Most business acquisitions in Pakistan are agreed between principals over a valuation and a handshake, and only then handed to lawyers. By that point the single most consequential decision — what is being bought — has often been made without anyone examining it.

Shares or assets?

Share purchase. You buy the company. Everything comes with it: the contracts, licences, employees, bank facilities, litigation, and every liability, known and unknown, including ones nobody has discovered yet.

Advantages: continuity. Contracts, licences and registrations stay with the company and generally do not need to be transferred or renewed. Customers see no change.

Risk: you inherit the past. Undeclared tax, employee claims, an old guarantee, a dispute nobody mentioned.

Asset purchase. You buy identified assets — plant, stock, premises, brand, goodwill, contracts — and leave the company behind with its history.

Advantages: you take what you want. Historic liabilities generally stay with the seller.

Risk and cost: almost nothing transfers automatically. Contracts need assignment or novation, and counterparties can refuse. Licences frequently cannot be transferred at all and must be applied for afresh — which for a regulated business can mean months of no trading. Employees have to be dealt with properly. Stamp duty and registration apply to transfers of property, and the tax treatment differs.

In practice: buyers usually prefer assets; sellers usually prefer shares (one clean exit, and the liabilities go with it). Where the target holds hard-to-obtain licences, contracts that cannot be assigned, or accumulated tax positions, a share purchase may be the only viable route — and then diligence has to do the work.

See choosing a business structure and closing a company.

Due diligence: what actually matters in a Pakistani target

Corporate. Incorporation documents, the register of members, share transfer history, board and shareholder resolutions, and SECP filings. Gaps in the share transfer chain are common and must be fixed before completion, not after. See directors' duties and personal liability.

Ownership of assets. Title to property, and whether it is leasehold, whether the lease is current, and whether transfer requires the authority's consent. See verifying title before buying and KDA and KMC lease renewal.

Tax. Returns filed, assessments, pending appeals, withholding compliance, sales tax position, and any undisclosed exposure. This is where the largest unpleasant surprises live in Pakistani deals. Check related-party pricing too. See FBR audit notices, withholding tax obligations and transfer pricing.

Employees. Appointment letters, permanence, gratuity and provident fund liabilities, EOBI and SESSI registration and arrears, and the harassment committee. Unfunded gratuity is a real number that rarely appears in the accounts you are shown. See gratuity and final settlement and employer registrations.

Licences and approvals, and — critically — whether they survive a change of control. Many do not, and some require prior regulatory approval for a transfer.

Material contracts, and their change of control and assignment clauses. A key customer contract terminable on a change of control can remove most of the value you are paying for.

Litigation and claims, pending and threatened, including from ex-employees and tax authorities.

Borrowings and security — facilities, charges registered with SECP, and personal guarantees given by the outgoing owners which they will want released.

Intellectual property. Is the brand registered, and in whose name? Is the domain held personally by a founder? Does the company own its own software? See trade mark registration, domain names and open source licensing compliance.

Regulatory and environmental compliance for the sector.

Data and privacy commitments made to customers. See data protection for Pakistani businesses.

Benami and undisclosed arrangements — assets in employees' or relatives' names. See benami transactions.

The documents

Term sheet — headline price, structure, exclusivity, and what is binding.

Confidentiality agreement before any information changes hands. See the contracts every business should have.

Sale and purchase agreement, containing:

  • Precisely what is sold, and what is excluded
  • Price, and the mechanism — completion accounts, or locked box
  • Conditions precedent — regulatory approvals, third-party consents, release of guarantees, bank consents
  • Warranties from the seller about the business
  • Disclosure letter, which qualifies those warranties. This is where the real negotiation happens: anything disclosed cannot be claimed for
  • Indemnities for identified risks — specific tax exposures, a known dispute
  • Limitations — caps, de minimis and basket thresholds, and time limits for claims (longer for tax)
  • Restrictive covenants on the seller, drafted within the limits of section 27 of the Contract Act
  • Completion mechanics and the deliverables list

Ancillary documents — share transfer deeds, board resolutions, resignations, employment contracts for retained management, transitional services, property assignments and landlord consents.

See guarantees and indemnities explained.

Protecting the price

Warranties are worth what the seller is worth after completion — which, for an individual seller who has taken the money and left, may be very little. Structures that actually protect a buyer:

Retention or escrow of part of the price for a warranty period. The single most effective protection. See escrow arrangements.

Deferred consideration, payable in instalments, with a right of set-off against claims.

Earn-out, tying part of the price to performance — effective, but define the metrics tightly and give the seller protections against the buyer manipulating them.

Specific indemnities for known risks, uncapped by the general limitations.

Security over assets, or a guarantee from someone solvent.

Completion accounts, so the price adjusts to actual working capital and debt.

Employees on an asset purchase

Employees do not automatically transfer with a business in an asset sale. In practice this means termination and re-hiring, or a documented transfer with continuity of service agreed — and either way the accrued gratuity, leave and notice must be settled or expressly assumed.

Agree who pays, in the contract, in figures. This is the most commonly mishandled part of Pakistani asset deals. See employment contracts.

Approvals to think about early

Competition clearance where the transaction meets the applicable thresholds under the Competition Act — see competition law and the CCP — plus sectoral regulatory approval for change of control in regulated businesses, and any foreign investment and repatriation structuring where the buyer is not resident. See branch, liaison office or subsidiary and repatriating profits and capital.

For sellers

Prepare before you go to market: filings up to date, share register clean, tax positions resolved or quantified, employment documentation in order, brand registered, and related-party arrangements documented. Every one of these becomes a price reduction when a buyer finds it in diligence.

How the firm can help

We run legal due diligence on Pakistani targets and report on what actually affects the price, advise on asset versus share structuring, draft and negotiate sale and purchase agreements, disclosure letters, warranties and indemnities, handle regulatory and third-party consents, and prepare sellers for a sale.

See legal opinions and due diligence or corporate and commercial, or contact the firm.