Expanding business activities gave rise to partnership as the sole proprietorship with its limitations could not rise according to the demand of time and requirements of expanding business activities. More capital, enhanced risk greater managerial talents and Abilities were being expected from the sole proprietorship which it was unable to meet.
Formation of Sole proprietorship is very simple, because there are no special legal formalities like permission from government; preparation of necessary documents, registration etc. required to start the business as Sole proprietorship. One can start it at any time and at any place according to his financial capacity. This feature attracts most of the potential investors to invest.
Being one man show the sole owner manages and controls all the affairs of the business independently, without the interference of any other person. He is the planner policies and decision maker for the success of his business. Sole Proprietorship has no separate legal entity from its owner. Owner and business is same thing in the eyes of law and public.
Unlike Limited Liability Company LLC or Corporation it does not need to be registered with the state. If you are a sole owner you can easily start a sole proprietorship, registration is necessary however there might be some complication for startup business like business license, registration with local authorities or any permit laws if needed.
There are two main classes of shares: ordinary and preference. There can be a variety of other shares depending upon different rights attached to such shares in the articles of association. A new type of share can be created provided it does not violate the restriction prescribed by the law. However, any new class of shares will fall within one of the two main categories, i.e. ordinary and preference.
Private limited companies (or privately held corporations) are generally family or closely held businesses. public limited companies are widely held companies with a very large number of shareholders. The minimum number of shareholders under the Companies' Ordinance of Pakistan is seven with no upper limit. However, the authorized number of shares determines the upper limit.
A company is a third legal business structure and has entirely a different organizational structure from the sole proprietorship or partnership. Its formation is due to firstly, the sole proprietorship and partnership cannot meet the increased capital demand of industry and commerce. Secondly, the company ensures the protection of limited liability to the shareholders and investors.
In terms of the legal structure for business, following are the different forms of business organizations sole proprietorship, partnership & companies