Starting and running a small business in Pakistan comes with numerous challenges, but one of the most critical—and often overlooked—aspects is ensuring legal and corporate compliance. Many entrepreneurs, driven by ambition and constrained by limited resources, inadvertently make legal missteps that can lead to serious consequences, including penalties, business disruptions, or even complete shutdowns. These legal oversights not only undermine the credibility of the business but can also deter potential investors and partners. In this article, we highlight the top five legal mistakes small businesses in Pakistan commonly make, shedding light on how these errors can jeopardize long-term success and compliance.
- Not Registering the Business Properly
Mistake: Operating informally without registering with SECP (Securities and Exchange Commission of Pakistan) or FBR.
Why It’s a Problem: Unregistered businesses can’t open business bank accounts, enforce contracts properly, or qualify for tax exemptions and government programs.
How to Avoid:
- Choose the right structure: Sole proprietorship, partnership, or private limited company.
- Register with SECP for companies or Registrar of Firms for partnerships.
- Get an NTN from FBR and register with provincial revenue authorities for sales tax (if applicable).
- Ignoring Tax Compliance
Mistake: Not filing taxes or underreporting income.
Why It’s a Problem: Leads to penalties, audits, and ineligibility for tenders, loans, and investments.
How to Avoid:
- Hire a tax consultant early.
- File monthly/quarterly sales tax returns, withholding tax statements, and annual income tax returns on time.
- Keep proper financial records and issue proper invoices.
- No Written Contracts with Partners, Employees, or Vendors
Mistake: Relying on verbal agreements.
Why It’s a Problem: Hard to enforce terms legally in case of disputes or non-performance.
How to Avoid:
- Draft comprehensive and clear written agreements for partnerships (Partnership Deed), employment (Contracts of Employment), and suppliers.
- Clearly outline roles, payment terms, dispute resolution, and termination clauses.
- Not Protecting Intellectual Property (IP)
Mistake: Using unregistered logos, slogans, or product designs.
Why It’s a Problem: Competitors can copy or register your brand.
How to Avoid:
- Register your trademark with IPO Pakistan (Intellectual Property Organization).
- For unique inventions or products, consider patent or industrial design registration.
- Avoid using copyrighted material without permission.
- Overlooking Labour Laws and Employee Rights
Mistake: Hiring informally, paying below minimum wage, or ignoring workplace safety laws.
Why It’s a Problem: Can result in legal action, fines, and reputational harm.
How to Avoid:
- Issue employment letters, maintain attendance records, and register employees with EOBI and Social Security.
- Follow minimum wage laws, working hour limits, and leave policies.