Legal Advice on Due Diligence of Private Limited Companies in Pakistan

Due diligence is the process of gathering information about a company before investing in it. It is important to do due diligence on any company, but it is especially important in Pakistan, where there is a high risk of fraud and corruption in the corporate sector.If you require due diligence on a Pakistani Company please get in touch at [email protected]

At Josh and Mak International, we pride ourselves on our exhaustive due diligence processes which not only comply with the legal standards but aim to go a step beyond. Our profound legal examinations lead to the formulation of comprehensive legal opinions, which are tailored to provide a clear picture of the legal standing and operational status of entities involved. The following framework outlines the backbone of our legal opinions provided upon the culmination of due diligence exercises.

1. Basic Information:

   • We confirm the formal incorporation, registration, and the business scope of the company in question, alongside details about its operational term, principal businesses, registered and actual business addresses.
   • The composition of the board of directors and the senior management is meticulously verified to affirm their eligibility and compliance with the requisite legal and regulatory frameworks.
   • The company’s constitutive documents are examined to ensure their legal binding effect and compliance with the prevailing laws and regulations.

2. Legal Status:

   • Our legal opinion articulates the company’s legal standing in accordance with the laws of its place of incorporation, ensuring its capability to function as a separate legal entity with the requisite rights and powers.

3. Shares:

   • We delve into the analysis of the company’s share capital, exploring its authorization, issuance, and the legal standing of its shareholders. This includes a thorough examination of any share transfers, redemptions, subscriptions, and any alterations in the share capital since the company’s inception.

4. Business Qualifications and Material Contracts:

   • Our legal opinion encompasses an assessment of the company’s business operations, ensuring they align with its articles of association and all applicable laws. Additionally, we evaluate the material contracts to ascertain their legal validity and the implications of their execution.

5. Invested Entities and Branches:

   • We provide a detailed account of the company’s investments in other entities or established branches, ensuring they have been legally and validly completed under all applicable laws.

6. Properties:

   • A thorough examination of the company’s properties, both tangible and intangible, is conducted to confirm their legal ownership or valid licensure, free from any encumbrances or claims.

7. Financing:

   • Our opinions extend to the examination of the company’s financial agreements, ensuring there are no breaches or violations that could adversely impact its financial standing.

8. Dividends:

   • We confirm the legality of dividend distributions, ensuring they can be converted into foreign currency and remitted to shareholders without the necessity of obtaining any governmental authorization.

9. Tax Compliance:

   • Our comprehensive assessment covers the company’s tax liabilities, filings, and payments, alongside any tax preferences or disputes that may exist.

10. Employment:

    • We delve into the company’s employment practices, ensuring compliance with all applicable laws, including but not limited to, wages, benefits, and insurances.

11. Legal Proceedings:

    • Our legal opinion entails a thorough examination of any historical, current, or threatened legal proceedings involving the company, its directors, senior managers, and shareholders.

12. No Material Violation of Laws:

    • We confirm the company’s compliance with all applicable laws during a specified period, ensuring there are no violations that could have a material adverse effect on its operations.

This structured framework embodies our meticulous approach to due diligence, leading to the formulation of legal opinions that not only stand the test of legal scrutiny but provide our clients with a robust understanding of the legal and operational landscape surrounding their business interests. Our objective remains to navigate through the complex legal frameworks to deliver clarity, ensuring our clients are well-informed to make prudent business decisions. Through our legal expertise and dedication to excellence, we at Josh and Mak International continue to provide unparalleled legal services that contribute to our clients’ success in their respective domains.

Disclaimer:

The accuracy, completeness, and authenticity of the verification and due diligence conducted by Josh and Mak International pertaining to the material contracts, employment law compliance, property ownership, legal dispute history, and invested entities of the company fundamentally hinge on the information furnished by the Client for the purposes of due diligence and verification. It is pertinent to note that such information does not manifest in the public records of Pakistan, thereby rendering us reliant on the Client for providing precise and comprehensive data.

The Client is hereby urged to ensure that all information and documents supplied are thorough and unerringly accurate to facilitate a meticulous and truthful assessment. Any discrepancies, omissions, or inaccuracies in the provided information may significantly impact the veracity of our legal opinion and could potentially lead to an inadequate or misleading understanding of the company’s legal and operational standing.

Josh and Mak International shall not be held liable for any misinterpretations, misrepresentations, or misunderstandings that may arise due to incomplete or inaccurate information provided by the Client. The Client bears the sole responsibility for any repercussions that may ensue from the provision of erroneous or incomplete information.

Our firm is dedicated to executing a rigorous due diligence process to provide a well-informed legal opinion. However, the scope of our verification and analysis is circumscribed by the extent of the information made available to us by the Client. The Client is encouraged to disclose all pertinent information and documents to enable a comprehensive and accurate due diligence process.

This disclaimer serves to apprise the Client of the critical role they play in the due diligence process and the ensuing legal opinion rendered by Josh and Mak International.

Due Diligence Services for Private Limited Companies in Pakistan

At Josh and Mak International, we pride ourselves on delivering a thorough and meticulous due diligence service tailored to private limited companies operating within the legal framework of Pakistan. Our services encompass a wide array of checks and verifications, ensuring your business stands on solid legal ground. Here’s an outline of our due diligence services:

1. Due Incorporation and Corporate Information:

We delve into the core of your corporate structure, reviewing:

The due incorporation, valid existence, and good standing of your company including a review of all relevant filings.

Compliance of your company’s constitutional documents with the prevailing laws.

The legitimacy of your board of directors and share capital structure.

Analysis of any restrictions affecting your company’s operational and financial freedom.

Verification of share ownership, issuance, and transfers, along with a review of any third-party interests in your shares.

Examination of outstanding rights, warrants, or options concerning shares or equity interest in your company.

Inspection of any outstanding mortgages, charges, or securities against your company’s assets, and a thorough review of your company’s debts and liabilities.

A detailed description of your company’s principal business operations, and income sources.

2. Independent Searches:

We conduct meticulous independent searches covering:

Any orders or resolutions concerning business reorganisation, dissolution, or liquidation of your company.

Current, pending or threatened litigation, and governmental investigations involving your company.

Verification of all material authorisations required for your operations and property holdings.

3. Legal Compliance – Licenses and Permits:

Our examination extends to:

The status of all licenses, permits, and authorisations essential for conducting your business.

The restrictions, if any, on the repatriation of profits or foreign exchange controls affecting your company.

4. Legal Compliance – Laws, Regulations and Policies:

We assess compliance with local laws, regulations, and policies pertinent to:

Product/service liability, sales of medical devices, distributorship, OEM services, import/export controls, protective tariffs, trade restrictions, and insurance coverage.

5. Legal Compliance – Management and Employment:

We evaluate your compliance with employment requirements encompassing:

Employee/consultant agreements, employee registration, minimum wage, social benefits, insurance, pension funds, and labour unions.

6. Legal Compliance – Taxation and Filings:

We provide a detailed analysis of:

Applicable taxes, tax liabilities, fines, penalties, and the status of necessary filings with local registration authorities.

7. Intangible Assets:

Our service includes:

Verification of proprietary interests, licensing arrangements, and other intangible rights crucial for your business.

8. Material Contracts and Arrangements:

We review your material contracts including:

Commercial agreements, distribution agreements, licensing arrangements, joint venture agreements, procurement and leasing agreements, and intellectual property agreements for enforceability and validity.

9. Consumer Protection and Product Liabilities:

We assess:

Compliance with product safety standards, certification requirements, and anti-dumping laws and regulations.

10. Distribution:

We evaluate:

The legality and enforceability of sales agreements with distributors in relevant jurisdictions.

11. IPO Related Issues:

As part of our due diligence, we also cover:

The legal aspects concerning the proposed listing of your company, ensuring all registrations, consents, and approvals are in place.

The truthfulness, completeness, and accuracy of any disclosures in the prospectus and filing reports concerning your company and its business.

At Josh and Mak International, we strive to ensure that our due diligence services are exhaustive, leaving no stone unturned in safeguarding your business interests. Our seasoned team of legal experts are well-versed with the intricacies of corporate law in Pakistan, providing you with a robust due diligence service that stands up to scrutiny.

The outlined framework for due diligence offers a rigorous pathway for foreign companies to assess the credibility, legal compliance, and operational efficiency of local Pakistani companies extending business offers. Here are key takeaways for foreign entities:

1. Legal Compliance and Corporate Governance: It’s imperative to examine the legal standing, adherence to local laws, and the corporate governance structures of Pakistani companies. This includes reviewing their incorporation documents, board constitution, share capital information, and adherence to local laws and regulations.

2. Operational Assessment: Understanding the operational dynamics including principal business operations, product or service offerings, and the market engagements of the local companies is crucial. This will give a glimpse into the company’s operational viability and its market standing.

3. Financial Health Check: Assessing the financial health, including the analysis of outstanding loans, debts, and other liabilities along with the examination of tax compliance is vital. This would entail a review of share capital, transfer of shares, and any outstanding securities against the assets of the local companies.

4. Intellectual Property and Intangible Assets: It’s important to evaluate the validity and enforceability of proprietary interests, licensing arrangements, and other intangible rights which are crucial for conducting business.

5. Product Liability and Consumer Protection Compliance: Understanding the adherence to product safety standards and consumer protection laws is essential to mitigate risks associated with product liabilities or consumer-related disputes.

6. Contractual Agreements and Arrangements: Reviewing material contracts, distribution agreements, and other key arrangements to ascertain their enforceability and validity under local laws will help in understanding the contractual obligations and the legal standing of the agreements in place.

7. Potential IPO Readiness: If a Pakistani company is in the process of or considering an Initial Public Offering (IPO), evaluating the accuracy and completeness of disclosures, along with the readiness for such a significant corporate event is crucial.

8. Regulatory Filings and Approvals: Ensuring that all necessary regulatory filings, approvals, and authorisations have been obtained and are in full force is key to avoiding legal pitfalls.

9. Independent Searches and Verifications: Conducting independent searches on litigation, governmental investigations, and other legal matters is critical for a clear understanding of any potential legal risks or ongoing issues.

10. Engagement with Local Experts: Engaging local legal and financial experts for conducting due diligence is advisable to navigate the complex regulatory and legal landscape in Pakistan.

These takeaways provide a blueprint for foreign companies to conduct thorough due diligence, thereby making informed decisions when engaging with local Pakistani companies. It also highlights the importance of a meticulous review of legal, operational, and financial aspects to ensure a fruitful and legally compliant business engagement.

There are a number of steps you can take to do due diligence on a private limited company in Pakistan. These steps include:

• Check the company’s registration: The first step is to check the company’s registration with the Securities and Exchange Commission of Pakistan (SECP). You can do this by obtaining a copy of the company’s certificate of incorporation from the SECP. The certificate of incorporation will show the company’s name, address, and registered capital.
• Inspect the company’s financial statements: Once you have checked the company’s registration, you should inspect the company’s financial statements, memorandums and articles of association.Check carefully if the business being conducted by the company is in line with their Articles of Association and Memorandum.This includes looking at the company’s income statement, balance sheet, and cash flow statement. The financial statements will show the company’s financial performance over time.You should check carefully if the company is filling their annual returns.
• Conduct a background check on the company’s management: A background check on the company’s management will help you identify any red flags, such as a history of fraud or bankruptcy. You can do a background check by searching online or by contacting the company’s previous employees or clients.
• Get everything in writing: Make sure all agreements with the company are in writing and signed by both parties. This will help to avoid any disputes down the road.
• Be particular about making any payments into the company’s official accounts.

By following these steps, you can reduce the risk of investing in a company that is fraudulent or that has financial problems.

Here are some additional tips for doing due diligence on a private limited company in Pakistan:

• Ask for references: Ask the company for references from previous investors. This will give you an idea of the company’s reputation.
• Check the company’s industry: Do some research on the company’s industry. This will help you understand the risks and opportunities associated with the industry in Pakistan.
• Get the best legal advice from Josh and Mak International: It is always advisable to get legal advice before investing in a company especially if you or your company are not from Pakistan. A lawyer can help you understand the legal implications of investing in the company and can represent you in any negotiations with the company.

By following these tips, you can protect yourself from making a bad investment in a private limited company in Pakistan.We can be contacted at [email protected]

The most common queries we receive from foreign clients dealing with Pakistani Limited Companies are for :

1. Certificate of incorporation
2. Current Memorandum and Articles of Association
3. Latest annual return and filed documents after this to update company information
4. Current director and shareholder information
5. Current status of the company, namely registered or not in registry
6. Name change evidence for the company, if any.

Send us an email at [email protected] for quick response and quote if you are looking for these items of information or a more thorough background check on a company you are dealing with.

Our Due Diligence Services of Private Companies in Pakistan 

The extensive due diligence process we undertake is designed to provide a holistic understanding of the legal, financial, and operational facets of your enterprise. It’s pivotal in identifying potential risks and ensuring compliance with the necessary regulatory frameworks. Our aim is to furnish you with a comprehensive report that empowers you to make informed decisions whether for routine compliance, a significant business transaction, or a prospective investment.

Tailored Approach

Our due diligence services are tailored to meet the unique requirements of Pakistani Private Limited Companies, encompassing an in-depth analysis of the corporate structure, legal compliance, financial health, and operational efficacy. We take a meticulous approach, scrutinising every aspect to ensure that all legal requisites are met, and potential risks are duly identified and mitigated.

Client-Centric Services

At Josh and Mak International, we value effective client communication, ensuring you’re well-informed at every step of the due diligence process. Our seasoned legal team is dedicated to providing a seamless experience, offering expert insights and actionable recommendations.

Transparent Reporting

Our due diligence report is structured to provide a clear, concise, and detailed overview of our findings. It’s designed to provide you with the knowledge and insight necessary to take decisive action, bolstered by a thorough understanding of the legal and regulatory landscape.

Expert Legal Team

Our expert legal team comprises seasoned legal professionals with a wealth of experience in corporate law, regulatory compliance, and due diligence processes. Our aim is to provide you with an unparalleled level of service, ensuring the legal integrity and operational robustness of your business.

Confidentiality Assured

We uphold the highest standards of confidentiality and professionalism, ensuring that your sensitive business information remains secure throughout the due diligence process.

Get in Touch ([email protected]) 

Reach out to us to learn more about how our due diligence services can add value to your business, ensuring compliance, mitigating risks, and fostering a robust legal and operational framework.

Josh and Mak International is committed to providing comprehensive, client-centric legal services that uphold the highest standards of professionalism and integrity. Our due diligence service is but one facet of our extensive legal service offerings, aimed at providing Pakistani Private Limited Companies with the legal insight and support necessary for success in today’s complex business environment.

Our Due Diligence Framework for Private Companies 

We follow a robust framework for a thorough due diligence process, addressing pivotal elements fundamental to assessing the legal, financial, and operational standing of a relevant company, especially within the context of a Pakistani Private Limited Company. 

Our framework reflects a meticulous approach in understanding every facet of the company from its inception, compliance status, operational, financial and legal standing, to its preparedness for a significant event such as an IPO.

• Due Incorporation and Corporate Information: This section underscores the necessity of scrutinising the legal foundations and structure of the Relevant Company. It emphasises on verifying the legitimacy and good standing of the company within its jurisdiction of incorporation, ensuring that its constitutional documents are in compliance with local laws and are effectively operational. It further delves into the governance and share capital aspects, ensuring that they are conducted and managed in compliance with the applicable laws and regulations.
• Searches: Independent searches are paramount to understanding the historical and current legal standing of the company, especially in terms of its engagements in legal disputes, governmental investigations or regulatory proceedings. This segment enables a thorough insight into any potential legal or operational risks that may be associated with the company.
• Legal Compliance – Licences and Permits: Ensuring that the Relevant Company holds all necessary licenses, permits, and authorisations for its operations is crucial for its legal compliance. This section provides a detailed approach towards reviewing, verifying, and analysing the legal compliance of the company in terms of its operational licenses and permits.
• Legal Compliance – Laws, Regulations and Policies: The detailed sub-points reflect a comprehensive approach towards understanding the company’s adherence to local laws, regulations, and policies governing its operational domains. It encompasses a broad spectrum of areas including product liability, distributorship, import/export controls among others.
• Legal Compliance – Management and Employment: Ensuring compliance with employment laws, regulations, and policies is crucial for mitigating risks associated with labour disputes or other employment-related issues. This segment is integral for verifying the company’s compliance with employment-related legal requisites.
• Legal Compliance – Others: This segment encapsulates a broad range of other legal compliance aspects, including tax compliance and filings which are fundamental for the company’s legal standing and operational transparency.
• Intangible Assets: The emphasis on verifying the validity and enforceability of proprietary interests and other intangible rights is fundamental for safeguarding the company’s intellectual properties and other intangible assets.
• Material Contracts and Arrangements: Reviewing and analysing material contracts and arrangements is critical for understanding the legal and operational engagements of the company, and its potential implications on the company’s legal standing and financial health.
• Consumer Protection and Product Liabilities: This segment is crucial for understanding the company’s adherence to product safety standards, certifications, and its potential liabilities associated with product-related claims or disputes.
• Distribution: Ensuring that the distribution arrangements are legally compliant and operationally effective is critical for the company’s market engagements and its legal standing.
• IPO Related Issues: This segment is particularly crucial in the context of a proposed listing, ensuring that all legal and regulatory requisites for the IPO are duly met, and that the disclosures in the prospectus are truthful, complete, and accurate.

This framework reflects a comprehensive and meticulous approach towards a thorough due diligence process. The outlined segments and sub-points provide a structured pathway for conducting an in-depth analysis and review of the Relevant Company’s legal, financial, and operational aspects. The emphasis on verifying legal compliance, reviewing material contracts, and ensuring the integrity of corporate governance, among other aspects, are pivotal for providing a holistic understanding of the company’s standing and preparedness for significant corporate events such as an IPO. Each of these segments is instrumental in mitigating potential risks and ensuring that the company is compliant with the requisite legal and regulatory frameworks, thus providing a solid foundation for making informed decisions.

Moreover, the meticulous breakdown of each segment reflects a well-thought-out approach towards understanding the multi-faceted nature of the Relevant Company’s operations and its compliance landscape. This is particularly noteworthy in a market environment like Pakistan which has a complex regulatory and legal framework. The emphasis on conducting independent searches, reviewing corporate governance structures, ensuring legal compliance across a broad spectrum of operational domains, and analysing the company’s financial standing and tax compliance, among others, provides a thorough blueprint for conducting a robust due diligence process.

The framework also reflects a forward-looking approach, especially in the context of preparing the Relevant Company for a significant corporate event such as an Initial Public Offering (IPO). The detailed analysis of IPO-related issues, including the verification of disclosures in the prospectus and the scrutiny of the company’s restructuring/reorganization activities during the Track Record Period, underscores the importance of ensuring that the company is well-prepared and compliant with the requisite legal and regulatory frameworks for the IPO. This forward-looking approach is instrumental in identifying and mitigating potential risks that may arise in the lead-up to, or during the IPO process.

Furthermore, the segments relating to Consumer Protection and Product Liabilities, and Distribution, highlight the importance of understanding the company’s market engagements and its adherence to consumer protection laws and standards. This is particularly crucial for mitigating risks associated with product liabilities or consumer-related disputes, which could potentially have adverse legal and financial implications on the company.

The detailed sub-points within each segment provide a structured pathway for conducting an in-depth analysis and review, ensuring that no stone is left unturned in understanding the company’s legal, financial, and operational standing. This is particularly crucial for providing a holistic understanding of the company’s readiness for significant corporate events, and for making informed decisions.

In summary, this due diligence framework provides a thorough and structured approach towards conducting a comprehensive review and analysis of the Relevant Company. It encompasses a broad range of legal, financial, and operational aspects, ensuring a meticulous scrutiny of every facet of the company’s standing. The emphasis on legal compliance, corporate governance, financial health, and operational efficiency, among others, reflects a well-rounded approach towards ensuring that the company is well-prepared for significant corporate events such as an IPO, and that any potential risks are duly identified and mitigated.

The framework, while exhaustive, ensures a methodical approach towards conducting due diligence, which is integral for making well-informed decisions, and for ensuring the legal and financial integrity of the Relevant Company, especially within the complex market environment of Pakistan.

A recommended scope of due diligence on a Pakistani company for foreign entities considering business offers could be outlined as follows:

1. Corporate Structure and Legal Compliance:

   • Verification of the due incorporation, registration, and good standing of the Pakistani company in question through relevant local registries.
   • Examination of the articles of association and other constitutional documents for compliance with the prevailing laws and regulations in Pakistan.
   • Review of any restrictions under the company’s memorandum or articles of association affecting its ability to conduct business or own its assets.
   • Validation of the constitution of the board of directors and the eligibility of the directors.
   • Detailed analysis of share capital, including any legal restrictions on foreign ownership, third-party interests, and compliance with relevant laws on share issuance and transfer.

2. Operational Assessment:

   • Thorough review of the principal business operations, product or service offerings, and market engagements.
   • Evaluation of any franchise rights obtained by the company and an understanding of its principal sources of income.

3. Financial Health Check:

   • Examination of the company’s financial statements to assess outstanding loans, debts, and other liabilities.
   • Review of any outstanding mortgages, charges, or other securities granted over or registered against any of the assets of the company.

4. Regulatory Compliance:

   • Conduct independent searches to identify any litigation, governmental investigations, or regulatory proceedings involving the company.
   • Review of all licenses, permits, and authorisations necessary for conducting the company’s business and ensuring compliance with relevant laws and regulations.

5. Employment and Management Compliance:

   • Examination of compliance with employment laws including template employee/consultant agreements, minimum wage adherence, social benefits, insurance, and pension funds.

6. Tax Compliance:

   • Evaluation of tax liabilities, filings, and payments, and identifying any fines, penalties, or administrative sanctions imposed by tax authorities.

7. Intangible Assets and Intellectual Property:

   • Review of proprietary interests, licensing arrangements, and other intangible rights necessary for conducting business to ascertain validity and enforceability.

8. Contractual Agreements and Arrangements:

   • Assessment of material contracts including commercial agreements, distribution agreements, procurement agreements, and intellectual property agreements for enforceability and validity under local laws.

9. Consumer Protection and Product Liability Compliance:

   • Examination of adherence to product safety standards, certifications requirements, and anti-dumping laws and regulations.

10. Distribution Compliance:

    • Review of sales through distributors in Pakistan, and assessment of material agreements with local distributors for their legality, execution, and enforceability.

11. IPO Readiness (if applicable):

    • Evaluation of any issues related to a potential Initial Public Offering including truthfulness, completeness, and accuracy of disclosures, regulatory approvals, and impact on existing licenses and authorisations.

This recommended  structured due diligence scope will enable foreign companies to undertake a meticulous examination of the Pakistani companies extending business offers. It caters to various legal, operational, financial, and regulatory facets crucial for making an informed business decision, aligning with the comprehensive scope provided. It’s advisable that this due diligence be conducted with the assistance of local legal and financial experts to navigate the complex regulatory landscape in Pakistan effectively.

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