Partnership Registration in Pakistan

A person desiring to run a business might not have availability of the huge amount of capital required at the start of work. It is typical and more advantageous, then, to join hands with another individual, or individuals, in order to tackle not only the capital availability but more efficient doing of business with the help of joint capabilities of the partners.
Before discussing the registration process of Partnership in Pakistan, we need to elaborate on the word "Partnership" to proceed further. Here we are talking about the partnership in the eye of law:

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A partnership is a technique of forming a business which involves two or more individuals, i.e. the partners. It consists of a contractual agreement, i.e. the partnership agreement between all of the partners that includes the terms and conditions of the partnership business, consisting:
Pakistan deals with the following manufacturing industries in all over the world:
  • Responsibilities.,
  • Profit and losses,
  • The distribution of ownership,
Partnerships summarizes and clearly elaborates the business responsibility and type of relationship. Contrasting with the LLCs or corporations, partners can be held personally liable for any business obligations of that partnership that means the creditors or other parties to whom the business owes can go for the partners' personal assets. Because of it, the individuals who want to establish a partnership must be highly discerning when deciding partners.
Let's discuss partnership under the light of the Partnership Act, 1932;

Partnership as per Partnership Act 1932

According to Partnership Act, 1932;

"Partnership" is the relationship between the persons who have agreed to share the profits and losses of a business executed by all or any of them acting for all.

Individuals who have joined hands for a partnership with one another are called "Partners" and collectively "A Firm", and the name under which the business is running is called the "Firm Name."
According to Partnership Act, 1932, the partnership is not created by status.
This Act says;

'The relation of partnership arises from contract and not from status.'

There are different types of partnership i.e. as per Tenure, Objectives, Nature and Legality which are enlisted below;

Obtaining NTN for Manufacturing Industry

According to Duration/Objective

Partnership at Will

Such partnership stays on the partners' will, which means that it comes to an end when any one of the partners inform about his intent to do so.

Particular Partnership

A particular partnership is established to accomplish a specific venture. It can be brought to an end spontaneously with the accomplishment of that venture.

According to Tenure

Partnership for Fixed Term

This partnership is for a specific time span, i.e. three years, six years, or any other time duration. This partnership goes to an end spontaneously when the decided time expires.

Flexible Partnership

Those Partnerships which are made neither for a fixed time span nor for any specific venture are called flexible partnerships.

According to Nature

General Partnership

When there is no agreement between the partners then the provisions of the Partnership Act 1932 will be applicable for general partnerships by which every partner is with unlimited liability.

Limited Partnership

In this type of partnership, all or some excluding one partner have their liability limited to the extent of capital introduced by them.

According to Liability

General Partnership

In a general partnership, every partner is with unlimited liability.

Limited Partnership

In a limited partnership, the liability of at least one partner is unlimited, whereas the other partners may have limited liability.

Limited Liability Partnership (LLP)

LLP is a kind of partnership where some or all partners are with limited liabilities.

Now we will briefly discuss the process of registration of Partnership in Pakistan. Detail of which is as follows

Registration of Partnership Firm

Registration of partnership firm involves the following steps which are enlisted
  1. Selection of name for Partnership Firm Registration
  2. Drafting of Partnership Deed
  3. Documents required to be completed
  4. Fee for Firm Registration
  5. Submission of Documents for Firm Registration
  6. Commencement of Partnership Firm Business

1- Selection of Name for Partnership Firm’s Registration

First of all, firm name is to be selected that cannot contain any prohibited words for the approval of this name. The procedure of deciding a name for the Firm should be understood to avoid wastage of time. We are enlisting hereunder some of the prohibited words
Prohibited Words
The availability of the proposed name of the business is firstly required to be checked because some phrases and words are not permitted to be availed as a part of the Firm’s name while registration the Firm in Pakistan. Some of the prohibited words are;
  • Pakistan,
  • Lahore,
  • The Co etc.

2- Drafting the Partnership Deed

Before discussing the drafting of the partnership deed, it is crucial to describe the partnership deed and its contents as follows;
Approval of Company Name
A partnership is a form of business where a legal agreement between two or more individuals is signed. A partnership deed is typically a partnership agreement between the firm partners that defines the terms and conditions of the partnership amongst the partners. The Partnership Act does not require the agreement to be in written form. If it is in the written form, the document that comprises the terms and conditions of the agreement is called 'Partnership Deed.
Purpose of partnership deed
The objective of a partnership deed is to furnish a definite apprehension of the roles of each partner that ensures the smooth running of the operations of the Firm.
All the rights and obligations of every partner are documented in the Partnership Deed. This deed can be oral or written, however, an oral agreement has no use in dealing with tax by the firm.
Characteristics and Contents of a Partnership deed
Here are some of the vital characteristics of a partnership deed:
  • The name of the Firm.
  • Name and addresses of the partners.
  • Profit and loss sharing ratio
  • Nature of the business.
  • Remuneration of partners.
  • The interest which is allowed on capital and charged on drawings.
  • Right of partners
  • The drawings which each partner is allowed to make
  • The duration or term of the partnership.
  • Duties of partners.
  • The amount of the capital to be introduced by each partner.
  • The method used for calculating goodwill.
Below are some of the main contents of a partnership deed:
  • Name of Firm as decided by all partners.
  • The date of commencement of business.
  • Methodology for calculation of goodwill.
  • The procedure that should be followed in cases of dispute arising between the partners.
  • The procedure of retirement or admission of a partner.
  • Amount of capital introduced by each partner.
  • Name and the details of all the partners of the Firm.
  • Firm's existence duration.
  • The Profit-sharing ratio between the partners.
  • The salary and commission, if applicable, payable to partners.
  • Procedure for cases where a partner would become insolvent.
  • Obligations, duties, responsibilities and power of every partner of the Firm.
  • Procedure for the settlement of accounts at the time of dissolution of Firm.
An Overview of the drafting of the deed
The nature of business should be described clearly.
The profit and loss ratio should be mentioned.
Should be as per Partnership Act,1932.
Legally upright.
On 1000rs Stamp paper.
The deed should be printed.

3- Documents required to be completed

  • Form-I
  • Each partner's full Name, Father or Husband's Name, Residential Address, and copy of the National Identity Cards of each partner.
  • Partnership deed on stamp paper of Rs. one thousand. A Partnership Deed is the documentary details of the Partner's rights and obligations participating in this business.
  • Evidence for the address of business location, normally bills for utilities
  • If the location of business has already taken on, then the rent deed/document of ownership is mandatory.
  • Original Deposit Slip of Partnership Deed/Agreement Fee paid in national bank of Pakistan.
  • Signatures of all the partners on Partnership Deed/Agreement along with 'two witnesses'

4- Fee for Registration of Firm

After compiling all of the required documents, the application form, i.e. Form-1, is to be downloaded. The partnership agreement that is formed on a stamp paper of Rs. 1,000/- and the Form must be filled with due care. Partnership deed will be signed by all the partners of the Firm. Moreover, the Partnership Deed and Form I shall be attested by the Notary Public.
Fees for Registration should be paid at the National Bank of Pakistan. Furthermore, the challan form is to be enclosed with the application. Normal processing time for application is within 3-7 working days.

5- Submission of Documents for Firm Registration

After completing the documents mentioned above, the partnership deed can register with the Firm Registrar of the location where the office of the Firm is located.

6- Commencement of business of a Partnership Firm

On registration of the firm, the business can commence after making an application for National Tax Number from FBR.
If any one partner wants to leave the partnership Firm during the partnership period, then the modified partnership agreement/deed is prepared, and a Newspaper Advertisement is required about the outgoing Partner. The outgoing Partner is required to appear before the registrar and sign the requisite Form.
In the way mentioned above, a firm can also be dissolved under specific circumstances. Such circumstances are discussed as below;

Dissolution of a partnership firm

Dissolution of a partnership firm means stopping the business in the name of that partnership firm. In this scenario, all the debts are finally set off through selling off all assets or transferring them to the respective partner and paying all accounts that be in existent with the partnership firm.
The profit or loss is allocated to partners as per their profit-sharing ratio agreed by them through partnership deed.

Ways of dissolving a Partnership firm

When the partners mutually agree

It is the simplest approach to dissolve a partnership firm. Partners may communicate mutual consent or may agree to dissolve the Firm.

Compulsory dissolution

A firm shall be required to dissolve by force if all partners or all partners excluding one partner are declared as insolvent and if the Firm is engaged in illegal activities like drug dealing or doing business with other countries or distant countries that shall cause harm to the interest of Pakistan or doing other these types of activities.

Dissolution by notice

When the partnership business is at will, then any partner has a right to dissolve the partnership by just giving a notice in advance. Notice will consist a date by which dissolution will be in effect.

Dissolution by Court

In case of metal un-stability or misbehavior by any partner with the other partners or if any partner breaches the clauses of the partnership deed, then other partner(s) can file a case in the court for dissolution of the Firm. However, a firm can be dissolved by the court only if the said firm is registered with the Registrar of Firms which means that court cannot dissolve an unregistered firm.

Difference between Partnership & Company

Description Partnership Company
Prevailing Law The partnership is prevailed by Partnership Act, 1932' and various Rules made thereunder. Companies are prevailed by 'Companies Act, 2017.'
Name of Entity Any name as per option Name to consist of 'Private Limited' in case of Private Company as a suffix.
Distinct entity Not a separate legal entity It is a separate legal entity under the Companies Act, 2017
Perpetual Succession It has no perpetual succession as this is based on the partners’ will. It has perpetual succession, and members may enter or exit.
Common Seal There is no concept of a common seal in case of Partnership. It shows the signature of the company, and every company shall have its common seal.
Ownership of Assets Partners are owners of Assets as per their profit-sharing ratio. The company, independent of the members, has ownership of assets.
Legal Proceedings Only registered partnerships can sue the third party A company is a legal entity that can sue and be sued.