# Sole proprietorship vs partnership vs SMC vs private limited: which to choose

URL: https://which.pk/business/guides/business-structures-pakistan/
Author: Ahtisham Imtiaz
Updated: 7 Oct 2026

## Summary

A sole proprietorship is the cheapest and simplest: you register only with FBR, your CNIC is your NTN, but you carry unlimited personal liability and pay individual tax rates up to 45%. A company (single member or private limited) is registered with SECP from Rs 6,655 online, limits your liability to your share capital and pays 29% tax, or 20% as a small company, but needs an auditor and more paperwork. Partnerships carry unlimited liability; LLPs limit it.

## Key facts

- Company tax: 29% (small: 20%)
- Top individual rate: 45%
- SECP fee from: Rs 6,655
- Sole proprietor fee: None (FBR)

For most one-person businesses starting out, a **sole proprietorship** is the simplest choice: you register only with FBR, your CNIC is your NTN, and there's no fee. Choose a **company** (single member or private limited) when you need **limited liability**, plan to take investors, or expect profits high enough that the **29% company rate** beats individual rates of up to **45%**. A company costs from **Rs 6,655** to register online with SECP and comes with more paperwork.

## How do the five structures compare?

| | Sole proprietorship | Partnership firm | LLP | Single member company | Private limited |
|---|---|---|---|---|---|
| **Registered with** | FBR only | Registrar of Firms, then FBR | SECP, then FBR | SECP | SECP |
| **Owners** | 1 | 2 or more | 2 or more | 1, plus a relative as nominee | 2 to 50 |
| **Liability** | Unlimited | Unlimited, joint and several | Limited (not for fraud) | Limited | Limited |
| **Income tax (TY2027)** | Slabs, 0% to 45% | Slabs, 0% to 45% | Slabs, 0% to 45% | 29%, or 20% if small | 29%, or 20% if small |
| **Set-up cost** | No FBR fee | Punjab: Rs 1,000 stamp paper + Rs 100 challan | SECP fee (not confirmed) | From Rs 6,655 online | From Rs 6,655 online |

## How is each one taxed?

**Sole proprietors, partnerships and LLPs** pay the non-salaried individual rates in tax year 2027: 0% up to Rs 6 lakh, 15% on the next slice, rising to **45% on income above Rs 56 lakh**. The Finance Act 2026 left these rates unchanged. A partnership (an AOP) pays tax itself, and the partners' shares are then exempt in their hands.

**Companies** pay **29%** of profit, or **20%** if they qualify as a **small company**: paid-up capital plus reserves up to Rs 5 crore, turnover up to Rs 25 crore and no more than 250 employees. When owners take profit out as dividends, they pay a further **15%**.

**Super tax** now applies only to income above **Rs 50 crore**, at 8% (10% above Rs 15 crore for banks, oil and gas exploration and fertilizer). The old tiers starting at Rs 15 crore for everyone are gone.

**Rule of thumb:** At low profits, individual slabs cost less than 29%. As profit grows past the higher slabs, a company's flat rate starts to win. Model your own numbers, or ask a tax adviser, before you switch.

## What about liability?

- **Sole proprietor:** you and the business are the same person. Business debts are your debts.
- **Partnership:** every partner is liable, jointly and individually, for everything the firm does. An unregistered firm can't sue to enforce its contracts.
- **LLP:** partners aren't personally liable for the LLP's debts, except for their own wrongful acts or fraud. It needs at least two partners at all times.
- **SMC and private limited:** separate legal entities. Owners risk only what they put into the company's shares.

## How much paperwork does each need?

- **Sole proprietor:** register on IRIS and file an income tax return each year. See [how to register a sole proprietorship](/business/guides/how-to-register-sole-proprietorship/).
- **Partnership:** register the deed with the provincial Registrar of Firms, register the AOP with FBR at a facilitation counter, and file returns.
- **Company:** register on SECP's eZfile (which also gets you an NTN), appoint an auditor within 90 days, have accounts audited (unless a private company with paid-up capital up to Rs 10 lakh, or a higher figure SECP notifies), and file annual returns with SECP after any change. See [how to register a company](/business/guides/how-to-register-a-company-in-pakistan/).

## Which should I choose?

- **Testing an idea alone, small profits:** sole proprietorship.
- **Two or more people, low risk, want to keep it simple:** a registered partnership, accepting unlimited liability.
- **Professionals in partnership who want limited liability:** LLP.
- **One owner who wants limited liability or a company image:** single member company.
- **Co-founders or investors involved:** private limited company.

More guides: [Company Setup](/business/company-setup/).

## Questions people ask

### What is the difference between a private limited company and a sole proprietorship?

A sole proprietorship is you trading under your own NTN, with unlimited personal liability and individual tax rates up to 45%. A private limited company is a separate legal entity registered with SECP, owned by 2 to 50 members whose liability is limited, and taxed at 29% (20% for a small company) in tax year 2027.

### What is the difference between an SMC and a private limited company?

Both are companies with limited liability, registered with SECP and taxed the same way. An SMC has one member, who must name a close relative as nominee; a private limited company has 2 to 50 members.

### Is a sole proprietorship taxed less than a company?

It depends on profit. A sole proprietor pays 0% up to Rs 6 lakh, rising to 45% above Rs 56 lakh. A company pays a flat 29% (20% if small), and owners pay 15% more on dividends they take out.

### What is an LLP in Pakistan?

A limited liability partnership registered with SECP under the LLP Act 2017. It needs at least two partners, who aren't personally liable for its debts except for their own wrongful acts or fraud. From tax year 2027 it's taxed as an AOP.

### Do I need an auditor for a private limited company?

Generally yes: the Companies Act 2017 requires audited accounts, with an exemption for private companies with paid-up capital up to Rs 10 lakh (or a higher figure SECP notifies).

## Sources

- [Income Tax Ordinance, 2001 (amended up to 30.06.2026)](https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf), FBR (accessed 7 Oct 2026)
- [A Brief of Finance Act, 2026](https://kpmg.com/content/dam/kpmgsites/pk/pdf/2026/07/A%20Brief%20of%20Finance%20Act%202026.pdf.coredownload.inline.pdf), KPMG Taseer Hadi & Co. (accessed 7 Oct 2026)
- [Frequently Asked Questions on Incorporation](https://www.secp.gov.pk/wp-content/uploads/2025/09/FAQs-Incorporaiton.pdf), SECP (accessed 7 Oct 2026)
- [Fee Calculator: Company Incorporation](https://www.secp.gov.pk/company-formation/fee-calculator/company-incorporation-fee-calculator/), SECP (accessed 7 Oct 2026)
- [Companies Act, 2017 (as enacted)](https://download1.fbr.gov.pk/Docs/202010512102039492CompaniesAct,2017.pdf), Gazette of Pakistan (copy hosted by FBR) (accessed 7 Oct 2026)
- [The Partnership Act, 1932](https://pakistancode.gov.pk/pdffiles/administratorbbc0b5b0d78c35e99e3b94f6b77b69db.pdf), Pakistan Code (accessed 7 Oct 2026)
- [Firms (registration of firms)](https://doi.punjab.gov.pk/firms), Directorate General of Industries, Punjab (accessed 7 Oct 2026)
- [Limited Liability Partnership Act, 2017](https://khalidzafar.com/wp-content/files_mf/1527068650LimitedLiabilityPartnershipAct2017.pdf), Gazette of Pakistan (copy hosted by Khalid Zafar & Associates) (accessed 7 Oct 2026)
- [Registration process (Income Tax)](https://fbr.gov.pk/categ/register-income-tax/51147/30846/71150), FBR (accessed 7 Oct 2026)