Depending on the size (number of people) of your freelancing business and your preferences, you can choose to set up as a legal business identity. This doesn’t mean that you have to hire a team of lawyers and file hundreds of forms, it just means that you need to establish your legal business identity to pay taxes or communicate with external parties in a professional manner.
What comes before this decision is the idea of the business, the plan to execute it and then doing the necessary work to get it running. Once that happens for you as a freelancer, you can think about setting up a business identity to keep things organized and smooth out tax-related and legal work. There is no set rule on what comes first as long as the focus of your efforts is on the core business and not just the cosmetics.
Sole Proprietorship v. Incorporated Business
The least complicated form of a legal business entity is a sole proprietorship – this means that there is one owner of the business and the business is not a separate legal entity. This kind of a setting has an unlimited liability – meaning that any money that the business owes, you owe it personally. Limited businesses need to be incorporated through the Security and Exchange Commission of Pakistan and requires going through several detailed steps to make your business a legal entity on its own.
An incorporated business also needs to have several stakeholders inside the business in terms of the owners, staff and supporting services (accounting, legal etc). The plus side of setting up a business that exists on its own is that it ensures continuity in the long-term.
Benefits of a Sole Proprietorship
From the perspective of freelancing, the lack of capital requirements to get the business up and running means that there isn’t much going on in terms of creditors to the business who you would possibly require protection from. Incorporated businesses also make more sense in line of businesses that regularly work on working capital credit such as a trading firm that buys goods on credit. You are also saved the hassle of paying corporate taxes as sole proprietors only have to pay personal income tax. In fact, registration with the tax department is all that brings your legal business entity to life.
Being a sole proprietor doesn’t mean that you cannot have staff working for you and that the freelance business must be a one person operation – it just means that there is a single owner of the business. Think of small service firms like law or accountancy firms with one lawyer/accountant owning the business that multiple people work in.
According to SMEDA, a government agency for small and medium sized enterprises:
“A “sole proprietorship” is a form of doing business where one person owns and runs a business under a specific business name. Any person interested in doing a business may start the same at any time by giving a particular name to its business. To start a business as a “sole proprietorship” no prior registration of it is required with any government department or authority.”
Registering Your Trademark
You can use the website of the Intellectual Property Organization (IPO) of Pakistan to get more information about the process, download forms and get your answers questioned. According to Masood & Masood, a law firm specializing in assisting client with the registration, the process usually takes around 2 years from start to finish. This shouldn’t discourage you from going ahead and securing your brand name and other trademark-worthy ideas (logos, for example) from copyright infringement in the future. A little investment (PKR 2,000) and some effort can protect you in the long term (10 years at a time).
The decision to trademark a brand name or logo also depends on how central that brand name is to your business plans. If they help you stand out and are unique in the market, you don’t want to run in to problems in the future where someone else copies your work and you are left without any legal protection.
Setting up a legal business identity and getting trademark protection puts you on the right track for future expansion, giving you a head start on keeping things organized.