeting.


The Presidential Ordinance of 2020 made this general meeting approval harder to obtain, by requiring a special resolution (with additional filing and compliance requirements). However, this amendment has since lapsed.

A shareholders’ agreement outlines the rights, duties, and obligations of the Company, the Directors and shareholders and bind the parties to its terms. It sets out conditions on how the Company will be run, major decisions made, what actions will be taken on specified events and how rights and interests of shareholders will be protected. It is signed by all participating shareholders of a Company and records the share capital ownership structure. Shareholder agreements are carried out on the mutual understanding and principle that all shareholders will exercise their voting rights in accordance with the agreement.

Shareholder agreements offer certainty in corporate business ventures as there is less risk when a written agreement exists which covers various areas which may, at some point, become a bone of contention between existing Company shareholders and/or new investors. New individuals or companies which invest money in a particular company and purchase its shares, for example, must sign documents which legally bind them as a shareholder to an already-existing shareholders agreement (sometimes called deeds of adherence, accession etc.).

Having an existing agreement can demonstrate stability and cohesion within the Company and shareholders, which is important for creditors and outside investors. As they are readily enforceable in Pakistani Courts, shareholder agreements have become a popular way for business partners to formalize an agreed way of running a company. They are also private documents and there is no requirement under law to file it with any regulatory authority (such as the SECP). Hence, because it is a private document (unlike the AOA of a Company), shareholders are more comfortable with its confidential nature where several different arrangements may be agreed and written down.

Shareholder agreements usually cover the following:


  1. How the Company will be managed and the method and extent of control over corporate decisions. As the running of a Company is always undertaken by the Board, shareholder agreements will specify quorum requirements, board picks, key executives, dividend policy and “reserved matters” (decisions which cannot be taken without a party present in a general meeting such as big transactions, issuance of shares and capitalization of reserves, loans etc.).


  1. Restrictions on the transfer of Company shareholding so that there is a procedure for determining who can come into the Company as a new investor. This includes protections for both shareholders with minority stakes (e.g. tag-along rights) and majority stakes (drag-along rights) and right of first refusals for shareholders for purchasing shares of other selling shareholders.


  1. Funding obligations, in the event the Company needs to raise more capital. These provisions obligate shareholders to contribute capital to the Company when required (a “funding call). Shareholders agreements can provide for cases where if a shareholder does not fulfil its obligation, an outside investor can come in to provide the shortfall in funding.


  1. The representations and warranties of the shareholders, which clearly state important declarations regarding the affairs of the Company i.e. whether it is duly incorporated, how much debt or creditor interests are attached to Company assets (if at all). These representations and warranties are essentially the basis of the mutual trust between the parties. 

  1. Dispute resolution, where in the event of any dispute, the parties must go for mediation and arbitration rather than litigating in Courts, which can be expensive and can drag the Company business into disrepute.

  1. Special provisions which aim to solidify the agreement as the main governing document of the Company. E.g., provisions for AOA amendments whenever in conflict, legends for share certificates, acceding documents (for new parties).

  1. Provisions for dead-lock on the Board, where parties can be forced to sell part or all of their ownership stakes, which allows majority votes to be carried through.

  1. Restrictions on shareholders being involved in competing business after they sell their shares in the Company. 

  1. Confidentiality obligations of the shareholder to keep certain matters or business of the Company confidential. 

Terms sheets and memorandums of understanding (MOUs) are written documents which outline the important foundational terms and conditions of a business transaction. These documents essentially lay the groundwork for the eventual execution of a proper formal agreement later on between the parties. In some cases, the parties have to take certain steps in order to execute that formal agreement.


It is important to know that the word “term sheet” is generally used more outside of Pakistan. In Pakistan, the standard reference is to an MOU. In fact, the practice of executing MOUs is so widespread in Pakistan that it has become a common word across the country and on TV news outlets.


Both terms sheets and MOUs are generally not legally binding in Pakistan in that they will be unenforceable in Court, unless there is express binding language and certain other exceptions.


(i) Term Sheets


Terms sheets are better known in investment deals abroad rather than MOUs (such as Series A term sheets). It is essentially a negotiation document broadly defining the terms of how that investment will be carried out in a company. If all things go as planned, the investment is made through a formal shareholder agreement where the shares are subscribed (sometimes through separate agreement) and founding shareholders are bound by the investment and company management terms, including the constituent documents MOA and AOA. 


Because of the substantial investment made by a third-party investor, this means that the term sheet usually covers various terms and conditions relating to:


  1. Some extent of management control over the Company (e.g., board seats, dividend policy, hiring control over key executives, dividend policy, specified reserved matters requiring investor approval such as AOA amendments, share capital alterations and structure, new issues of shares, major transactions, loans);


  1. Valuation of the Company (appraised value of the Company pre-investment and post-investment) and the agreed value of the investor’s shareholding. This involves description of investment amounts, existing shareholding, issuance of the agreed class and value of shares and any premium attached in case of foreign currency investment;


  1. Founder vesting terms (a founder’s total ownership in the Company is agreed to “vest” and be earned over time, granting investors security against risks of founder exits / sell-outs, while founders may want a shorter vesting period or a portion of shares excluded from these terms);


  1. pre-emptive rights giving investors a right to maintain or change their ownership levels in the Company, such as tag-along rights for (typically) minority shareholders when others are selling their ownership stake to third-parties (i.e. non-selling shareholder must also be bought out), rights of first refusal for existing share transfers against selling shareholders, and protection of rights shares by the Company;


  1. conditions on share capital such as anti-dilution provisions which prevent investments from becoming cheaper (e.g. shares becoming cheaper than the original share prices, due to increase in paid-up capital of a Company which dilutes / reduces the original shareholding percentage stakes);


  1. Exit terms and whenever a pre-defined event like liquidation occurs with the Company. These include pre-emptive events, investor redemption rights and liquidation preferences (premium pay-outs).


(ii) Memorandums of Understanding


MOUs in Pakistan cover a wide range of business deals for various types of commercial and strategic reasons between parties. Like the traditional term sheet, MOU are used for investments in companies, but the main quality of MOUs is their flexibility to fit many different and unique business deals.


MOUs differ widely depending on the objectives of a deal. In the telecommunications industry, MOUs are regularly used by different market players for locking down terms for business transactions (sales) early on. They are also used for technology integration (like communication, API and payment-system linkages) and also for equipment trials and project demos. For more capital-intensive industries, MOUs can provide for feasibility studies, early collaboration for special projects, and timetables for formal agreements. Organizations in Pakistan, including federal and provincial government ministries and bodies, routinely enter into MOUs for several different purposes, many of which seem to be symbolic in nature while some end up targeting specific collaboration. 

Terms sheets and memorandums of understanding (MOUs) are written documents which outline the important foundational terms and conditions of a business transaction. These documents essentially lay the groundwork for the eventual execution of a proper formal agreement later on between the parties. In some cases, the parties have to take certain steps in order to execute that formal agreement.


It is important to know that the word “term sheet” is generally used more outside of Pakistan. In Pakistan, the standard reference is to an MOU. In fact, the practice of executing MOUs is so widespread in Pakistan that it has become a common word across the country and on TV news outlets.


Both terms sheets and MOUs are generally not legally binding in Pakistan in that they will be unenforceable in Court, unless there is express binding language and certain other exceptions.

Term Sheets


Terms sheets are better known in investment deals abroad rather than MOUs (such as Series A term sheets). It is essentially a negotiation document broadly defining the terms of how that investment will be carried out in a company. If all things go as planned, the investment is made through a formal shareholder agreement where the shares are subscribed (sometimes through separate agreement) and founding shareholders are bound by the investment and company management terms, including the constituent documents MOA and AOA.


Because of the substantial investment made by a third-party investor, this means that the term sheet usually covers various terms and conditions relating to:

Some extent of management control over the Company (e.g., board seats, dividend policy, hiring control over key executives, dividend policy, specified reserved matters requiring investor approval such as AOA amendments, share capital alterations and structure, new issues of shares, major transactions, loans);

Valuation of the Company (appraised value of the Company pre-investment and post-investment) and the agreed value of the investor’s shareholding. This involves description of investment amounts, existing shareholding, issuance of the agreed class and value of shares and any premium attached in case of foreign currency investment;

Founder vesting terms (a founder’s total ownership in the Company is agreed to “vest” and be earned over time, granting investors security against risks of founder exits / sell-outs, while founders may want a shorter vesting period or a portion of shares excluded from these terms);

pre-emptive rights giving investors a right to maintain or change their ownership levels in the Company, such as tag-along rights for (typically) minority shareholders when others are selling their ownership stake to third-parties (i.e. non-selling shareholder must also be bought out), rights of first refusal for existing share transfers against selling shareholders, and protection of rights shares by the Company;

conditions on share capital such as anti-dilution provisions which prevent investments from becoming cheaper (e.g. shares becoming cheaper than the original share prices, due to increase in paid-up capital of a Company which dilutes / reduces the original shareholding percentage stakes);

exit terms and whenever a pre-defined event like liquidation occurs with the Company. These include pre-emptive events, investor redemption rights and liquidation preferences (premium pay-outs).

Memorandums of Understanding


MOUs in Pakistan cover a wide range of business deals for various types of commercial and strategic reasons between parties. Like the traditional term sheet, MOU are used for investments in companies, but the main quality of MOUs is their flexibility to fit many different and unique business deals.


MOUs differ widely depending on the objectives of a deal. In the telecommunications industry, MOUs are regularly used by different market players for locking down terms for business transactions (sales) early on. They are also used for technology integration (like communication, API and payment-system linkages) and also for equipment trials and project demos. For more capital-intensive industries, MOUs can provide for feasibility studies, early collaboration for special projects, and timetables for formal agreements. Organizations in Pakistan, including federal and provincial government ministries and bodies, routinely enter into MOUs for several different purposes, many of which seem to be symbolic in nature while some end up targeting specific collaboration. 

It is widely heard that MOUs are not legally binding. The flexibility of MOUs can also lead to many MOUs not being implemented or enforceable. This is because many parties are willing to “water down” their requirements in an MOU or set pre-targets, with a view to entering into an agreement later on.

Ultimately, the content of the MOU determines whether it is enforceable. If the MOU states that it is legally binding, and if it imposes serious commercial and financial obligations, as an executor contract it is enforceable as it will be considered independent document qualifying to stand on its own, capable of specific performance (including injunctions against violation of any provisions). However, if an MOU specifies the actual deal / transaction will occur after signing of a formal agreement, then it is not enforceable. Specifically, courts in Pakistan have held that where an MOU mentions that a formal agreement will be executed after certain actions or events occur, then the MOU lacks the basic requirement of acceptance – that it should be absolute. In such cases, the MOU is a mere proposal or understanding between the parties about how a formal agreement / transaction will be concluded.

MOUs do provide value when the aims are defined to be achievable. In recent years, MOUs have been regularly helped in trade connectivity, ensuring business support, integration and market access.
Franchises are essentially contractual arrangements between owners of franchise businesses and brands (referred in legal terms as a “franchisor”) and investors (a “franchisee”) wanting to open a new franchise location and take advantage of all the benefits of the franchise. This includes goodwill, brand recognition, trade advantages, supply chain economy, trade secrets (in special cases), marketing and intellectual property rights (IPRs).

This business relationship requires franchisees following strict conditions (covering all aspects of the business), funding commitments, franchise standards for products or services, restrictions in bringing in outsiders, and certain other continuing rights given to the owner-franchisor.

Franchises are the most visible evidence of foreign investment in Pakistan, especially in the restaurant and hospitality sector. The increasing number of different franchises of foreign and domestic businesses in Pakistan is most likely down to the fact that such businesses more reliable and “safer” to invest in than others as they can count on the already-earned goodwill, consumer base, marketing and reputation of the original franchisor.

There are no specific laws governing franchises or franchise relationships in Pakistan. Generally, franchises are treated as part of contract law and the normal law of contracts are applicable to franchise relationships. Certain aspects of franchise relationships are also regulated under the Foreign Exchange Manual of the SBP (the remittance of royalty / franchise fees abroad), while restrictions on transfer of ownership of the Franchisee will be subject to Pakistan company law (if the franchisee is a company). Franchisors generally prefer alternate dispute resolution clauses such as mediation or arbitration for any contractual disputes, since civil litigation can be avoided and disputes can be settled behind closed doors.

However, since franchise agreements are usually restrictive and in favour of the franchisor, and which very often bind the franchisee strictly for many different things (including dealing with other parties, restrictions on transferring ownership, buying supplies for chosen vendors, purchasing “tag-along” / combo goods and services), these may attract Pakistan Competition laws if they are considered too prohibitive. Prohibitive agreements (and provisions) are illegal under the Competition Act, 2010, unless a blanket exemption certificate is obtained from Competition Commission of Pakistan (CCP) by the Franchisor for the standard franchise agreement (which is kept confidential by the CCP). This safeguards the franchisor in the event an unhappy franchisee disputes the salient terms of a franchise agreement and disputes its fairness as being prohibitive.

In today’s global economy, it is rare for franchisees to be non-corporate entities such as partnerships or sole traders, as corporate entities are generally a safer bet as franchisees.

At the start of any business relationship, the parties usually exchange a non-disclosure agreement (NDA). 

The franchising process will primarily involve the base franchise agreement setting out the relationship between the parties. Other related agreements may also include:


  1. technical agreements (through which franchisor separately provides technical services required for operating franchises in return for technical fees);

  2. management agreements, in case the franchisor is responsible for business management (for which there is a separate management fee); and

  3. IPR license agreements (which gives a franchisee a license to use IPRs owned by the franchisor for a separate IPR licensing fee)
Outsourcing is the primary method for corporate businesses to get professional staff services without officially taking on additional employees and increasing their payroll tax liabilities and HR costs. Services for security guards, labourers, peons, drivers (all of whom are considered “workers” under Pakistan labour laws i.e. ‘blue-collar’ workers). In addition, even ‘white-collar’ regular office employees are regularly outsourced by businesses.

In Pakistan, employees contract with third-party human resource providers to post “outsourced” workers at their places of businesses. Many outsourced workers are employees of the Company in all but name, since they are supervised by the Company, given tasks by Company personnel and are usually under the reporting of permanent Company employees. However, outsourcing in Pakistan works in such a way that the terms of appointment and payment of these outsourced workers are strictly between the third party (their employer) and the outsourced worker.

Outsourcing for labour services is generally straightforward. However, Pakistan has long had protections and statutory contributions from employers, as a means to protect the labour / worker class from exploitation. These protections are applicable even to companies which outsource labour services, since under Pakistan labour laws, a company will be considered an employer whether it hires workers directly or indirectly (i.e. through outsourcing). In addition, whenever outsourcing for labour services, Pakistan law requires the employer to ensure that the minimum wages for workers are being paid, and the employer can be held responsible if there is any violation (even by the outsourced company which technically hires the workers).

(i) Suppliers


Dealing with suppliers of goods and services is dependent on the terms of the written contractual agreement between the parties and remedies available under law. It is therefore important to carefully draft the contractual terms and lower risks in case of dispute. The following key points should be generally noted:

  1. Quality standards and specifications for goods and services and a well-written scope of work setting out work responsibility. There may also be service level agreements (SLAs) setting out response times, issue resolution times, escalation matrices, list of tasks, penalties etc. 

  1. Terms of inspection and acceptance of goods and services, with inspection and acceptance sign-offs and proper acceptance testing for major technical equipment and services; 

  1. Details of payment schedule linked with acceptance procedures, while invoices may also be disputed in case of any bonafide discrepancies. For major contracts with warranty or defect liability periods, some portion of payment can be retained until the period ends.

  1. Warranties are enforceable in Pakistan and contractual obligations for replacement or repair are common. Goods are generally further protected by implied warranty conditions under the Sale of Goods Act, 1930 (warranties of title, description, quality and fitness, merchantability and protection against fraud or false representation). Service standards can also be contractually agreed with performance conditions, SLAs, defect liability and maintenance and support periods.

  1. Provisions in case of contract violation (breach), including essential terms, which trigger rights to termination for cause. Any goods or services that have been accepted or capable of being so will have to be paid for, unless performance and compensation is disputed.


(ii) Subcontracting


The general rule for subcontracting is that if, according to the terms of the work contract, subcontracting is not allowed or approval is required, then any subcontracting done will constitute breach of contract. If the terms of the contract are well written, this can entitle a party to terminate the contract and sue for compensatory damages (either in case another contractor is hired to finish the work or if unauthorized subcontracting caused actual loss)


It is also important to note that even if subcontracting is allowed, a well written contract should still make the principal contractor fully liable for the work to be performed. Principal contractors are further liable for acts or omissions of subcontractor, since they have the contractual responsibility.

Consultancy involves providing professional services to clients in a particular field and/or for specific projects e.g. tax, finance, IT, management, law, HR, PR & marketing, security, engineering etc. Consultants are valued for this specialized expertise which can help their clients with facing commercial challenges, improving business operations, and undertaking projects. Because of their special expertise, successful consultants are trusted advisors of their clients.

Consultants can be a partnership firm, company, LLP or sole proprietor. They are appointed as independent, third-party contractors and are not employees of their clients. However there has been a trend in Pakistan of big corporate businesses moving consultancy services in-house for major projects and strategies, hiring consultants as full-time employees.

There is really no special legal status given to the title “consultant” or “consultancy” as a type of service and all consultancies are essentially based on contract. Any company, firm or sole proprietor can assume the title of “consultant” although professional credibility is still required to be successful. In Pakistan, open bidding service contracts (government or private sector) require professional qualifications / license – engineering require Pakistan Engineering Council (PEC) registration, accountancy consulting may require ICAP or ICMAP registration. Certain consultancy services are subject to provincial sales tax on services.

Consultancy services may be legally impacted in other ways. In the normal course, general legal considerations will be involved regarding the business entity providing consultancy services. In federal public procurement for consulting services, certain special procurement procedures are required under law. Overseas employment and emigration promoters, who are also referred to as emigration consultants, must be licensed under law.

There are no specific legal requirements for freelance services in Pakistan. A freelancer is basically a sole proprietorship as services are provided as an individual professional. Freelancers should however note the following key points:


  1. As sole proprietor, a freelancer is open to personal liability in case of any legal disputes. A freelancer’s owned real estate, personal property, bank accounts and other assets will be at direct risk in such case. Alternatively, a single member company (SMC) can provide professional services as a separate corporate entity with limited liability up to paid-up share capital of SMC and any owned assets. Personal liability risks civil suits or consumer complaints under the relevant provincial consumer protection laws (as freelancers are service providers).

  2. Freelancing can be provided under a business name (which can be added to the freelancer’s NTN) or the name of the individual. All freelance income will be taxable at the personal level.

  3. In many cases freelancing does not involve detailed written agreements or anything written at all (small scale jobs). If freelancing through a web platform or agency, the terms of that web platform or agency will govern the relationship. It is still recommended that when dealing with clients, a brief appointment letter should be issued outlining job description, payment and invoice terms, time period etc.).

  4. Consider professional liability insurance where feasible and as per the risk exposure of the business.

Partnerships have always been the first option for small and medium based enterprises in Pakistan across various sectors and many businesses in Pakistan started off first as partnership firms.


A partnerships is a form of business collaboration between different persons. The applicable law i.e., the Partnership Act, 1932 defines partnerships as “relation between [two or more] persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”  Thus, partnerships MUST be for profit, so a non-profit venture cannot be formed as a partnership.


There are definitely many reasons why partnerships have traditionally been desirable in Pakistan – they formalize business relationships through a simple written agreement (the partnership deed) and they offer flexibility in setting up and running the affairs of the business. Partnership firms are relatively easy to set up and there are no legal requirements for periodic filings with any authority. However, we should also be aware that for start-ups, partnerships may not always be the best option. The following aspects of partnerships should be noted:

  1. Formation & Registration


Partnership firms are registered with a “Registrar of Firms”. Applications for registration are submitted to Registrars of the area of the proposed or actual office of the firm (each such Registrar is attached to the respective District Government of the area). A statement form must be delivered to the relevant Registrar stating: (i) Firm name; (ii) principal place of business of the firm; (iii) names of any other places where the firm carries on business; (iv) date when each partner joined the firm; (v) names in full and permanent addresses of the partners; and (vi) duration of the firm. This statement is signed by all partners of the firm or by any authorized agent on their behalf, while the statement must also be verified by the persons signing it. Once Registrar is satisfied that the abovementioned requirements have been complied with, the entry of the statement in Register of Firms is recorded and the statement is officially filed.


There is no compulsory requirement for registration of a partnership in Pakistan. Nonetheless some litigation and tax related consequences and advantages are linked to a registered partnership.

  1. Sharing of Profits, Losses and Liabilities


Each partner is an equal co-owner of the firm (unless the partnership deed says otherwise), pays an equal share of taxes and shares in the profits and losses of the business as per the ratios given in the partnership deed. Most importantly, however, and, in case of failure, equally shares in all of the liabilities of the partnership. Thus, in a partnership, liabilities are shared but not limited.

  1. Nature of Partnerships as a Business Organization


A partnership is not a corporate or separate entity, although a partnership may own property as a legal entity (e.g. leasing an office). The management of the firm is usually handled by managing partner of the firm, while the governance structure depends upon the arrangement agreed between the partners in the partnership deed (e.g. there is no legal requirement for audits and related procedures unless agreed). 

  1. Taxes


Registered partnership firms are considered an association of persons for income tax purposes, and registered firms can apply for NTN. Partners are further subject to personal income tax.

(i) Basics


Business collaborations between different persons and entities can take many forms in Pakistan, depending on the nature of the relationship between the parties, the nature of the business, and any specific legal or other considerations for that line of business.


We have broken down the main types of entities which are used in business collaborations.


(ii) Formation of Corporates and / or Shareholder Agreements


Please see [].


(iii) Partnership Agreements


Please see [].

(iv) Joint Ventures


Please see [].


(v) Term Sheets and MOUs

Please see [].


(vi) Franchises

Please see [].

Trade Sector

Relevant Authority

Food businesses (including restaurants, hotels, and food manufacturing units)

·         Licensing & registration with Provincial Food Authorities:

  1. Sindh Food Authority
  2. Punjab Food Authority
  3. KP Food Safety & Halal Food Authority
  4. Balochistan Food Authority
  5. ICT Administration (specific legislation is still pending)
  6. Departments of Tourist Services (DTS) for ICT and G-B, and Departments of Tourist Services for Punjab and KP.

·         Commercial land-use approvals from Local and Municipal Bodies:

1.      Sindh Building Control Authority & KDA

2.      Relevant Cantonment Board (for Cantonment Areas) areas

3.      Lahore Development Authority

4.      Capital Development Authority

5.      Peshawar Development Authority

6.      Quetta Development Authority

Wedding and Event Halls & Marquees (Tents)

  • CDA
  • LDA
  • PDA
  • QDA
  • KDA & SCBA (Karachi)
  • Relevant Cantonment Board (for Cantonment areas)


Departments of Tourist Services (DTS) for ICT and G-B, and Departments of Tourist Services for Punjab, Sindh and KP.

Information Technology (IT) and IT-enabled services (ITeS).

  • Registration with the Pakistan Software Export Board is optional for IT and ITeS businesses, but recommended for taxation, foreign remittances, and other benefits.

  • Call Centers require mandatory PSEB registration.


Just like big corporate businesses, small and medium sized businesses require money to run, expand and develop further. Owners of these business entities, like a company or partnership, will always need additional injection of cash at different stages of the business cycle, whether it is newly opened, in early stages of operation or after it is commercially established.


Financial requirements vary according to the type, size and stage of the business and gaining access to the needed funds is referred to as “financing”. Financing is needed for making a business profitable and sustainable. Without access to affordable finance, businesses are financially handicapped which makes it harder for them to get up and running and grow in size.


In Pakistan, the main sources of business financing is through debt financing and equity investment, while certain targeted Government incentives and schemes are also available. Debt financing can be further looked at in terms of traditional conventional banking and the alternatives of Islamic and microfinance banking.

Equity investment is a form of financing where corporate business owners receive outside investment (whether cash, assets / equity-in kind) from a third party in exchange for a sale or new issue of a Company’s shares. This investment into the equity of the Company generally means that the business owner’s overall ownership stake is diluted. The investor becomes a shareholder of the company with all rights and entitlements under the law and contract (e.g. through shareholder agreements).


In Debt financing, the business owner borrows cash from banks and other commercial lenders (DFIs, leasing companies) on fixed terms and conditions, including the applicable rate of interest / mark-up, loan tenor, repayment schedule. As it is a loan, the business owner must pay back the principal loan amount plus mark-up on an agreed payment schedule. Debt financing may be secured with collateral or unsecured, although immovable property is always preferred by banks. Such finances may either be short term (e.g. to finance working capital requirements) or long term (e.g., for asset purchases and expansion) depending on the tenor and repayment schedule. 


A few points should be noted about both equity investment and debt financing:


  1. Equity investment financing does not come with a repayment obligation – it is not a loan. This is essentially the main benefit. Dividends may be recommended but companies typically have no legal obligation to pay dividends to shareholders (rather they may retain and build up profits). This equity investment in the Company can be freely used for extra working capital or capital expenditure.
  2. In many cases, debt financing is preferred to equity investment since a loan does not provide an ownership stake in the Company and dilute the ownership interests of business owners. Investor-shareholders become permanently associated with the company (also through shareholder agreements) and can exercise influence and put pressure on the business to generate consistent profits and pay out dividends. Lenders / creditors are repaid according to the terms of their agreement.
  3. Debt financing is generally seen as less expensive method of raising funds, particularly if the interest rates are bearable, the expected returns are high or if the Company is growing at a high rate. It is also less risky than equity investment for the lender / creditor, as the Company is legally obligated to pay the principal and mark-up amount.
  4. In equity investment / financing, the investor takes a risk when it buys into a Company since usually if the business suffers and is wound up, the investor loses its investment (unless a shareholder agreement provides an alternative). Profits are also shared among new investors and original shareholders. This often makes the cost of equity higher than the cost of debt. 

As equity investment financing involves the transfer of ownership of Company shares (whether through existing shares or new issue), the Companies Act, 2017 allows the following ways of raising equity:

  1. Rights Issue: A Company may issue right shares to existing shareholders in proportion to their existing shareholding. Shareholder agreements can also impose funding obligations on existing shareholders to buy more equity whenever the Company is in need of funding.


  1. Additional shares can be offered to outside investors, if existing shareholders decline to accept the offer of mandatory rights issue. In shareholder agreement funding calls, existing shareholders who refuse to provide funding may get their ownership stakes diluted if an outside investor comes in their place. 


  1. Retained profits of the Company can be capitalized through issuance of bonus shares to existing shareholders in proportion to their shareholding. This may come at the expense of withholding dividends or reduced payouts.


  1. Public companies may issue further shares without issue of right shares after obtaining SECP approval. This can include raising share capital through issuance of further shares to employees as per SECP approval – usually, these are issued at a discount but can also be full value.


  1. Private companies had previously been granted the option to offer employee share options (without rights issue) through a temporary Presidential Ordinance in 2020, which has since lapsed. Employees can still be offered shares through the normal rights issue procedure if existing shareholders decline to take the offered shares, and such shares are based on Company-approved schemes (with contractual terms with employees for vesting, restrictions).


  1. Companies may also raise capital through shares other than ordinary shares i.e., through issue of preference shares provided certain requirements are met and SECP approval is obtained. Preference shares can have different rights attached e.g. redeemable or not, convertible into ordinary shares, participatory (votes and meetings), and cumulative or non-cumulative.


  1. Public companies may raise equity through Initial Public Offering (IPO), issuance of prospectus and related SECP and Pakistan Stock Exchange approvals. Shares are then offered directly to the general public. IPOs can raise substantial amounts of much-needed funds, provided the Company is an attractive prospect. However, IPOs are complex and the extra regulation imposed on a Company must be carefully considered.


  1. In a recent development, the SECP has approved the Growth Enterprise Market (GEM) Listing Regulations, which have been published by the PSX as part of its Rule Book. The GEM Regulations enable SMEs, green-field projects, not for profit and other companies to raise capital through Pakistan’s capital markets conveniently, without needing to comply with complex conditions required for listing on the PSX Main Board. For listing on the GEM board, any public company with audited accounts for the last two financial years and post-issue paid up capital of at least PKR 25 million is eligible. Post listing requirements for the GEM board are also relaxed as compared to the Main Board, such as non-applicability of the Listed Companies Code of Corporate Governance, and allowance for half yearly progress report submissions rather than quarterly progress reports.
A brief and temporary amendment in the company law through Presidential Ordinance in 2020 allowed private limited companies to issue shares for consideration other than cash (e.g., plot of land, equipment, asset etc.) as long as the AOA allowed it, special resolution supported it, and as per requirements which were to be set by the SECP. The Presidential Ordinance has since lapsed.

Public companies may still receive equity contributions in-kind, provided SECP-approved valuation processes are followed.
  1. The general trend in Pakistan is of using internal funding for finance investments. Money from friends and family and angel investments from individuals typically involve smaller amounts of equity finance. 

  2. Seed financing has also become common in Pakistan, at least for start-ups which are an attractive prospect. Seed funds are the first investment in a startup in exchange for equity (partial ownership, usually not more than 20%) and this money is usually used for getting the start-up up and running, scaling the business up, marketing, making new hires, testing products and market analysis. Typically, seed funds come from friends and family and private angel investors.

  3. Equity investments in Pakistan may also be made through other structures, such as convertible preference shares, convertible notes (which basically function as loans), or private loans with option for conversion into equity. These are investments with the option for conversion into the share capital of the Company (among other general and special terms). This may also come with smaller grants for specified expenses / costs of the Company.

  4. In Pakistan, several start-up incubators and accelerator programs provide corporate and market expertise, logistical support, vendor and distributor networks and access to funding circles. In this way, chosen start-ups can get a direct line to seed funding or even full acquisition by existing corporate businesses.

  5. For more complex equity investments, expect the standard NDAs, MOUs (e.g. pre-conditions may be set, feasibility study, pilot, demos), and then share purchase agreements and execution of share transfer deeds. SECP reporting will also be required (depending on circumstances and for different reasons), which can be done through eServices. 

  6. In cases where an investor gains equity in a Company governed by an existing shareholder agreement, it may seek to join it as a contract party or execute a fresh agreement with other shareholders.

Debt financing is essentially done on the basis of written contractual agreement between the borrowing entity and the lender, with banks schedule of charges for financing and specified terms and conditions set out for individual banking products.


Debt finance can be availed from the following sources:


  1. Conventional Banks, Islamic Banks and development financial institutions (for SMEs)
  2. These are the primary source of debt financing, with money borrowed from a bank or other financial institution paid back as principal together with accrued interest / mark-up. 
  3. Leasing companies
  4. Leasing is not actually concerned with incurring debt. It has been traditionally used as an alternative to debt or equity financing as it consists of the rental of a tangible property such as immovable or movable property (buildings, equipment and vehicles) on special terms and conditions. 
  5. Internal debt financing
  6. In certain cases, businesses may receive loans internally from private sources such as friends and family. Most of these types of loans are not executed formally but differ from angel investments which are based on formal transactions. 
  7. Issuance of Redeemable Capital by Public Companies under the Companies Act, 2017
  8. Only public companies may issue redeemable capital (which is not ordinary share capital). This is usually issued for a specific time periods for fulfilling short-term funding requirements and which may in certain cases be converted to ordinary shares.  Redeemable capital includes participation terms certificate (PTC), musharikka certificates, Islamic sukuks, commercial papers and term finance certificates (TFCs).
  9. Government-sponsored Financing
  10. The Government of Pakistan and Provincial Governments introduce financing schemes for targeted sectors of the population through participating banks. These schemes are a combination of special incentives and concessions. Banks may follow their own collateral policy requirements for financing amounts over specified limits.
  11. Loan Advances against Credit Sales 
  12. Borrowers may obtain loan finances against credit sales which are due but not yet collected. Mortgages or charges over corporate book debts can be registered as legal charges under the Companies Act, 2017.

The debt finance relationship between the borrowing entity and the lender is regulated under the SBP Prudential Regulations (Corporate / Commercial, SMEs), while legal disputes are governed under the Financial Institutions (Recovery of Finances) Ordinance, 2001. Rights to related security / collateral are secured under the Companies Act, 2017 for corporate borrowers and now under the Secured Transactions Registry under the Financial Institutions (Secured Transactions) Act 2016 for corporates and non-corporates alike. 

  1. SBP Prudential Regulations for SMEs


The SBP Prudential Regulations  for SMEs (the “PRs”) have been periodically updated since the 2000s, with the latest amendments coming in late 2017 in the back drop of the Government of Pakistan’s National Financial Inclusion Strategy and the SBP’s Policy for Promotion of SME Finance. Borrowers can now enjoy faster processing times, simpler documentation and stronger relationship management under the new PRs. A basic outline of the PRs for SME is given below:

General Regulations

Banks and Developmental Financial Institutions (DFIs) must prepare specific SME credit policies for efficient management of their portfolio.

Electronic Credit Information Bureau (eCIB) reports for borrowers must be obtained, along with basic borrower fact sheets and supporting documents.

All financing facilities must be secured against personal guarantees of SME owners, other than facilities secured against liquid assets (i.e., collateral readily realizable into cash). For limited companies, sponsor directors must also give personal guarantees.

Banks can provide financing backed by personal guarantees (referred to as “clean exposure”) up to a monetary limit of PKR 5 million. All financing facilities over PKR 5 million should be appropriately secured through collateral property.

Banks and DFIs must ensure financing is utilized for the purposes specified in loan application form and supporting documents, including monitoring utilization for working capital (stock reports / positions of current assets) and long term financing (supporting documents for immovable property and fixed assets).

Loans may be rescheduled or restructured as per approved bank policy, on certain prescribed conditions.

Turnaround-time for applications have been fixed at maximum 15 days for SEs and maximum 25 days for MEs (from date of receipt of finance application form along with required documentation). This includes requirements for security, collateral, to be advised in one go.

Small Enterprises (SE)

The PRs define a Small Enterprise (SE) as a business entity (whether corporate, firm or sole proprietorship) which either has (i) up to 50 employees (including contract employees), or (ii) annual sales turnover of up to PKR 150 million.

SEs can avail financing of up to PKR 25 million from a single bank / DFI or from all banks & DFIs.

Audited accounts are not mandatory for SE financing of up to PKR 15 million. Banks & DFIs may request signed and authenticated financial accounts in some form, to ensure a suitable basis for assessment of cash flows or verification. For financing over PKR 15 million, a copy of financial statements duly audited by a Chartered Accountant or a Cost and Management Accountant is required. This requirement may be waived when exposure net of liquid assets does not exceed PKR 15 million).

Collateral valuation for financing of up to PKR 5 million may be undertaken by Banks & DFIs at their own discretion through their own valuators or Pakistan Banks’ Association (PBA) approved evaluators. For financing above PKR 5 million, collateral valuation must be undertaken by PBA-approved valuators.

Medium Enterprises (ME) 

The PRs define a Medium Enterprise (ME) as a business entity which either has (i) an employee count of between 51-250 (manufacturing and service MEs) or  between 51-100 (trading MEs), or (ii) annual sales turnover of between PKR 150 million to PKR 800 million. 

MEs can avail financing (including leased assets) of up to PKR 200 million from a single bank/ DFI or from all banks & DFIs. 

Financial statements duly audited by Chartered Accountant are required for finance facilities for corporate MEs (public companies or their private subsidiaries) or where the amounts exceed PKR 10 million . Banks & DFIs may also accept a copy of financial statements duly audited by a practicing Cost and Management Accountant in case of a borrower other than a public company or a private company, which is a subsidiary of a public company. This requirement may be waived when exposure net of liquid assets does not exceed PKR 10 million).

Valuations shall be carried out by an independent professional evaluator who should be listed on the panel of evaluators maintained by the Pakistan Bankers Association (PBA).

Financial Institutions (Recovery of Finances) Ordinance 2001 (“Recovery Ordinance”)


The Recovery Ordinance is the primary law dealing with the recovery of finances from defaulting borrowers and guarantors, whether corporates or non-corporate SMEs and private individuals. It provides for a dedicated court structure and procedure through the Banking Courts where details are established for finances availed and principal and mark-up paid. Banking recovery suits rely on authenticated bank account statements and all other documents relating to the grant of financing.


The law allows banks to control and sell collateral property of defaulting borrowers if a case for recovery can be made out, without the need for recording of evidence in a full-fledged trial – which defaulting borrowers always prefer as they are then allowed to defend the suit and gain time and leverage.  This may only happen with the permission (or “leave”) of the Banking Court and is known as an application for “permission for leave to appear” (PLA). 


Court decrees passed by Banking Court may be executed and mortgaged properties may be auction by private execution, though Court process or by the lenders without intervention of the Court. 


Importantly, the Supreme Court recently ruled that a certain provision in the Recovery Ordinance was constitutional. The particular provision allowed banks and financial institutions to sell mortgaged property without Court intervention for recovery of defaulted loan finances after fulfilling certain rules. This was in fact a second constitutional challenge against the said provision, as it was previously struck down by the Supreme Court in late 2013 as being unconstitutional – after which the SBP rushed to amend the clause.  The particular provision again survived a second challenge before the Supreme Court. 

Financial Institutions (Secured Transactions) Act 2016


The Financial Institutions (Secured Transactions) Act 2016 (STR Act) is designed to further improve the overall lending portfolio of banks and other financial institutions and cut down the number of non-performing loans and legal disputes. It provides for easier modes of secured financing and introduces a streamlined law for lenders’ rights over secured assets and movable property of corporate and non-corporate borrowers. 


The STR Act does not apply to immovable property. The regime relies on the execution of security agreements with borrowers and filing of financing statements with the Secured Transactions Registry – a searchable registry of security interests and secured assets. The Secured Transactions Registry was launched in April, 2020. 


Enforcement of security interests under the STR Act is done through filing of recovery suit before the Banking Court under the Recovery Ordinance.

Financing for SMEs has traditionally been a difficult story for commercial banks and other lenders. The SME sector has experienced high proportions of non-performing loans (NPLs) – as much as one third of all SME loans in 2012. Banks mostly turned to established corporates, which has in turn saturated the large corporate segment. SMEs were largely serviced by rental and leasing service companies, although that sector suffered a decline from 2008 onwards. The general trend has since steadily improved through SBP efforts and participation of financial sector, with commercial banks now providing financing to SMEs on a sustainable basis.


Most importantly, corporate lending products emphasize security / collateral, especially urban immovable property which is the most used form of collateral, and other fixed assets (plant, machinery etc.). These valuable assets can be “attached” by lenders through recovery suits under the Recovery Ordinance to satisfy the loan amounts in case of borrower default. Requirements for proper records of such collateral often present challenges to SMEs, which may not have immovable property or even be willing to pledge any (e.g., if personally owned by a business owner), in which case SMEs largely rely on movable property. There was general reluctance for banks to accept movable property as collateral as the only collateral registry available was the SECP maintained charge registry for limited companies only to register and notify public-at-large of lender charges over immovable and movable property of corporate borrowers. This made it unsafe for bank lending to non-corporate SMEs by collateralizing the loan with a movable asset, since there was limited applicability of the available SECP collateral registry and no collateral registries for movable assets for non-corporates.


NOTE: The official commencement of the Secured Transactions Registry in April, 2020 under the STR Act is designed to broaden the scope of assets that SME segments can offer as collateral for availing finance, including movable property, establishment of a searchable asset registry, while it has also strengthened lenders’ rights as set out in the STR Act. SBP has recently urged banks and other lenders to start process for registering applicable security interests under the STR Act through executing security agreements with borrowers and filing financing statements with the STR.


Still, there are several concerns for SMEs when it comes to debt financing as noted below:


  1. Most SMEs do not maintain proper books of accounts, much less audited financial statements, which makes it difficult for bankers to assess the viability of the business as a going concern. Usually, a minimum of last two years statements are required, although new entities may be considered on a case-to-case basis, depending on the bank.
  2. SMEs with no credit history (ECIB) or of business owners may be negatively affected.
  3. SMEs may not be able to properly provide business plans, supplier / vendor information, sales accounts as easy as corporates.
  4. SMEs face bureaucratic red tape for special permits and licenses required for the business, which for banks is an important requirement as part of their KYC and due diligence procedures.
  5. Commercial disputes with other parties and partners can pose heavy economic burden on SME finances

In Pakistan, financing is being offered to SMEs for the following purposes:

  1. Short term finance for working capital for managing day to day business cash flows, raw materials and inventory.

  2. Long term finance for expanding the business and capital expenditure e.g. for financing fixed assets, land, buildings, plant & machinery, vehicles.

  3. Trade finance for assuring payments with foreign and domestic transactions e.g. letters of credit, guarantees.

  4. In recent years, financial products such as supply chain financing (SCF) and similarly value chain financing (VCF) have been introduced by banks for corporates with established relationships with suppliers and vendors, which pose lesser financial risks even if they are SMEs. Banks support the entire supply chain flow between the corporate and its business partners through tailored financing programs for key buyers and suppliers to ensure steady cash flows. SCF is offered on both secured and unsecured basis, though it is common for it to be unsecured (as recourse options may be placed on the buyer / seller or the corporate / parent company).

For securing collateral in debt financing, security agreements are executed by the borrowing entity with the lenders alongside the financing contracts. These “security interests” are intended to be continuing securities until the finance amounts are paid off or settled.


Collateral can be secured in the form of the following security agreements:


  1. Equitable mortgages for immovable property, which involves the deposit of title deeds / ownership documents with the lender. The most preferred form of collateral in Pakistan is urban immovable property. For corporate borrowers, mortgages of immovable property are filed with the SECP under the Companies Act, 2017. For private individuals and firms, these equitable mortgages can be enforced through written agreement and the Banking Courts. Although registration is not mandatory, it is generally the case that lenders with equitable mortgages get their lien marked in the revenue record of the immovable property.


  1. “Simple” or registered mortgages that are registered with the Registrar of Conveyances & Assurances (under the Registration Act, 1908) of the area where the immovable property is located. This is the classic form of mortgage where debt financing is secured by a non-possessory security interest in favor of the lender. Upon payment of the debt finance, the borrower may clear the immovable property of the mortgage by registering a “redemption deed” with the same office. 


  1. Pledges over goods, share capital and bank accounts, where possession and control is handed over to the lender, to be exercised on agreed terms and conditions as per the written agreement. 


  1. Letters of lien and set off over bank accounts, which are equitable charges over some or all the bank accounts of a borrowing entity, with the specific bank, account number, and branch identified.


  1. Hypothecation of present, future, tangible and intangible assets, fixed and movable assets, but excluding immovable property. This is an equitable charge entitling a lender to take possession of and sell of collateral to satisfy the recovery of finance availed. Hypothecation can extend to future assets. 


  1. Assignment of receivables, where a borrowing entity transfer right to the benefit of sales and revenue proceeds of its business (sales receivables accounts).


  1. Person guarantees and promissory notes, executed by private individuals in personal and/or official capacity (e.g. a director or CEO). 

Islamic banking is regarded as a viable alternative to traditional debt financing, as Shariah-compliant banking has always been an attractive proposition to lenders and prospective borrowers in Pakistan. Islamic banking involves interest-free banking through a number of banking products which avoid interest and unethical practices. With regards to interest (or “mark-up”), what is prohibited is the money paid over the principal amount of a loan or debt.


In Islamic banking, the bank does not charge penalty for late payments as it amounts to charging interest. For prompt payment, however, borrowers may be obligated to pay some amount in charity in case of default, which charity amount is disbursed to charitable institutions and does not become part of the income of the bank.


With the growth of Islamic banking in Pakistan, several Islamic banking products are available for SMEs and marketed for both short-term and long-term financing needs. 




Islamic banking products for short-term working capital requirements are as follows:


1- Murabaha


Murabaha is the most popular form of Islamic financing in Pakistan and is usually used for goods and raw material purchase and other working capital needs of a business. A murabaha is a sale transaction where the cost of a commodity is stated along with profit at the outset. This finance is not a loan given on interest, but a sale of commodity for cash or payment at a later date. 


2- Istisna 

This is a short term facility to fulfil working capital needs. It is a special sort of sale transaction where a bank places order with a seller to manufacture goods and upon delivery to the bank, these goods are sold by the borrower acting as the bank’s agent. This facility is also aimed at SMEs involved in manufacturing and construction and which require working capital for wages, and to cover overheads for production. 


3- Bai Salam 

This facility is a sale transaction where advance payment is made by the bank for goods to be delivered later on. The seller (borrower) undertakes to supply the goods to the buyer (bank) at a future date in exchange for an advance price fully paid at the time of contract. The goods / commodity intended to be purchased must be fully specified. 


4- Tijarah

Tijarah is a short-term trade finance facility designed to meet the liquidity requirements of borrowers for sale of finished goods stock and to gain benefits of cash sales. The bank purchases the borrower’s finished goods on a spot-payment basis and appoints the borrower as agent to sell the goods in the market, with the borrower depositing the sale proceeds with the bank to settle the financing.



Long-term finance facilities in Islamic banking consist of the following: 


(I )Ijarah 

Ijarah is a medium to long-term finance facility used to finance capital assets such as plant, machinery and vehicles. Here, the bank acquirees the required asset and leases it to the borrower in exchange for rental payments for the use of that asset. At the end of the Ijarah term, the asset can be purchased by the borrower at an agreed price through a separate transaction (as the Ijarah agreement cannot itself be dependent on a promise to sell or gift the leased asset as per settled Islamic jurisprudence). 

(II) Diminishing Musharakah

This is also a medium to long term finance facility for funding capital expenditures (immovable, fixed and movable assets) and even for paying off conventional banking facilities. Diminishing Musharakah is essentially a partnership where the bank and borrower participate in joint ownership of a Shariah compliant asset. The bank’s share is divided into units which are purchased by the borrower periodically so that its share in the partnership is increased until the borrower becomes full and sole owner. Rental is charged on portions of the asset owned by a bank.


Trade related business credit (Import / Export)


Islamic banking also offers trade credit facilities such as letter of credits, bid bonds and letter of guarantee. 


Microfinance institutions operate on the basis of conventional banking and provide smaller amounts of debt financing. The SBP’s Prudential Regulations for Microfinance Financial Institutions (“MFIs”) has recently been amended to allow loans of up to PKR 3 million to micro businesses (employing up to 25 persons, excluding seasonal labor). In addition, finance limits have been raised for general loans (up to PKR 350,000) and housing loans (up to PKR 3 million)

The Government of Pakistan introduces schemes for enhancing credit and funding access to SMEs. Currently, incentive schemes exist for:


  1. Refinancing for SME Modernization (conventional and Islamic). This is medium to long term financing for modernization of existing SME units or establishing new SME units, for local purchase or import of machinery and certain civil works. SEs may avail financing up to PKR 25 million and MEs up to PKR 200 million.


  1. Refinancing for Working Capital finance of SEs and lower-end MEs (conventional and Islamic). This is a short term facility for certain SME sectors.


  1. Refinance and Credit Guarantee for Women Entrepreneurs. 


  1. Prime Minister Kamyab Youth Entrepreneurship Scheme. This scheme is available for short term working capital and long term capital requirements. The scheme is split into three tiers as per the loan value.

The Sale of Goods Act, 1930 (the “SGA”) governs the sale of goods in Pakistan and provides for standard default terms and conditions of sale. Normally, these standard terms are modified by the Buyer and Seller through a formal written agreement, called a “Contract of Sale” under the SGA. The SGA and the Contract Act 1872, both of which are federal laws, are the two primary laws regulating commercial activities in Pakistan. The SGA has not been updated, except for minor additions.


The SGA provides the basic terms and conditions of sale for goods and the procedure for transfer of ownership of property from the Seller to the Buyer in the Contract of Sale. A Contract of Sale is essentially a valid contract (i.e., meeting formal requirements of Contract Act, 1872 whether oral or written), which is entered into freely by Parties having legal capacity to do so, and which is based on lawful consideration (i.e., the price) in exchange for transfer of ownership of the goods.


The SGA also deals with Agreements to Sell, which are only relevant in case of future goods (see below) or where the transfer and delivery does not take place until a future date or when some condition is fulfilled. Once the goods are transferred, the agreement is “converted” into a Contract of Sale.

The SGA’s standard terms and conditions of sale apply to a Contract of Sale unless the Parties have agreed on their own terms and conditions of sale. The SGA steps in to “fill the gaps” for the every-day purchases where only the most basic terms of sale are available and communicated to buyers – e.g., price, weight, quantity. This is less and less common for modern day businesses such as departmental and grocery stores, where the terms and conditions of sale are expressly communicated to the buyers. For serious commercial transactions involving equipment and materials, however, a formal written contract is made which overrides the SGA default provisions relating to title, risk, delivery, warranties, conditions and other aspects of the transaction. The Parties cannot exclude liability for fraud, coercion, unlawful purpose and criminal liability.

The SGA applies to “goods” – defined as every kind of moveable property (including shares, equipment, materials) but not “actionable claims” (i.e., where a legal action must be taken in respect of a claim, such as initiating a civil case) or money (physical currency). Naturally, goods under the SGA exclude immovable property (real estate, buildings etc.), and are classified in the SGA as follows:


  1. Existing Goods: Goods which exist in a physical state at the time of execution of the Contract of Sale and which are legally owned or possessed by the Seller at that point in time. Existing goods can include the following types:


  • Specific Goods: Existing goods which have been identified and separated from other goods and agreed upon between the Parties in the Contract of Sale. 
  • Ascertained Goods: Existing goods which are identified and set apart from a larger set of goods (usually bulk products).
  • Unascertained Goods: Existing goods which have not been selected from a larger group of goods.


  1. Future Goods: Goods which are to be produced / manufactured in the future (e.g., bespoke products or goods which require manufacture). 


  • Contingent Goods: These are a subset future goods which depend on the satisfaction of a certain condition before they can be sold to the Buyer (e.g., purchase or delivery from third party, some pre-conditions to manufacture). 

As noted above, if the Parties have not agreed on the specific terms for the transaction, the SGA’s standard default terms apply to the key elements of a Contract of Sale as set out below:

Price: The Buyer is under a duty to accept and pay for goods validly delivered by the Seller.  The SGA recognizes three ways the Contract price can be determined: (i) as fixed by the Parties themselves; (ii) by a method agreed by the Parties; or (iii) through a course of dealing between the Parties. When the price cannot be determined, the Buyer must pay a “reasonable price” to the Seller, as determined on a case-by-case basis. It should also be noted that unless the Parties agree otherwise, the SGA states that the delivery of goods by the Seller and payment of the price by the Buyer will occur at the same time. 

Time, Method and Place of Delivery: The Seller is under a duty to deliver possession and title of the goods to the Buyer. 

Where no time for delivery is agreed, the SGA’s default position provides that the Buyer must apply for delivery from the Seller while the Seller must deliver the goods within a “reasonable time”, which is a question of fact to be determined on a case-by-case basis. At the same time, Courts in Pakistan recognize that in mercantile and commercial transactions, it is implied that time is of the essence of the Contract.

The Parties are free to agree on the method of delivery of the goods, as long as it puts the goods in the Buyer or its agent’s possession (or delivered through a postal carrier). When there is no agreement, the SGA provides that delivery of goods by a Seller to a postal carrier for onwards transmission to the Buyer will constitute a valid delivery.


Neither the SGA nor any other law specifies special rules for packaging and material (other than tobacco and drug-specific legislation, federal and sales tax rules). However, where delivery expenses are not allocated by the Parties in the Contract of Sale, under the SGA’s default position, the Seller must bear all such expenses to put the goods in a deliverable state (i.e., in a state whereby the Buyer is obligated to accept and pay for them).

If the Contract of Sale does not specify the place of delivery, the SGA steps in and specifies that the goods will be considered as delivered at the place where they are situated at the time of the sale. If the goods are future goods, then under the SGA they are considered as delivered to the place where they are manufactured or produced.


Inspection and Acceptance

Under the SGA, the Buyer is entitled to a reasonable opportunity of examining goods delivered to it, to allow it to ensure they are in conformity with what was agreed in the Contract of Sale. Unless the Parties have agreed otherwise, the Seller must provide this opportunity to the Buyer. The Buyer alone is responsible for checking the quality and suitability of the goods before purchase and acceptance. Once the Buyer inspects the goods and accepts them, any faults / defects which would have been apparent on inspection cannot be used later to repudiate the Contract of Sale.

The SGA also describes the manner of acceptance of goods by the Buyer, where the goods are deemed “accepted” when the Buyer: (i) informs the Seller that the goods have been accepted; (ii) does something to the goods which is inconsistent with the Seller’s ownership (e.g., destroying, modifying, using the goods) which creates a legal presumption that the Buyer is exercising its ownership rights over the goods and has thus accepted them; and (iii) retains the goods beyond a “reasonable time” and does not inform the Seller that the goods have been rejected.

Refusal and Return of Goods

The SGA imposes liability on the Buyer’s refusal to take delivery from the Seller when requested to do so. In such case, the Buyer is liable to the Seller for any loss occasioned by the refusal to take delivery and will further be liable to pay reasonable costs for care and custody of goods by the Seller. The Seller has other available remedies under the SGA.

If goods have been rejected by a Buyer (if so entitled), it will not be bound to return such rejected goods to the Seller but will only be required to inform the Seller of its refusal. This is the SGA’s default position unless the Parties have agreed otherwise.

Sale by Description and/or Sample: The SGA provides strict obligations when goods are sold by description (i.e., description of weight, measurement, materials and other details of goods). If a description is relied upon, it is almost always treated as a condition of the Contract of Sale.  Sales by description often occur when the Buyer relies on given specifications and no physical good is shown, and it may still be a sale by description when the Buyer has seen the goods physically (e.g. shopping at stores) or a sample. A Contract of Sale for future goods that are to be manufactured as per specifications, is also a sale by description. If a sale is by sample as well as description, the goods must conform with both the sample and the description. Non-conforming goods can be validly rejected by the Buyer and treated as a breach of an essential condition of the Contract of Sale (or alternatively treated as a warranty). The following key points should be noted:

Once a Contract of Sale by description is made, there cannot be any unilateral change in the specifications / description (unless the Parties have agreed otherwise in the Contract).


Every statement which forms part of the description is considered a condition and a breach of this condition will entitle the Buyer to reject the goods, even if the statement is of a trivial / minor nature. 


Depending on how the goods are described in the Contract of Sale, such a condition may go further than just the mere physical state of the goods and can include the packaging and labelling of the goods.


If there has been a breach of this condition, the Buyer can reject the goods even if no damage actually occurs – this is the hallmark of a condition under the SGA.

Any term in a Contract of Sale by description which excludes a Seller’s liability for supplying defective goods can at most exclude only merchantability requirements for those goods (e.g., in case of goods sold with faults or on “as-is” basis). However, any such term cannot avoid the SGA’s requirement for the goods to conform to the description. Thus, under the SGA, a Seller is duty bound to supply goods which correspond to a contractually agreed description of those goods.

Conditions and Warranties under the SGA: The SGA prescribes two important contractual obligations in a Contract of Sale for goods: conditions and warranties. As already noted, the SGA allows the Parties to differ from the default position, provided the Contract is clearly worded and replaces the SGA’s implied conditions and warranties. Breach of conditions can be treated as a warranty if the Buyer waives its right to repudiate (terminate) the Contract of Sale and instead treats the condition as a warranty (e.g., when a Buyer still accepts and/or deals with goods as owner – whether intending to or otherwise, expressly waiving conditions, re-selling).


A condition is the fundamental basis of and essential to the main purpose of the Contract of Sale. Because of this, the SGA recognizes that the breach of a condition entitles the Buyer or Seller (as applicable) to treat the Contract as repudiated (termination). Its breach therefore produces serious legal consequences. The SGA prescribes the following conditions:

Implied condition of title: Unless the Contract states otherwise (e.g., where the Seller acts for a third-party owner, or in e-commerce marketplaces with third-party sellers), the Seller is assumed to have legal ownership of the goods to be sold to the Buyer. This is meant to protect Buyers from purchasing stolen goods – ownership of stolen goods can never be transferred through sale.

Implied condition in sale by description: In a Contract of Sale by description, there is an implied condition that the goods will comply with that description. Please also see [LINK] on sales by description.

Implied condition in sale by sample as well as description: Similarly, if the Contract of Sale is by way of sample as well as description, there is an implied condition that the goods will conform to both the sample and description.

Implied condition in sale by sample: When a sale is by way of sample, the SGA provides an implied condition that: (a) the bulk of the goods must correspond with the sample in quality; (b) the Buyer shall be afforded a reasonable opportunity of comparison, and (c) that the goods are free from any defects rendering them unmerchantable, which defect is not apparent from a reasonable examination of the sample. This condition, in effect, includes an implied condition of merchantability. 

Implied condition as to quality or fitness for a particular purpose: The SGA has adopted the caveat emptor principle found in English common law i.e., “buyer beware”, as there is generally no implied condition (or warranty) as to quality or fitness for a particular purpose. This condition will be implied only in certain cases: (a) the Buyer expressly or by implication makes known to the Seller the purpose for which the goods are required; (b) the Buyer relies on the Seller’s skill and judgment when purchasing the goods; and (c) the Seller is in the business of dealing in goods of that description. 

Implied condition as to merchantable quality: The SGA will imply this condition as to merchantability of goods in a Contract of Sale (if Contract is otherwise silent) for sales by description by Sellers dealing in goods of that description (e.g., a shoe seller). This condition will not extend to any apparent defects if the Buyer has examined the goods but the Buyer will still be protected against latent defects (i.e., defects which are not apparent from a reasonable examination).


Implied conditions as per trade usage: The implied condition as to quality or fitness for a particular purpose may be proven by trade usage (if the Contract is otherwise silent).

A warranty is also a contractual stipulation which is incidental to the main purpose of the Contract of Sale. It is not fundamental in the same manner as a condition since a breach of warranty does not lead to the same legal consequences as a breach of condition (termination / repudiation). The Contract of Sale and its purpose is still carried out as normally the Buyer accepts and takes delivery of the goods. A breach of warranty can give rise to a claim for damages, but the Contract cannot be terminated on this failure alone. A breach of warranty can entitle the Buyer to terminate / repudiate the Contract only in rare cases where the Seller can neither repair nor replace the defective goods. The SGA prescribes the following warranties:

Implied warranty of quiet possession: The SGA requires the Seller to put the Buyer in “quiet possession” of the goods i.e., free from any hindrance or restrictions on possession and use of the goods. This warranty must be differentiated from the implied condition of title [LINK], which is a much more serious obligation.

Implied warranty against encumbrances: This is an implied warranty that the goods sold are free from any third-party security interest (e.g., charge, pledge, or other encumbrances). If this warranty is breached and the Buyer incurs cost in discharging these other interests in the goods (i.e., paying off the third-party), the Buyer is entitled to compensation from the Seller for such costs. This warranty is not applicable if the existence of the third-party interests is known to the Buyer at the time of the Contract of Sale. Similar to the warranty of quiet possession, this warranty may involve questions on whether the implied condition of title has been breached (which would provide a more serious remedy to the Buyer of terminating the Contract).

It should also be noted that the SGA allows a Contract of Sale to continue if the Buyer waives a condition (i.e., any of the conditions noted above), in which case that condition becomes a warranty. In some cases, the Buyer is not even aware of waiving the condition (e.g., by treating defective goods as its own and using them) or intends to reject the goods but does acts which are deemed as acceptance.

Passing of Property / Title and Risk: The “passing of property” i.e., transfer of ownership rights in goods, and bearing of risk of loss or damage to them during transit / delivery, is a significant aspect of a Contract of Sale. Normally the Parties will agree that transfer of ownership of the goods and the transfer of risk will occur when the goods are accepted (e.g., after inspection / testing). However if the Parties so agree, ownership of goods can pass to the Buyer at any time, even at a different point in time from the transfer of possession, payment of the price, or the transfer of risk from the Seller to the Buyer. If the Parties have not agreed, the default provisions of the SGA apply as noted below:


Passing of Title / Ownership


For specific goods which are already in a deliverable state, the sale of which is unconditional (i.e., not dependent on any conditions being fulfilled), the ownership of those specific goods will pass to the Buyer when the Contract is made.

For specific goods which are not yet in a deliverable state, for which the Seller must do some act to put them into a deliverable state (e.g., packaging), the ownership of those specific goods will pass when that act is done by the Seller and the Buyer is notified.

In cases where specific goods must be weighed, measured, tested or some other action must be done to them for calculating their value / price, the ownership of these specific goods does not pass until these acts are taken.

For sales of unascertained goods or future goods, where such goods are in a deliverable state and then “appropriated” to the Contract (i.e., when the Seller delivers them to the Buyer, a postal carrier, or any authorized person), the ownership of those goods passes at the time of appropriation. 

In case of goods delivered to the Buyer on a “sale or return” basis, the ownership of the goods will transfer: (a) when the Buyer accepts the goods or does any other act of acceptance, then on the occurrence of such act; or (b) if the Buyer does not expressly accept the goods, but still retains them without notifying Seller of their rejection, then on the expiration of any time fixed for return of the goods or, if no such time is fixed, then on the expiration of a reasonable amount of time.


Passing of Risk

The SGA’s general rule is that risk of loss or damage to the goods will normally pass to the Buyer at the same time as the transfer of ownership, regardless of whether delivery has occurred or not.


Where goods are to be delivered at a “distant” place, the Buyer bears liability for any deterioration to the goods which is incidental to the course of the transit lies, even if the Seller agrees to deliver at its own risk, unless otherwise agreed by the Parties.


Jurisdiction and Alternate Dispute Resolution

Jurisdiction: If the Parties have not agreed to a Court’s jurisdiction over the Contract, jurisdiction will be determined under the Civil Procedure Act 1908 (the SGA does not deal with jurisdiction) –  generally, the Court must have territorial jurisdiction over the area in which either the defendant resides or carries on business, or where the cause of action arose. Foreign Court jurisdiction clauses are also enforceable in Pakistan, as they have been held to the same treatment as arbitration clauses under the Contract Act 1872.


Alternate Dispute Resolution:

Alternate dispute resolution clauses such as local and foreign arbitration clauses, are enforceable in Pakistan if they are validly drafted (as an arbitration clause). They are expressly held to be enforceable under the Contract Act 1872. Mediation clauses will also be enforceable in the same manner.

The SGA sets out remedies that are available to each of the Buyer and the Seller in the event something goes wrong and the sale of goods does not take place as originally agreed.


Seller’s Remedies Against Buyer: Other than special rights as an ‘unpaid Seller’, these remedies include the following:


Suit for Price: The Seller can sue the Buyer for the price of the goods if their ownership has passed to the Buyer who, without cause, refuses to pay for the goods. This suit for price can also be filed against the Buyer if the ownership in the goods has not passed and the Buyer has not paid the price on the contractually agreed day, irrespective of whether delivery has occurred or not. 


Damages for Non-Acceptance: The Seller can also sue the Buyer for damages for non-acceptance of the goods by the Buyer if it wrongfully withholds acceptance. These damages are based on the general principles set out in the Contract Act 1872.


Buyer’s Remedies Against Seller: The Buyer can sue the Seller in three cases:


Breach of Warranty: In cases where the Seller breaches a warranty or the Buyer treats a breach of condition as a breach of warranty, the Buyer may either: (1) sue for damages due to breach of warranty for any losses or damages caused as a result, or (2) reduce part or the whole of the Contract price.


Damages for Non-Delivery: The Buyer may sue the Seller for damages in case of non-delivery of the goods. The recoverable damages will be the difference between the Contract price of the goods and the market price at the time of the breach. In case the Contract price has been paid already, the Buyer may sue for recovery. 

Specific Performance: For specific or ascertained goods, the Buyer can specifically enforce the Contract of Sale through order of the Court and force delivery of the goods by the Seller. The Specific Relief Act 1877, governs such remedies. This remedy is not available to the Seller against the Buyer for payment of the price.

Remedies Available to Both


Breach of Condition: Either Party may treat the Contract as repudiated on breach of a condition by the other Party, as noted above.


Anticipatory Breach or Early Repudiation: If one Party repudiates (or threatens to repudiate) the Contract before the delivery / performance date, the other Party can treat the Contract as still “subsisting” (i.e., still in operation and requiring the obligations of both Parties to be performed as originally agreed), wait for such date and hold the breaching Party responsible for the consequences of non-performance. 


Interest and special damages: Under the SGA, a Court may award interest on the Contract price to a Seller in a suit for price, either from the date of delivery of goods to the Buyer or from the date on which the Contract price was to be paid.


Rights of the Unpaid Seller against the Goods: The Seller has certain rights over the goods which operate as a remedy, whether the ownership of the goods has passed or not. This includes: (a) a lien over the goods while in possession of them; (b) a right to stop the goods during transit if the Buyer is insolvent; (c) right of resale the goods to a third party, and (d) the Seller’s right to withhold delivery until payment by the Buyer, provided the ownership in the goods has not yet passed.

The SGA, as noted above, covers the key important provisions of a Contract of Sale as per its standard / default positions. Ideally, a Seller should lay out its own terms and conditions as per its own interests and limit its liability and obligations to what is commercially reasonable, while at the same time providing reasonable obligations to Buyers for goods supplied. In this context, the terms and conditions should include the following:

  1. Acceptance: At the outset, these terms and conditions of sale should firstly be accessible to the Buyer and the purchase of the products must be based on the Buyer’s acceptance of these terms. In e-commerce transactions, therefore, an affirmative action is used – usually requiring actions such as checking a box, clicking “I Accept” or other similar actions at time of checkout and payment, to ensure that the Buyer is aware of and is bound by those terms and conditions.

  1. No Automatic Obligation: It is standard practice for these terms to include a provision that the Seller is not obligated to accept any order of products, and that any delivery obligations in respect of the products will only come into effect once the Buyer’s order is accepted. 

  1. Availability: In some cases, products which are advertised by the Seller may not be available (e.g., supply chain issues, shortage in market, low stock / inventory). It is advisable to have a standard provision that the Seller will not incur any obligation to keep appropriate levels of inventory or be liable for non-availability of a product. 

  1. Payment: Payment terms should state that the sale is not being made on any basis of credit and that payment is due immediately before delivery. It is good practice to include provisions to the effect that the time for payment is of the essence (i.e., making such provision an essential condition of the Contract of Sale), with charging of interest / late payment fees in cases of late payment. If payment is not made immediately as required, the Seller should notify the Buyer and demand immediate payment, including payment of any security, and if such payment is not made, the Seller will be entitled to collect, lift whole or part of the goods delivered and unpaid for, or sell goods on standby to any third party.

  1. Applicable Taxes and Fees: The terms and conditions should clearly state that applicable fees will be chargeable as obligations to be borne by the Buyer. This includes sales tax, shipping costs and import duties (as applicable). This is to avoid situations where Buyers are invoiced fees of which they have received no notice (due to which levying of such fees can be disputed).

  1. Exclusion of SGA Conditions and Warranties: These terms normally exclude all implied and express conditions and warranties, with the Seller offering in exchange a single warranty (or no warranty at all, i.e., on “as is” basis). This is to ensure that the implied conditions are not read into a Contract of Sale, by virtue of the SGA’s default positions. Conditions and warranties for merchantability and fitness for a particular purpose are especially excluded, as giving these types of conditions / warranties exposes the Seller to additional liabilities. If product descriptions are made available to the Buyer, on the basis of which the Buyer makes its purchase, then the Seller will remain responsible to ensure that products are delivered according to that description. Thus, in many cases, only the condition as to description is offered – in some cases, it may be appropriate to include a provision that the actual product may vary from any pictures shown or advertised. It is also advisable to state that any quality characteristics for the products will only be binding if specifically agreed by the Seller. 

  1. Method and Place of Delivery: The terms should specify the method of delivery as per the nature of the Seller’s business. Also, if the Seller’s products are not shipped, but rather picked up from certain premises (e.g., product warehouse), the place of delivery should be identified. In other cases, where the Seller’s business model involves delivery to Buyer’s place of choice, delivery to such places should be subject to Seller’s prior approval. In this manner, the Seller can reserve the right to make delivery as per its own terms, allowing it to refuse delivery using such public or private roadways it considers unsafe / unreasonable. 

  1. Acceptance: The Buyer’s rights for acceptance should be simplified and a time limit stated, on expiration of which the acceptance of the products is deemed to have been given. This opportunity can be limited to the day of delivery to allow a Buyer only a single day for inspection. It is also good practice to provide that a Buyer has no right to withhold payment (in case payment is not made earlier) even if some products are being investigated by a Seller due to allegations of defects / faults.

  1. Passing of Risk and Title: It is usually the case that risk and title to the products will only pass after payment of the price by the Buyer. It is rare for Sellers to provide that risk of loss or damage to the products will pass to the Buyer before delivery.

  1. Service Obligations: For products which have related service plans, these general terms should state that such service plans are further regulated by their own terms. Please also see.

  1. Product Defects: As noted above, a Seller may offer no conditions or warranties for the products, although in practice, product defects are usually covered by the Seller’s warranty obligations (unless the products are sold “as is” or on a “final sale” basis). In such cases, the terms usually require the Buyer to notify the Seller and take some other steps. 


Importantly, such defect warranties should be strictly limited and should not include normal wear and tear, damage, fault, failure or malfunction due to external causes, including accident, abuse, misuse, problems with electrical power (which is unfortunately a normal occurrence in Pakistan), servicing or repair not authorized by Seller / manufacturer, failure to keep products in serviceable condition, or usage, storage or installation which is not in accordance with product instructions (including using the product with other parts). In addition, acts of God, fire, war, act of violence or any similar occurrence should also be excluded. 

  1. Limitation of Liability: It is standard practice in all transactions, not just Contracts of Sale for goods, to insert provisions excluding liability of the Seller for incidental, indirect, special or consequential damages which may arise from the use of the products, even if the Seller has been made aware of the possibility of such damages. This is essentially relying on the benefit of the Contract Act 1872, which excludes such damages from recovery. 


In addition, the Seller’s liability for any direct losses or claims arising from the sale of the products (which is permitted under the Contract Act, 1872) should be strictly limited, whether such losses / claims arise due to breach of contract, breach of warranty, negligence or any tortious liability in general. The limit of liability is usually tied to, and should not exceed, the price of the relevant product sold to the Buyer.

  1. Force Majeure: Sellers should always make provision for a force majeure clause, which operates to suspend performance of the Contract (e.g., manufacture or delivery) when there is a delay or failure of a Party due to circumstances beyond their control and which they cannot reasonably mitigate or avoid. A Contract can remain suspended for as long as those special circumstances persist, and any time period for obligations to be performed, will be extended to take into account such suspension. This clause will normally not be available to Buyers.
There are no specific legal rules governing e-commerce, as the SGA and Contract Act 1872 applies to e-commerce transactions in the same manner as they apply to traditional commerce. Provincial consumer protection laws apply in each province, although it is generally agreed that they require updates to improve their effectiveness.

In general, however, the Electronic Transactions Ordinance, 2002 (the “ETO”) provides the legal basis for electronic / digital payments in Pakistan, along with the Payment Systems and Electronic Fund Transfers Act 2007. The ETO further provides for authenticity and recognition of electronic documents and their integrity, exemption of stamp duties for electronic transactions. The Prevention of Electronic Crimes Act 2017 is also applicable, in terms of prescribing criminal liability of electronic offences (e.g., hacking, theft of electronically stored data or unauthorized interference with electronic systems).

The Ministry of Commerce, Government of Pakistan has recently published an e-Commerce Policy in October, 2019. It defines “e-Commerce” as the “buying and selling of goods or services including digital products through electronic transactions conducted via the internet or other computer-mediated (online communication) networks”.


The Government of Pakistan has outlined the following policy goals for encouraging e-Commerce in Pakistan:


  1. Proposing a simplified online registration of e-Commerce businesses with the Securities & Exchange Commission of Pakistan (SECP), making it mandatory for them to maintain physical addresses in Pakistan (this may also require presence of electronic systems). The Policy aims to make SECP registration compulsory for e-Commerce businesses with yearly sales of more than PKR 1 million, irrespective of the type of the business (whether company, firm or even sole traders and freelancers). 


  1. e-Commerce businesses and platforms (websites or apps) will be required to follow a special code of conduct (working together with a pending Data Protection Bill and Pakistan Cloud Policy) with the objective of building consumer confidence in these businesses and taking measures against counterfeit goods.


  1. The Policy also aims to significantly increase the share of electronic payments in online transactions and to in fact discourage COD (Cash on Delivery) payment methods, with value slabs / limits to be introduced gradually over three years, in order to decrease overall share of COD transactions, with maximum COD amount limit set as PKR 10,000/-. This will be combined with providing efficient e-payment infrastructure and linkages, to be governed by rules for online transactions (local, foreign and cross-border). 


  1. The Policy indicates that the SBP will revise its Regulations for Digital On-Boarding of Merchants (issued 1 November, 2019, revised 6 January, 2020 –allowing banks to open bank accounts for retail merchants on soft conditions). This move is aimed at e-commerce businesses and once a certain standard is achieved with the banking sector, use of local online merchant accounts will be made mandatory for all e-Commerce businesses in Pakistan.


  1. Planned SBP measures for allowing quick and efficient processing of export and re-export of specified class of goods, in particular low-priced small consumer goods, through a one-window operation. The SBP has already issued a framework to facilitate B2C e-Commerce exports from Pakistan (i.e., reduction of export & shipping red-tape for smaller-value export transactions).


  1. The state of consumer protection rights has been highlighted in the Policy with planned amendments as noted above, generally for safeguarding consumer rights in digital / online transactions and in the marketplace environment. In addition, the Policy indicates a future legal requirement for all e-Commerce platforms to display information relating to consumer protection on their websites.


  1. Simplifying tax filing procedures, including GST, rationalization of in sales tax slabs, and avoidance of double taxation.

  1. Promoting strong domestic compliance with data protections laws and encouraging high digital data processing safety standards.

  1. The Policy aims to promote alternate dispute resolution (ADR) methods for e-Commerce disputes, especially with regard to the obligations of e-Commerce businesses, and planned amendments to consumer protection laws making it compulsory to maintain customer support and some sort of dispute resolution mechanism. The Policy also requires the Federal and Provincial governments to make arrangements for establishing these ADR centers. 

Because of improving broadband and mobile internet connectivity, many traditional businesses have opened online storefronts for widening customer reach, using alternative marketing methods, improving business visibility and, most importantly, taking advantage of the online shopping consumer market. Nowadays, e-commerce websites (and websites of big business brands in particular) use different terms for different purposes, the primary terms being the Terms and Conditions of Sale used for standard sale transactions. Ideally, business websites should also specify their own, separate terms of use for guarding against any adverse claims arising even before a purchase is been made as well as for cases where purchase transactions occur online.


These terms of use for websites generally limit the liability of the Seller, avoid claims arising from any information and representations, marketing materials, software or any other statements supplied on these websites, and provide protection in cases where a Buyer (prospective or otherwise) initiates a claim against the Seller based on some alleged loss arising from the use of the website. A brief outline of recommended terms is set out below:

  1. Implied acceptance of the website Terms of Use, which is normally obtained by specifying that continuing use of the website by the visitor will constitute acceptance of those Terms. 


  1. As website content may contain pictures, special deals and advertisements, it is important to specify that the Website does not, by virtue of its content alone, represent any offer or solicitation from the Seller.


  1. Terms of Use should always contain adequate disclaimers of warranties for all website and its content (similar to, and in many cases stronger than, the exclusions / disclaimers in noted above for Terms and Conditions of Sale [LINK]). Usually, liability is excluded entirely for any risk of loss or damage due to use of that website and its content, as well as complete disclaimers as to its accuracy and suitability.


  1. It is also standard practice for a general reservation of rights by the Seller for replacing content, product listings and related information, while the Seller retains option for withdrawing access and use of the website i.e., termination / suspension. It is also advisable to expressly state that no warranties are offered as to the safety of the website (e.g., viruses and other hacking attempts).


  1. For online marketplaces which advertise products of third-party sellers for sale (such as Amazon or eBay), certain additional disclaimers may be necessary:

  • An acknowledgment and disclaimer that the website is not a seller in the purchase transaction (which is solely between the user-buyer and seller), that it is a “facilitator” and also not connected in any way with payment (any third-party online payment gateways). 

  • Because the website is not the seller, it does not offer any condition or warranty of title on any products, nor is it legally responsible for breach of any conditions or warranties by the sellers or their actions or inactions.

  • Disclaimers that all marketplace services on the website is at the sole risk of the user, including relying on its own judgment for all transactions with the sellers. 
  • In some cases, the website can seek to avoid or disclaim all responsibility & liability for and involvement in disputes between the buyer and seller. It is generally advisable, however, to retain some involvement, such as verification / regulation and ratings for sellers to ensure user goodwill.


  1. The Terms of Use should, similar to the Terms and Conditions of Sale for goods, have  jurisdiction and dispute resolution clauses to cover any possible contractual or other relationships which may arise out of the visitor’s use of the website. 


  1. Websites generally contain a lot of content which references or includes intellectual property rights (IPRs). Accordingly, the Terms of Use should contain a standard IPR clause stating that no rights are granted and specifying the owner of the IPRs as itself.


  1. Importantly, the website should always have a disclaimer about processing data (including cookies) and a standard notice of their data protection and cookie policy. This is especially important where user data is retained by website servers and systems.

As noted above, the SGA will imply its default provisions into a Contract of Sale if the Parties have not otherwise agreed on provisions relating to conditions, warranties and product defects (e.g., warranties of merchantability, quality and fitness for a particular purpose, which are normally implied as long as the SGA’s requirements are met). However, it is common practice for Sellers to entirely exclude the SGA’s default provisions (with contractual wording such “excluded to the fullest extent permitted by law”). Accordingly, many Sellers only permit returns for product defects (again, with significant exclusions as described above, and “no-cause” returns are generally not offered. Ideally, a Seller’s return policy should be clearly visible to users and should be referenced in both the website’s Terms of Use as well as the Terms and Conditions of Sale. These return policies generally include the following:

  1. Time period during which returns are acceptable – this is usually combined with inspection and deemed acceptance provisions in the Terms and Conditions of Sale (e.g., inspection on the day of delivery, after which acceptance will be deemed as given), as well as how much use of the product is acceptable (e.g., removal of tags, alterations).


  1. Normally, bespoke / custom-made products will not be offered any returns, as well as “final sale” or discounted items.


  1. Requirements for packaging and shipping of eligible returns (the buyer usually pays shipping).


  1. What products can be returned for (e.g., store credits, complete or partial refunds, product exchanges, if offered).
There is currently no legal requirement for e-commerce businesses to maintain and operate customer services in respect of its product sales. However, the recent e-Commerce Policy issued by the Government of Pakistan has indicated that e-Commerce businesses will be required to maintain customer support services. Accordingly, it will be advisable for some form of customer support services to be provided by an e-commerce business, even before the Policy is implemented through special legal rules.

It is generally good practice to have product registration requirements, along with provision of personal information, as a first step in the customer service process.
E-commerce businesses usually stipulate that any disputes will exclusively be referred to a specified dispute forum, whether the Courts of a specific city (e.g., Courts of Lahore or Karachi) or local arbitration under the Arbitration Act, 1940. Generally, arbitration is preferable as it provides confidentiality for resolution of the dispute, avoids the hassle and the vagaries of litigation at civil Courts, and is often a cheaper alternative.

It may also be advisable to have a multi-layered dispute resolution clause i.e., with a binding obligation to first engage with mediation before disputes are taken to arbitration. However, the suitability of a mediation clause will depend on the circumstances and the nature of the Seller’s business as in some cases mediation will make business sense (but will not be especially useful in a product defect complaint, for which mediation is usually not helpful).

As per the GOP’s e-Commerce Policy, the Federal and Provincial governments plan to establish specialized arbitration centers which may be mandatory for Sellers to add to their Terms and Conditions of Sale, depending on the legal framework to be issued later when the e-Commerce Policy is implemented).
As per the Sales Tax Act, 1990 and the provincial sales tax laws, sales tax is applicable on the “taxable supply” of goods and services, respectively. Sales tax is filed through monthly returns by Sellers, who must be registered with the FBR and/or provincial revenue boards. As a requirement under sales tax laws, invoicing by Sellers must contain their Sales Tax Registration Number (STRN).

As per the e-Commerce Policy, the GOP plans to improve, in particular, GST filing requirements with a view to simplify the process, rationalize tax slabs and generally improve the overall structure and operation of the sales tax regime
The SGA does not provide any requirements for labelling or packaging of goods. However, as noted above, where delivery expenses are not allocated by the Parties in the Contract, under the SGA’s default position, the Seller must bear all such expenses to put the goods in a deliverable state (i.e., in a state whereby the Buyer is obligated to accept and pay for them). Please also see with respect to Contracts of Sale by description.

Federal excise and sales tax laws require labelling of products subject to tax / duty with retail prices and applicable taxes (e.g., for tobacco products). For drugs, the DRAP act prescribes labelling, packaging requirements while special legislation regulates packaging and labelling of tobacco products.

A- There are currently no specific data protection laws in Pakistan, aside for constitutional rights of privacy, cyber-crime laws (prescribing criminal offences for unauthorized use, interference and hacking of electronic systems), PTA-imposed confidentiality obligations in the telecommunication industry, and SBP-imposed obligations on financial institutions for secrecy of client information. Therefore, data protection obligations are usually addressed contractually between the Parties. Nowadays, big business in Pakistan  mostly follow and adopt the general principles of the EU General Data Protection Regulations (“GDPR”), as following the GDPR provides valuable business credibility (as the GDPR is the world-leader in data protection laws). However, other than big businesses, the large majority of businesses pay little attention to data protection and privacy concerns.


This trend will likely change when a proper law is passed in Pakistan. A Data Protection bill has been circulated by the Ministry of Information & Technology for review by industry stakeholders and has undergone several revisions since being first introduced in 2018. The e-Commerce Policy has further based several of its policy objectives as working in conjunction with the planned Bill, including enhancement of consumer protection and measures for secure transacting online. 


The Bill generally follows the GDPR and establishes a data protection regulator having power to hear complaints and implement the law. The Bill provides several rights to a “data subject” as regards the processing of its data by “data processors” and “data controllers”. These rights include the right to: (a) access or copies of data; (b) correction of data and errors; (c) deletion of data (i.e., “be forgotten”); (d) objection to and ceasing of data processing; (e) withdraw consent for data processing. The Bill further requires data controllers to report data breaches to the regulator within 72 hours of becoming aware of the breach (with certain exceptions). 


The Bill further requires formal notices of data processing to be sent to data subjects, while it imposes obligations for non-disclosure of “personal information”, data retention and information security and prescribes special procedures when “sensitive personal data” is involved (e.g., information such as age, gender, religion etc., which can be used to identify the data subject). Importantly, the Bill allows for cross-border transfer of data, which is a much-needed requirement for any jurisdiction seeking to capitalize on e-Commerce. Many businesses, IT platform and software (including from the telecommunication industry) are dependent on services outside of Pakistan, for which sending data outside Pakistan is required. 

B- Cookies are small pieces of data stored by websites on a user’s computer / mobile device, which allows the website to “remember” the user’s actions and preferences over time and to improve and personalize content and advertising. The Personal Data Protection Bill does not expressly deal with regulation of cookies, unlike the GDPR which requires data controllers to have a comprehensive cookie policy. Still, it is advisable for websites to have a detailed cookie policy, detailing the reasons for their use, types of cookies used, and providing a user the means to modify their cookie preferences. If users do not agree with the use of cookies, the policy should state that the user may simply not use the site. In addition, the policy should state that cookies which are necessary for the operation of the website will automatically be used, while any “extra” types of cookies will require the user’s permission.


In the absence of domestic rules on cookies, it would be advisable to follow international best practices.

In the absence of license obligations for confidentiality imposed by industry regulators which provide redressal mechanisms in the event of any violation (e.g., PTA for telecommunication businesses, and the SBP regulations for the banking sector), confidential information is primarily protected through contracts between Parties. This contractual duty of confidentiality can extend to information supplied by a Party during performance e.g., trade secrets (to the extent that they are shared with the other Party) and other information.

The normal language of these contractual provisions first sets out an expansive definition of “Confidential Information” by capturing nearly every type of information supplied to or accessed by the “receiving” Party. The contract imposes strict obligations of non-disclosure (except where required by law, through order of a Court or of Governmental bodies). It is generally advisable that the non-breaching Party should be entitled to specific and injunctive relief (i.e., filing for a suit of injunction against the other Party to refrain from breaching its obligations), in addition to civil remedies for damages –contracts almost always describe damages as being an inadequate remedy in the absence of specific and injunctive remedies.

Suits for injunctions will normally be granted if supported by a well-drafted confidentiality clause and provided any threatened or actual disclosure of the confidential information is supported by evidence. For suits of damages, the non-breaching Party must prove: (a) actual loss caused to the non-breaching Party (i.e., must be proven and quantifiable); (b) such loss naturally arose from the breach, and (c) that the Parties were aware, at the time of contracting, that loss or damage was likely to result from such breach.
In Pakistan, the applicability of a particular employment law  depends on the nature of work carried out by the business or “establishment” (as that term is used in the various laws), the number of employees, and the nature of their work. The law governing the employment of persons and their terms and conditions of employment / service, can be generally explained in terms of two different kinds of employees:
  • A labourer – also known as a “worker” or “workman”. These class of employees usually undertake manual or clerical work i.e., that work which involves and is based on physical exertion rather than intellectual exertion. This includes drivers, peons, junior clerks etc. Pakistan has several important labour laws governing the terms and conditions of service of workmen, compensation for injuries, social security and other legal contributions etc.
  • supervisory or managerial employees, who are generally referred to as “contract employees” or “private” employees. These employment relationships are governed largely under the law of contracts i.e., Contract Act, 1872 and the labour laws do not apply to any employee not being a “workman”. The specific legal term used for this type employment relationship is a “master and servant” relationship (also known as doctrine / principle).
This section only covers the legal aspect of the second kind of employee i.e., contract or “white collar” employees. The Shops and Establishments Ordinance, 1969 (“1969 Ordinance”) along with Contract Act 1872, is the primary law governing these employment relationships. An “employer” is usually the owner of the establishment but can also mean a manager acting on behalf of owners for general management and/or control. Each Province has enacted its own version of this older law, while it continues to apply for Federal territories. The 1969 Ordinance recognizes two (2) types of employees:
  • permanent” employees, who are either expressly engaged on a permanent basis or who complete nine (9) months continuous service in an establishment, and complete probationary periods of three (3) months. Permanent employees enjoy certain special rights under the 1969 Ordinance, mostly relating to termination of employment.
  • temporary” employees, who are engaged for a period not exceeding nine (9) months, with job descriptions usually involving temporary assignments.
Employee work hours cannot exceed 9 hours a day, and in any case not more than 48 hours in a week.  At least one (1) hour lunch breaks / intervals are required, as employees cannot work continuously for more than six hours. In certain cases (stock-taking, accounts, settlements and similar business operations), overtime work is permitted at wages double the ordinary rate of wages payable to the Employee. These employment relations are governed by the Master and Servant principle, which means that the Courts generally leave the relationship to be governed by the terms of the employment contract as agreed by the Employer / “Master”, and the Employee / “Servant”. Disputes are normally litigated at regular Civil Courts in Pakistan as per the Employment Contract. The following important points should be noted:
  1. In a Master & Servant situation, the Courts will hold the Parties to their contract and are, thus, reluctant to interfere in matters which are already agreed. In certain cases, void clauses will not be enforceable by the Court (e.g., restraints on trade, legal proceedings). However, there are no vested rights for promotions, and even Company policies on promotions are not open to challenge, unless a real case of constitutional rights violations can be made out (e.g., discrimination).
  1. In case there is an arbitrary dismissal / termination (i.e., where it is argued that termination took place in breach / violation of the Employment Contract), the Employment Contract cannot be specifically enforced through the Court. This essentially means that a dismissed employee cannot force the employer to retain its services for the length of the Employment Contract. Thus, there can be no actions for reinstatement. Instead, the Employee can claim damages for wrongful dismissal.
  1. As noted, an employee can only claim damages in case of arbitrary dismissal / termination.  These damages are usually limited to the amounts equal to wages, allowances and other benefits which would have been otherwise due and payable under the contract of employment in case of termination (i.e., the notice period pay).
  1. The principles of natural justice, as enshrined in the Constitution, will continue to apply to the employment relationship, regardless of the Master and Servant relationship. Certain actions by an employer, e.g., clear discrimination, no right of hearing, and other actions detrimental to employee’s interest, can be challenged in the Provincial High Courts, based on a violation of fundamental rights guaranteed in the Constitution (in case of non-Government Employers).
The most relevant instance of natural justice is due process as per the maxim Audi alteram partem i.e., “no one is to be condemned unheard” – denial of opportunity of hearing, as well as discrimination based on gender, caste, religion, sex etc. All proceedings from the Employer’s side must have a minimum requirement of fairness.

An Employment Contract should, at the very least, contain the following essential terms: 

  • Term (i.e., duration) of the Agreement, and confirmation whether the employee is a contractual employee or a permanent employee. This can include provisions for training and probationary periods; 
  • Job description;
  • Working hours and place(s);
  • Remuneration, including monthly salary, overtime wages, bonuses and benefits; 
  • Annual, casual and sick leaves, and national holidays;
  • Termination, including for default (misconduct etc.) and termination for convenience (with provision on the notice period);
  • Misconduct and disciplinary provisions (detailing, e.g., insubordination, disobedience; theft, fraud or dishonesty; habitual absence or absence without leave).
  • Incorporation of Employee HR Policies and Employee Handbook / service rules;
  • Maternity benefits for women; and
  • Insurance and other social security benefits. 

The Employment Contract may further contain special terms. These include obligations to execute bonds and other restrictive covenants.


(i) Employment Bonds


Bonds are essentially used like an insurance policy by the Employer in cases where money is spent on the Employer in addition to the Employee’s regular compensation i.e., specialized sponsored training, foreign and domestic trips, and other cost-based enhancement of the Employees. Without this expense incurred by the Employer or any other evidence of valid expenditure and investment in “human capital”, these bonds are usually not enforceable in Court (as there is no “consideration” from the Employer’s side).

(ii) Restrictive Covenants


Restrictive covenants are provisions in the Contract which restrict the Employees actions (e.g., non-compete, non-solicitation). Generally, they are enforceable only during the period of employment. Covenants such as confidentiality, non-disclosure, non-competition are found commonly and are usually not controversial.


However, restrictive covenants extending beyond period of employment, such as restrictions on seeking employment with competitors, are not enforceable unless there is valid consideration for this post-employment prohibition, since this may constitute an illegal restraint of trade which is prohibited under Pakistan Contract law. Courts therefore first confirm that any similar restraint being imposed is paid for by the Employer to the Employee. If there is no such consideration, these restrictive covenants will not be enforced. Put another way, a non-compete clause to not work for any competitor business for a period of two (2) years, can be enforced only if the Employee has received additional consideration in respect of this restriction.

Employee grievances and similar disputes usually involve some Company process, policy, rule not having been applied fairly. It is therefore important for the Company to address these issues which may arise among personnel in a pre-determined and transparent manner. Mishandling of any situation may have far-reaching consequences for businesses, leading to disruption and reputation damage. In a worst case scenario, if word of any internal dispute gets out to the public, an Employer has little choice in damage mitigation, and it is not uncommon in Pakistan for Employers to sue ex-employees for defamation in the Civil Courts.

Employee disputes and grievances should be addressed in the Company’s official HR Policies, and should require formal disputes to be put up in writing to a designated internal body (usually an HR official). Once a dispute is raised and properly communicated, the Employer has to issue his response to the grievance or address it properly, in any case. All such grievances should ordinarily be addressed in a timely fashion to avoid escalating into issues that significantly hinder smooth functioning of business functions. Depending upon the gravity of an allegation or offence involved in the dispute, senior HR officials and management will decide as to whether disciplinary action should be taken. If the dispute is harmless, or does not constitute misconduct, lesser may be taken against any concerned Employee as per the progressive discipline principle.

It is absolutely recommended that HR, or whatever internal body is designated, should always give a ‘legally’ supported and ‘logically correct’ decision. Reasoning should be based on rationality and any reasonable refusals should be explained as limitations of policy.

Employee policies, codes of conduct or “Handbooks” are absolutely necessary in the modern-day business world. Although there is no legal requirement under Pakistan law for businesses to have such internal policies, it is extremely advisable to have these in place so that the conduct of employees benefits the smooth functioning of the business organization. In some cases, businesses voluntarily adopt policies based on laws applicable to Government entities (e.g., whistleblowing laws). The Human Resources (HR) Department Polices essentially work as strict rules of employment in addition to the Employment Contract, according to which the performance and behavior of Employees is evaluated and, in some cases, non-compliance with the policies can be grounds for removal. These policies work most effectively when expressly incorporated in the Employment Contracts (although they can never contradict the individual terms of each Contract). Thus, these policies provide businesses with flexibility as revisions to the policies can always be made at any time.


The HR—side of a business is usually involved with key and sensitive functions e.g., recruitment, compensation, policy-making and implementation, grievance and discipline handling, job-evaluation, succession planning, training and development. They are usually the main driver behind the contents of the Employee policies and handbooks. The HR Policies for Employees, which must be approved by the Board of Directors, sets-out a Company-wide agenda catering to several different aspects of the Company’s business, as below:

  1. Workplace policies: These are general policies regarding the workplace operations, and include provisions on anti-harassment (based on the applicable law), commitments non-discrimination & transparency, duty of Employee confidentiality, safety & health, , employee disabilities, whistleblowers.

  1. Code of Conduct: The Employee Code is relevant for the conduct of the Employee, and largely deals with individual concerns i.e., attendance management (check-ins), Work-Reports, prohibition on conflicts of interest while in employment, handling of business expenses, receipt & care of Company property and documents, confidentiality obligations.

  1. Classification and Evaluation of Employees: The Company policy will usually identify the senior management, the classes of employees (e.g., employee grades), as well as the appropriate individual managing “lines” for each employee (i.e., the identification of the manager / office responsible for employees under his supervision). This section may also contain provisions on performance management (e.g., calculation of key performance indicators for individual employees).

  1. Benefits & Perks: The policy will set out the compensation structure offered by the Company, as well as reiterate details regarding annual, casual and sick leaves. Special benefits such as gratuity and its eligibility, provident fund procedures and other benefits / allowances (such as Company accommodation and transport) will also be addressed.

Discipline, Resignation and Termination: The Policy must absolutely set out the procedures governing the employee disciplinary process, as each employee must enjoy due process as guaranteed by the Constitution. Details of the inquiry process, the regime of progressive discipline (how many misdemeanors / minor infractions constitute misdoubt punishable with termination). In addition, the resignation and exit processes and obligations (handing over of duties, Company documents and property) must also be set out in order to ensure smooth transition in the relevant department.

The default position under the 1969 Ordinance for termination of Employees requires Permanent Employees to be paid one (1) month wages (calculated on basis of prior three (3) month average). Employment Contract sometimes provide for longer notice periods. It is common for senior officers to have longer notice periods. Temporary Employees are essentially at-will employees and no notice period payments are required. 


Employment Contracts must always detail the notice period requirements which must be followed in order to prevent a future successful claim for damages by a dismissed Employee and which are also supported  by HR Policies. Ordinarily, with the contractual termination provisions, no reasons are required for termination as the agreed compensation is paid, which includes provident fund amounts and gratuity (provided gratuity eligibility is met).

As noted with regard to HR policies and Employee Handbooks / rules, it is recommended for the Employer to have a disciplinary regime based on the principle of progressive discipline. The general provision regarding misconduct is always present in the Employment Contract, but can be supported by these official Company documents as long as they are referenced in the Contract. 


  1. Senior HR and relevant managers usually decide what action is to be taken depending on the gravity of the offence. As a fail-safe measure, a preliminary investigation should be carried out for medium to high risk misconduct proceedings. As per the progressive discipline strategy, the Company may discipline an Employee with a formal warning, or in some cases, a less-formal verbal warning. In worst cases, disciplinary proceedings may be initiated.


  1. Misconduct proceedings must be initiated with formal notice to the Employee to explain his conduct through a show-cause notice. In case a reply is not forthcoming or not satisfactory, an additional inquiry may be initiated in which the Employee is asked to participate. 


  1. Inquiry officers conduct the proceedings and must ensure the Employee is provided fair opportunity to prove his defence. The inquiry officer cannot be judge, jury, and executioner, thus it is always recommended for the Company to present a fair platform. The Employee should be present at all times. Transcripts and evidence of participation are always advisable for documentation purposes.

  1. The inquiry report must contain reasons whenever misconduct is determined to have occurred. The Employee dismissal order is usually based on this report, although it is not uncommon for a second, final show-cause to be issued (to allow another opportunity).


As per the Master and Servant principle, Courts will generally not interfere unless the constitutional rights of due process (right to a hearing) are not followed in any disciplinary proceeding or if there is alleged violation of other fundamental rights protected by the Constitution of Pakistan. It is fair to say, however, that employment litigation can be hotly-contested and much depends on the circumstances of the case and evidence involved. 

A terminated Employee can file suit for damages in the Civil Courts on account of breach of the Employment Contract, based on claims of wrongful termination / dismissal e.g., misconduct termination or normal termination. In most cases, this will render the terminated Employee entitled to the agreed amount / salary for the notice period (i.e., whatever is agreed in the Employment Contract).

The 1969 Ordinance provides for the following legal requirements :

1- Annual Leave

All employees are entitled to a minimum of fourteen (14) days of paid leave in a year after twelve months continuous employment. Annual paid leave may be rolled over, if un-availed, but accumulated leaves cannot exceed thirty (30) days. Alternatively, the employee may seek full wages if annual leaves are not availed, and all establishments must offer this option.


2-Casual Leave

All employees are entitled to casual leave with full wages for ten (10) days in a calendar year. Casual leaves shall not ordinarily be granted for more than three (3) days at a time and cannot be accumulated.


3-Sick Leave

Employees are entitled to sick leave with full wages for a total period of eight (8) days in every year. These leaves may be carried forward but the total accumulation of sick leaves cannot exceed sixteen days.

4-Festival Leave


Every employee shall be allowed ten days’ festival holidays with full wages in a year. The days and dates for such festival holidays shall be notified to the employees by the employer in the beginning of the calendar year, while Employers are bound to follow all local authority notifications for business closures.


5-Leave Requests

Requests for additional leaves are governed by the Employment Contract and the employer’s policies, if any.

1- Maternity Benefits


The West Pakistan Maternity Benefit Ordinance, 1958 applies to Federal territories, while similar Provincial acts apply to Provinces with certain differences.


Female employees are entitled to maternity benefit equal to full wages for a period of six (6) weeks prior to delivery, and for six (6) weeks following birth. However, a woman is not entitled to maternity benefits unless she has been employed for a period of not less than four (4) months prior to delivery.  In addition, the law requires relaxed work assignments (e.g., no physical work or exertion, any work likely to affect health) for a period of one (1) month prior to each six (6) week period mentioned above.


There are also legal protections against dismissal during maternity leaves. Female employees cannot be dismissed during her maternity leave. In addition, if there is a dismissal without sufficient cause within a period of six (6) months before delivery, the female employee would still be entitled to maternity benefits regardless of such dismissal.


2- Paternity Benefits


There are currently no applicable laws regarding paternity benefits in Pakistan, and there is generally no practice in offering these benefits. However, a recent bill is under consideration in the Parliament for Islamabad. Fathers may avail up to one (1) month paternity paid-leave for up to three (3) children.

There are no express provisions for employee stock option programs (ESOPs) of private companies in Pakistan company law. A recent, since-lapsed Presidential Ordinance which amended the Companies Act, 2017 expressly allowed private limited companies to issue employees’ stock options under authority of a special resolution passed at a general meeting.

However, an ESOP can still be created through contractual agreements. Founders / owners of the Company can allocate shares to the employees as and when the shares have been earned as per a Board-approved plan with specified vesting schedule (i.e., detailing when shares are transferred to employees) and other relevant provisions. The ESOP terms may initially form part of the employment contract or be executed separately (the latter is recommended). They usually detail the procedure for vesting of the shares, requirements for contributions (if any) for payment of the shares, the length of employment of the employee, and other special conditions (e.g., restrictive covenants, non-transferability of shares, provisions for employee “sweat equity”).

The term “Confidential Information” is generally understood as the kind of information a business does not want to be publicly available, whether to competitors, its customers, or the general public. Not everything can be confidential – information concerning illegal activity (which the State has an interest in knowing), or when protection of any alleged confidential information is against public policy, or when disclosure is required under any law (e.g. by order of Court or regulator such as SECP, SBP, CCP). Publicly available information is naturally excluded from this term (e.g., information from publicly available record of SECP and other special regulators, Court records, information accessed through right to information laws).


The universally accepted practice among businesses for legal protection of “Confidential information” is to formalize confidentiality obligations through contractual agreements. Many different types of contracts contain confidentiality provisions suited to the circumstances e.g. confidentiality obligations in contracts of employment (for binding employees), franchise, agency and general commercial agreements for binding suppliers and partners, while NDAs are used for specific sharing / disclosure of information or when in early negotiations (see below). The term “confidential information” is usually defined to include all information of all forms (physical and digital) relating to a business, its affairs and day-to-day operations, plans, policies and procedures, financial information, its ownership structure, trade secrets, IPRs, special processes and materials, and generally proprietary information concerning its products and services.


Other than the constitutional right to privacy for individuals, regulators impose confidentiality obligations on licensees with respect to customer data e.g., the Pakistan Telecommunication Authority confers protection over customer information, while the State Bank of Pakistan requires banks to safeguard customer financial and other information. As per the new Data Protection Bill, confidential information of natural persons will further include, at the very least, the “personal data” and “sensitive personal data” categories of personal information.

Non-Disclosure Agreements (NDAs) are binding written contracts through which a “disclosing” Party can disclose certain information to the “receiving” Party based on strict terms and conditions of confidentiality, use, access and other important terms. NDAs can be unilateral in scope (where only one side discloses information) and as well as applicable to both side as a mutual NDAs (both sides disclose their respective information). An NDA usually includes:

  1. an appropriate description of the Confidential Information as per the circumstances and the form and manner of disclosure by the disclosing Party (e.g., a set period of time of availability);


  1. defining the “Purpose” for which the Confidential Information is disclosed and limiting the disclosure, use and access to the Confidential Information strictly for the Purpose (e.g., if an acquisition is planned down the line, the NDA will usually offer information to be used only for purposes of the actual acquisition process). The NDA will also detail the levels of access to the Confidential Information for the receiving Party’s directors, officers and employees. 


  1. An undertaking / obligation imposed on the receiving Party for appropriate protection of the information and preventing any unauthorized disclosure by it. This is usually coupled with an indemnity in favor of the disclosing Party against any claims and liability caused by breach of any obligation by the receiving Party.


  1. The term of the NDA and, more importantly, the continued obligation and duty of confidentiality, which will continue to apply even after termination / expiry of the NDA (usually for a period of one (1) to three (3) years).


  1. Acknowledgements regarding the ownership of the Confidential Information, any warranties or representations (which usually go only as far as a warranty of title / ownership, if at all), and obligations for its destruction and/or return by the receiving Party.


  1. Legal remedies for any breach of the NDA (e.g., unauthorized disclosure) are usually centered on equitable remedies as well as the normal remedy of damages. In NDAs, the recovery of damages is not sufficient compensation for injury cause by unauthorized disclosure of the Confidential Information. The disclosing Party will above all seek to halt disclosure of its Confidential Information, and the only way to do that is to seek equitable remedies of injunction and specific relief from the Court (i.e., injunctions to restrain the other Party from breaching its obligations).


  1. The dispute resolution clause almost always resorts to the jurisdiction of the Courts and not arbitration. This is because the specific and injunctive relief is the domain of the Courts and the place where relief is most likely to be obtained.

A trademark is a distinctive sign, capable of graphical representation, which is primarily used to identify and associate goods and / or services with a specific business and distinguish them from goods / services of competitors. Trademarks usually consists of words, digits, figurative elements or a combination of them and can take many forms: a brand, logo / label / symbol, device, individual and other names (including signatures), phrases and slogans, simple words letters and numeral or figurative elements (and any combination of them). They can be used as product brand names (e.g., PEPSI, which is a brand name for the product and is a registered trademark) as well as for other related / ancillary uses e.g., covering, branding and packaging, advertisements, invoices, catalogues and related product documents. 


The law governing trademarks in Pakistan is the Trademark Ordinance, 2001 (“TM Ordinance”) and its related rules. The Registrar of Trademarks, Intellectual Property Organization (IPO) Trademark Office, administers all trademark procedures and processes. Pakistan is a signatory to the Paris Convention and follows the Nice Classification of 45 classes for goods and services (34 classes of goods and 11 classes of services). Decisions of the Registrar of Trademarks are appealable to the IP Tribunals. Trademarks are registerable for a period of 10 years and later renewable. Trademarks are registered country-wise under national laws, and registration under the TM Ordinance provides legal cover only in Pakistan – Paris Convention applications can be filed in Convention countries under their respective laws. 


Trademarks can also be registered as:

  1. trademark series, which consist of several materially similar marks and which often cover a range of related yet distinct products or services. These are applied for in a single application.


  1. collective marks, which distinguish goods / services of members of an association from those of other businesses, with the association being the owner of the trade mark, or 


  1. certification marks, which when used on goods / services certify the quality and standard of their production, manufacture, performance or any other characteristic. Trademarks can also be registered with identified colors, sounds and three-dimensional designs, as long as they are capable of graphical representation. 


  1. Domain names can also be registered as trademarks for five (5) year periods, provided they are used to offer goods or services and are not misleading as to their character or significance.


Trademarks for services are generally referred to as “service” marks, although there is no real distinction under Pakistan law.

Registration of trademarks is absolutely recommended. Pakistan law recognizes trademarks as a form of property, specifically, as an intellectual property right (IPR) of the owner of the trademark. Registration of the trademark with the Intellectual Property Office (IPO) is prima facie proof of ownership. [Please see LINK for more on the registration process] A registered trademark owner has the exclusive right to use the trademark and gain profit from its commercial use. It is not necessary for an applicant to have used the trademark prior to applying for registration, as long as the applicant has a bona fide intent to use it within five (5) years of its registration and sufficiently uses it within that time. A registered trademark owner is fully entitled under the TM Ordinance to:


  1. prevent any other person in Pakistan from using or even registering that trademark or any mark which is “deceptively similar” (i.e., preventing and prosecuting infringement), while the IPO itself may refuse registration on the same grounds;


  • recover accounts of profits of the other Party or damages caused to the owner by infringement (traditionally an equitable remedy in common law countries);


  • ensure seizure of infringing products by Pakistan Customs laws, FIA, FBR, PEMRA through their Directorate for IPR Enforcement, while the Directorate has also  been tasked with notifying owners of any infringement activities, thereby offering opportunity to prosecute;


  • cause criminal prosecution by local police authorities under sections of the Pakistan Penal Code; and


  • generally take up any other remedies available under Pakistan law for persons with property ownership rights. 


It is fairly accurate to state that without registration, there can be no real legal ownership rights in a trademark. Unregistered trademark owners who use and adopt a mark are only entitled to a single remedy under law to stop its use by another person – i.e. the tort action / claim of passing off in Court. This is a common law action allowed under the TM Ordinance but it is not easy to undertake as it requires: proof of use of that unregistered trademark, local goodwill and reputation that is attached / connected to the goods or services of the owner using that mark (distinctiveness of the trademark acquired through extensive use); misrepresentation by the other Party which leads or is likely to lead the public that it supplies goods or services of the owner’s business; and loss or likelihood of loss to the owner because of this misrepresentation.


Some additional benefits to trademark registration are given below: 

  1. Having a registered trademark averts legal issues in the future, acts as insurance for the time and investment of the owner, and generally confers additional protections such as presumed ownership and right of exclusivity of the mark under law and protection against infringement and dilution / misrepresentation of the mark across Pakistan. It can be used to attack (prosecute) infringements and oppose later registrations (dilutions), as well as defend claims of infringement.


  1. Creating brand recognition through the unique visual representation of the mark, while also offering cost efficient ways to reach vast audiences on different media (e.g., posts and representations on TV, social media).


  1. Since a trademark registration is valid for ten years and can be renewed for an unlimited number of successive ten-year periods, a registered trademark is essentially for life. The owner will possess this IPR as long as the mark is used and registration is renewed. At the same time, it can function as a valuable asset which supports business expansion due to its longevity.


  1. It becomes a valuable asset with associated goodwill and can later be licensed / franchised to different partners, while at the same time it can be offered as collateral for financing (as per bank valuation).

  1. When registered, businesses can use the symbol ® to indicate the mark is registered and any use of this symbol without registration incurs financial fines. This further adds prestige and sophistication to a business in the eyes of consumers. Otherwise, even denoting the TM letters (when a mark is pending registration) can gain some business credibility.

Naturally, in order to attain legal protection, trademark registration is subject to certain conditions as set out in Pakistan law. Registration may be refused on relative grounds if the trademark applied-for is identical or similar to an earlier registered trademark and is in respect of identical or similar goods or services and, in some cases, where there is a likelihood that registration will cause confusion in the public in respect of the earlier registered trademark.


The following four factors are absolute grounds for refusal of registration by IPO in case they are not satisfied: 

  1. At the outset, the mark must fulfill the definition of a trademark under the TM Ordinance (i.e., a mark capable of graphical representation which the distinguishes goods or services of one undertaking from another).

  1. The mark must be distinctive and capable of being identified separately from other marks. 

  1. A mark also cannot be formed exclusively of indications that are traditionally used in trade to designate the kind, quality, quantity, intended purpose, value, geographical origin, the time of production of goods or of rendering of services, or other characteristics of goods or services. 

  1. The mark cannot consist exclusively of indications that have become customary in the language or in established trade practice.


In addition, marks may be refused registration on the following grounds

  1. Generic, every-day terms which are commonly used in language (e.g., “chair”). In these cases, the mark can be combined with an original, extra mark which gives it distinctiveness and allows for registration.


  1. descriptive terms or words which express a quality or characteristic (e.g., “powerful”). In these cases the mark is usually combined with an original, extra mark which gives it distinctiveness. As with generic terms, the mark is usually combined with an original, extra mark which gives it distinctiveness to allow for registration.


  1. illegal marks or which are against public policy and morality, 


  1. official marks of states and international organization protected under the Paris Convention, 


  1. deceptively similar marks, which may mislead the public as to the identity or source of the goods or services being supplied under such marks with other, registered marks;


  1. when the mark is consists exclusively of the shape of the goods themselves.

Industrial designs (also known as design patents) are designs, patterns, ornaments or other features which are applied to an article / item of manufacture through an industrial process, and which are judged / visible in the finished article solely by the eye. Industrial designs are primarily of an aesthetic / visual nature and usually do not protect any technical features of the articles to which they are applied. Designs can consist of three dimensional shapes and features, two dimensional features, with further unique features e.g., colors, arrangements, patterns. 


In the modern day consumer-oriented world, the visual appearance of a product, its packaging and related physical features play as much of a role in promoting / marketing as the product’s brand name and trademark itself. Like trademarks, successful registered designs offer an alternate way of catching consumer attention, brand awareness opportunities, goodwill and generally for marketing and sales purposes, thereby offering commercial value and viability, while also securing investment returns in the business.


As with other IPRs, industrial designs can be protected through registration with the Registrar of Designs, IPO Patents Office, under the Registered Designs Ordinance, 2000 (“Designs Ordinance”), with fourteen classes based on the composition of articles to which the design is sought to be registered. Registration is valid for a period of ten (10) years from the date of registration, which may be extended by two (2) renewed terms of ten (10) years each, for a total of thirty (30) years. IPRs for industrial designs are registered on a country-by-country basis and registration under Designs Ordinance provides protection in Pakistan only. A design can be registered in Pakistan in respect of any article or set of articles specified in the application, provided the following conditions are satisfied:


  1. The industrial design must be new or original – this is a novelty requirement which has defeated many claims for design registration in Pakistan. The law expressly states that designs are not new or original if they do not significantly differ from known designs or combination of known design shapes, features or patterns etc. Thus, designs which are reproductions of designs known outside Pakistan are considered “mere imitation” and will be neither “new” nor “original”. 


  1. The industrial design applied for must not already be registered in Pakistan in respect of any identical or similar article, or otherwise registered or published anywhere in the world. This includes cases where any differences from a prior registered or known design are immaterial or relates only to physical features which are variants commonly used in the trade (industry / field). Registration is possible for certain exceptions. 


  1. The design applied-for cannot be contrary to public order or morality.


Designs cannot be registered for methods or principles of construction, or improvement in production, configuration or application of machinery. In addition, registration is not possible for designs which essentially function as mechanical devices i.e., a design with physical features (shapes, patterns, lines) which are constituted / configured solely for performing a mechanical function.

The Designs Ordinance provides legal remedies for design infringements as suits for recovery of damages and injunctions before the Court (IP Tribunals). Registered design owners are legally entitled to prevent any application of its design to the article (in respect of which the design is registered) by any unauthorized persons, and generally preventing the production, import, sale and other commercial dealings in the article affixed with the copied / imitation design. To avoid liability from such claims, the infringing design must be shown and proven to be substantially different from the registered design of the claimant. Protections for registered designs in Pakistan are as follows:


  1. Damages may be recovered based on actual loss suffered, including compensation by way accounts of profits
  2. Court injunctions against infringement. If an injunction is not granted, a Court can still order infringing Parties to maintain complete accounts of profits and provide compensation by way of such profits. 
  3. Options for enforcement of designs rights and seizure of infringing articles are available under Pakistan Customs laws, as well as through FIA & PEMRA coordination, and significantly through the FBR with its Directorate for IPR Enforcement which is tasked with notifying owners of any infringement activities, thereby offering opportunity to prosecute.
  4. Benefit of criminal prosecution by local police authorities under sections of the Pakistan Penal Code.
  5. Falsely representation or marking of a design as registered is an offence under the Designs Ordinance and is punishable with a (nominal) fine.

A patent is an IPR which is registered and granted under law for a specific invention – that invention can be a product or a process for making that product. This grant of exclusive IPR to the owner-inventor entitles it to make, use, sell or otherwise deal with the invention and prevent others from making, using, selling or otherwise dealing with it.  


Inventions are “patented” when they are registered under patent law. Pakistan law provides for “utility patents” (the commonly known type of patent) which are granted for inventing or discovering any new and useful process, machine, item or article of manufacture, or composition of things and matter, or any new and useful improvement of any of them (i.e., patents of addition). Patents are granted for a period of twenty (20) year periods from date of filing (or earlier date of filing in Convention country) and are not extendable beyond this period, while renewal fees must be paid to maintain registration for the full 20-year period. They are granted / registered through official entry into the official Register of Patents maintained by a Controller of Patents at the IPO Patent Office which administers the Patents Ordinance, 2000 (“Patents Ordinance”) and related rules. The IPO has patent offices in Lahore and Islamabad with the main Patent Office in Karachi.  Design patents are dealt with under the Registered Designs Ordinance, 2000. [LINK]


Patent protection under Pakistan law provides a means of safeguarding the secrecy, integrity and ownership benefit of the invention for a fixed period of time. This period of protection and exclusive use is the essential benefit of the patenting concept in the modern day world. The period of exclusivity and other benefits granted is a massive incentive for research and development as well as utilization of resources to develop new inventions and improvements to existing ones.


Patents are considered highly significant and valuable property interests around the world, depending on their success, utility and assessed value. Extremely high value and innovative patents are held by a multitude of different industries all across the world and further licensed by them to trusted commercial partners to gain even more revenue. This includes business such as drug pharmaceuticals, chemical industries, manufacturers of electronics, machinery and all other goods, automobile, aircraft / defense manufacturers, among many others. The vast majority of valuable patents are held in the highest patent producing countries year-on-year (i.e., the U.S.A., Japan, Germany, Italy, Taiwan etc.), however, there remain many commercial opportunities in the Pakistan market for registration and further licensing of foreign patents which can guarantee strong sales / performance in the domestic market. 


For businesses, successful patents drive capital and commercial expansion and contribute revenue through royalties and licensing arrangements. Patents are also vital in many investment situations – many businesses with successful patents are great targets for mergers and acquisitions, particularly pharmaceutical and other technology-intensive industries.

Under the Patents Ordinance, an invention must satisfy three (3) fundamental conditions to obtain patent registration. It does not matter whether the invention is world-famous or if it has been backed by significant monetary investment – all patents must satisfy the same test in order to gain the same uniform level and manner of protection under the law. 

The invention must be new – this is a requirement of absolute novelty. The invented product or process must be new, must not have ever been used before, and its use must not already exist as part of the “state of the art” for that product or process. This “state of the art” condition (also known as “prior art”) must be interpreted in the global context – the “art” being the specific technological field / trade / subject matter of the product or process and all scientific, technical and other information relating to it (e.g., printing technology), and the “state” referring to the current level of knowledge available in relation to that “art”. This essentially ties the absolute novelty requirement to an acceptable standard / method used by IPO Patent examiners (and across the world) to evaluate whether the invention is, in fact, new and not part of existing technology and/or already protected by registered patents. Put another way, if the subject matter of the patent is already available and accessible on the market (or capable of being traded on the market), it is not a “new” invention.

The invention must involve an inventive stepe., the invention is unobvious (new / novel) to someone skilled in the art / field. This is an objective standard and essentially the applicant must demonstrate that an advancement of technological or economical significance has been made in the relevant field of the invention from current / existing technology and that this advancement is obvious in the manner as mentioned above.

The invention must be capable of industrial use and application. This requires that the product or process invention has to be technically usable (to a satisfactory degree and/or effect) in any kind of industry. Trivial and unsuccessful inventions therefore cannot be put to industrial or commercial use and are not patentable as a result.


The Patents Ordinance clearly sets out what kind of subject matter is not patentable: (i) a discovery, scientific theory or mathematical method; (ii) a literary, dramatic, musical or artistic work or any other creation of purely aesthetic character whatsoever; (iii) a scheme, rule or method for performing a mental act, playing a game or doing business; (iv) the presentation of information; (v) substances existing in nature or if isolated from natural environment / state; (vi) publication and use of inventions which are against public order or morality; (vi) patents are not granted in respect of any animals or plants other than micro-organisms, nor for any essentially biological process for the production of animals and plants – this restriction does not extend to non-biological and microbiological processes; (vii) diagnostic, therapeutic and surgical methods for the treatment of humans or animals; and (viii) new uses of already-known products or processes.


It must also be noted that patent rights are exercisable only in respect of industrial or commercial purposes. Certain acts which would otherwise constitute infringement are therefore outside patent protection, which include: (i) scientific research or experimental purposes; (ii) products already available in markets anywhere in the world by the patent owner or its authorized license-holder; (iii) use of products on foreign aircraft, vehicles, vessels temporarily or accidentally entering Pakistani airspace, territory or waters; (iv) good faith testing and other acts for approval of a then-patented product; and (v) usage for teaching purposes. Patent rights may also be limited in cases where the Government uses patents for reasons of public interest, under compulsory licenses, which is allowed under Pakistan law.

Patentable inventions are valuable assets which can appreciate in value when registered and protected under Pakistan patent law. Patent protection through registration is not compulsory, however, a patent’s value and overall benefit cannot be obtained without registration. 

Patent applications in respect of inventions can be filed by any person (individual, corporate or partnership firm), whether alone or jointly with any other persons. Persons who are the true and first inventor of the invention (and their legal representatives in certain cases) are eligible to apply for patent registration. Where patents are granted to two or more persons (e.g., joint ventures), each person is normally be entitled to an equal, undivided ownership share in the patent (unless they agree otherwise).

Patentable inventions made by employees of businesses, if made during the course of their employment, will normally belong to that employee as the first inventor, unless there is a contractual obligation to waive or transfer such ownership right to the employer (which is a standard provision in employment contracts of businesses involved in patent creation). If there is no such contractual agreement, the employer must prove that the invention was not possible without the required infrastructure, facilities and other resources of the employer. In cases where the invention is of exceptional economic value, the employee-inventor will, at a minimum, be entitled to “equitable” compensation in light of existing salary, duties and benefits gained by the employer business from the invention.


As with any IPR, registration of patents with the IPO is absolutely recommended and occurs when the patents are granted and sealed and certificates issued by the IPO (see more on registration at. Registration of a patented product or process with the IPO confers the following significant rights and protections to the patent holder. 

  1. Registered owners of patented products can institute actions for infringement by other persons who make, use or sell patented products or their counterfeits without the required legal authorization from the patent owners. This protection extends to unauthorized imports, distributors and licensing of those products. Actions for infringement are brought in the relevant IP Tribunals (established in every Province). Relief may be given by way of damages, injunctions against the infringing Party, or accounts of profits (an equitable remedy), with provisional measures where appropriate, in the Court’s opinion, to prevent further infringement of the patent, preserve necessary evidence (when it is in danger of being destroyed) and / or for preventing any delays (as patent owners will argue irreparable harm for each passing day the infringement continues).
  2. Registered owners of patented processes may also institute actions for the same types of infringement and same remedies as above, and apply for Court order (IP Tribunal) requiring the infringing Party to demonstrate, in order to defeat the action, that its infringing product is different from products created using the owner’s patented process and that its process is likewise different. Without such proof in defense, an infringement claim is usually successful (provided the patented process is relatively new or is otherwise unique). In these cases, however, the infringing (allegedly) Party’s legitimate interest in protecting their business / trade secrets will be considered when requiring production of their evidence in defense.
  3. Pakistan patent law prescribes financial penalties for persons selling and falsely representing products as patented in Pakistan or with pending applications for registration. This is to ensure that patent owners enjoy exclusive rights not diluted or otherwise diminished by false patent owners.


  1. Allows for enforcement of patent rights and seizure of infringing products by Pakistan Customs laws FIA, FBR, PEMRA and through their Directorate for IPR Enforcement, while the Directorate has also been tasked with notifying owners of any infringement activities, thereby offering opportunity to prosecute.
  2. Benefit of criminal prosecution by local police authorities under sections of the Pakistan Penal Code; and generally take up any other remedies available under Pakistan law for persons with property ownership rights.

Once an intellectual property right (IPR) is registered in Pakistan, for certain businesses it may be recommended to have their IPRs additionally registered in foreign markets of interest (e.g., countries of export or where foreign production inputs are sourced). As Pakistan is a signatory to the Paris Convention (1883), owners should exercise their Convention priority rights and file for IPR registration in the target countries with its Pakistan registration date as the date of priority.


For registration of IPRs in Pakistan, a brief description of the process for each IPR is set out below:

Trademarks: Applications for trademark registration can be manually filed at the IPO offices where the owner is based, Lahore, Islamabad, Peshawar or the main TM Registry in Karachi, as well as through the new online filing system launched by the IPO for Trademarks. Before formal application, it is advisable to first conduct a trademark search by filing Form TM-55, which usually takes between two (2) weeks and a month. This search is necessary for finding out whether any similar marks are registered or evaluating other potentially problematic issues in advance of registration. A personal search facility is also available. The IPO website lists a timetable for the entire process, however, the timelines listed here are largely based on how long the process has traditionally taken in Pakistan. 


Any legal person, a national of any country, or entity such as a sole proprietor, partnership firm, or company may apply for the registration of a trademark. Where a trademark are granted to two or more persons (e.g., joint ventures), each person is normally be entitled to an equal, undivided ownership share in the trademark (unless they agree otherwise)


Applications for trademark registration in one class of goods or services are filed through Form TM-1, manually or online. Multi-class applications are not allowed and separate applications must be filed for each additional class of goods / services. 


Manual Filing: Two (2) copies of the Form TM-1 must be filed at the concerned IPO Office along with payment of the prescribed fee (through pay order or demand draft in the name of Director General, IPO). The Applicant must provide the exact trademark in physical printed form along with other required information (as below). For manual filing, the application must also be filed along with six (6) additional copies of the mark on durable paper with dimensions of 13 inches by 8 inches.

Form TM-1 requires information concerning (i) full name and address of the applicant (if a partnership firm, then information of all partners); (ii) a statement of goods or services in relation to which it is sought to register the trademark; (iii) a representation of the trademark applied for; (iv) the relevant international classification of goods or services for the trademark; and (v) full name, address and contact details of attorney / agent, if application is submitted by such attorney / agent on owner’s behalf. A power of attorney will also be required to verify legal authority to file on behalf of the owner. 

When the mark is being used prior to registration, the application should state the period during which it was being used and supported with affidavit and evidence. If the mark is to be used in the future, the applicant must state that it has a bona fide intention to use it, as it must do so within five years of registration, otherwise registration is revoked by the IPO.


The whole process for trademark registration can take anywhere from eighteen (18) months to two (2) years from the date of filing, and may stretch further depending on whether there are any Registrar or third-party objections or oppositions, respectively. An application is acknowledged through official letter within two (2) weeks to a month (similar time frame for a search application). Within three (3) months of filing, the IPO issues an examination report and either issues an acceptance for the application or communicates any objections  in the form of a show-cause notice (which must be cleared within two (2) months, otherwise the application is considered cancelled). Thereafter, the trademark is published in IPO’s e-Journal for Trademarks in order to allow for any opposition filings. The opposition procedure may be initiated by any party that believes that the registration of the mark may be detrimental, including through dilution. If no opposition is filed within two (2) months of the date of publication, the application stands accepted and the IPO issues a demand note for payment of the registration fee and filing of Form TM-11. After payment, the trademark is entered into the Register of Trademarks and the registration certificate is issued.


Online Application: The Online Filing procedure will follow the same timeline for the registration process as stated above. The process for registration on the IPO portal for Trademarks is summarized below:

The IPO portal is available on the IPO website at To access the portal, click the Online Filing link.

The IPO portal requires user registration. Accounts can only be made through a person’s CNIC, while duly authenticated mobile number (i.e., with biometric verification) and email address is used to get separate authentication codes which must be entered at the registration screen. Correspondence address is also required (for all official letters). After codes are verified, the user registration form must be submitted and an automated email is sent to the email address with username (CNIC) and password and its special PIN for authorization and submission. This email address receives all official automated emails from the IPO.


After login, the main dashboard of the shows available forms that can be filled, paid for and submitted. For filing trademark registration applications, the corresponding “+” (plus) sign for the Form (in this case, the TM -1) should be selected to add a new application. 


Once an application is added, the IPO Portal will show five (5) tabs for the different phases of the online process i.e., filling the Form, uploading Attachments, Review all information, payment of Fees and Submission of the application.


At the Form page, information is inserted which will automatically generate the relevant Form – this should require the same information as noted above for manual filing. The Applicant’s information will automatically be added (e.g., if the Applicant is a sole proprietor or, if a firm Partner, he/she will only need to enter the information of all other Partners). Once all information is filled, the process moves on to uploading of the required attachments. 


At the Attachment page, the proposed mark must be uploaded digitally together with the legal documents concerning the applicant (e.g., partnership deed or company incorporate certificate). The IPO portal requires specific file sizes and file type (.jpeg).

At the Review page, the Applicant must verify the accuracy and completeness of the information.


Payment of the Fee can be made online through card payment or Jazz Cash. Additional charges are applicable on either method.


The application is then electronically submitted and authenticated by entering the user’s PIN code. 


Patents: Patent registration applications are manually filed at the IPO offices in Lahore, Islamabad or the main Patent Office in Karachi. The entire registration process, noted below, can take anywhere from eighteen (18) months to two (2) years. As with other IPRs, it is advisable to first initiate a search application to check for availability and potential conflicts. The IPO website lists a timetable for the entire process, however, the timelines listed here are largely based on how long the process has traditionally taken in Pakistan.   


Applications for patent registration are made through filing prescribed Form P-1 at the relevant IPO Office with supporting documentation, as noted below. Applications can only be made in respect of one (1) invention. The Form P-1 requires name, nationality and address of the applicant(s) / inventor(s) and must be filed with the following supporting documents:

Two (2) copies of complete or provisional specification in respect of the invention – this operates as the required disclosure of the invention for public examination purposes. A patent specification is a technically detailed document describing the invention, its method of production and use and is largely drafted and vetted by dedicated patent attorneys (who are also engineers registered with the PEC). It may be accompanied by detailed technical drawings and usually contains information of prior arts relevant to the inventions and an evaluation / comparison with existing technology (i.e., benefits, advantages). The specification must also contain claims defining the scope of invention for which protection is claimed. 


Specifications may be provided in complete form or on a provisional basis, with the requirement to submit the complete specification within twelve (12) months of the earlier provisional filing. If a complete specification is not submitted, the patent application is considered abandoned as the Patent Office only begins its technical examination after the complete specification is submitted. 


An abstract statement, normally not more than two (2) pages, providing technical information on the invention together with relevant technical drawings to be published in the Journal, if any.


Claims in writing made by the inventor in support of its right of ownership as first inventor, in addition to a declaration that the applicant-inventor is in possession of the invention. 


Power of attorney in favor of IPO-registered patent agent for filing patent applications.


Payment of official IPO fees, through bank draft or pay order and addressed to Director-General, IPO.


Applications filed with complete specification are then examined by dedicated IPO patent examiner who issue a report to the Controller on whether the application meets the requirements of the Patents Ordinance (essentially, whether it should be accepted). This process can take up to eighteen (18) months from the date of filing of the application, and applications are deemed / considered refused if not accepted in this period. If, as per the examiner report, the application does not comply with the necessary requirements, the applicant is given opportunities for hearings and for complying with the said requirements (e.g., amending applications). The acceptance of the application by the IPO patent office is published in the official IPO patent journal and, thereafter, the application is available for public examination.

The applicant-inventor applies for the grant / registration of patent after acceptance and publication of the application, if no opposition is filed within four (4) months of the publication, or where the opposition is defeated. At this point, the patent is sealed with the IPO Patent Office seal and corresponding entry is made in the Register of Patents. This entry in the Register is prima facie proof of ownership of the patent. 


Registered Designs

Any individual proprietor or entity such as a partnership firm or company may manually apply for registration with the Registrar of Designs, IPO Patents Office in Karachi or IPO offices in Lahore or Islamabad. Joint registration and ownership of designs is allowed either through contractual agreement (unless agreed otherwise, with undivided equal ownership), assignment / license, transmission (i.e., upon death) or by operation of law. Employers are entitled to ownership of designs created by employees for “good consideration” (i.e., reasonable compensation for work). 


Multiple-class design applications are not possible in Pakistan and must be filed separately for each class. As with other IPRs, it is advisable to first initiate a search application to check for availability. The IPO website lists a timetable for the entire process, however, the timelines listed here are largely based on how long the process has traditionally taken in Pakistan.


Application Requirements: The Design Registration Form 15

The Form 15 must be filled with information concerning name, address and nationality of the applicant, details of supporting evidence (whether drawings, photographs or specimens), as noted below: 

Five (5) identical specimens / photographs / drawings of the design (shape or configuration, pattern or ornament on the article). These representations should sufficiently show the novelty of the design, ideally with more than one perspective.

The Form 15 may also be accompanied by a written description of the design, called “statement of novelty”, which is used to argue differences and originality from any earlier designs, highlight distinctive aesthetic and significant features of the design. In some cases, it may be required as per the Designs Office discretion.


Power of attorney is required where filing is undertaken through services of legal professionals. 

Payment of official IPO fees, through bank draft or pay order and addressed to Director-General, IPO.

After filing of complete Form 15 with supporting documentation and payment of fees, the application is formally examined by the Designs Office for compliance with administrative requirements and submission of required documents. Applications are acknowledged through official IPO acknowledgement letter sent to the designated service address with official application number, usually within thirty (30) days.

Thereafter, the examination by the Designs Office is of a substantive and technical nature, with the official review of the application issued to the applicant for clearing any objections. Upon satisfaction of the Designs Office (usually as to the eligibility of the design for registration), the application is accepted and the particulars of the application and the representation of the design is registered and published. An official registration certificate is issued.


Where any raised objections and other failures of procedure are not cleared within six (6) months of the date of filing, the application is deemed to be abandoned / cancelled.


The entire industrial design registration process can generally take as anywhere from nine (9) months to over a year, depending on any replies and clarifications required from the applicant and time taken to clear objections.

Licensing / franchising arrangements are secured through written contractual agreement in Pakistan, with detailed terms on royalties, standards and quality control, inspections, rights of performance and financial audit and, in some cases, certain overriding discretion or control over the use of the licensed IPR. These reserved rights are the main method by which the original IPR owner commands the overall strategy for its IPRs.


Authorized licensees / assignee of owners of registered design are normally allowed to undertake all such activities which would otherwise constitute infringement under the relevant IPR laws. This is however almost always restricted by the terms of their license / contractual assignment, which may impose conditions on the time period of use, or area (market), or it may quantitatively restrict the use of the IPR. 


In Pakistan, the emphasis on IPR licensing is mostly centered on maintaining standards, monitoring performance conditions, enforcing compliance through monetary deductions, and generally requiring business transparency and ensuring financial security (deposits of post-dated checks / pay-orders / drafts, scheduled bank guarantees, indemnity bonds, promissory notes). Certain other laws also apply to franchise and licensing arrangements – e.g., Competition laws as well as foreign exchange laws & SBP regulations (for inward and outward remittances, limitations on technical fees and other conditions). 


In cases of dispute, situations may arise where the franchise / license owner initiates procedure remove entry of any franchise / license interests. In these cases, the relevant IPR branch of the IPO will be in a position to determine authority and scope of such licenses and assignments, since it maintains record of all attested copies of such written licenses and assignments. During any litigation, the same record will be considered by the IP Tribunals.


Applications can also be submitted for registration of security interests over IPRs and for entry of such security interests in the official Register of the respective IPR.


1- Trademarks


An application for registration of interest of persons authorized under license or mortgage in is filed on TM-28 and is submitted to the Registrar of Trademarks, together with attested copy of the written instrument of license or mortgage. Barring objection, the Registrar records the entry of the license interest in the Register of Trademarks as well as the particulars of the written instrument. 


2- Patents


An application for registration of interest of persons authorized under license, mortgage or other instrument is filed on Form P-25 and is submitted to the Controller of Patents, together with attested copy of the written instrument of license or mortgage (as per discretion, original may also be presented). Barring objection, the Controller records the entry of the license interest in the Register of Patents as well as the particulars of the written instrument. 


3- Industrial Designs


An application for registration of interest of persons authorized under license or mortgage in is filed on Form 26 and is submitted to the Registrar of Designs, together with attested copy of the written instrument of license or mortgage. Barring objection, the Registrar records the entry of the license interest in the Register of Designs as well as the particulars of the written instrument. 

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