This report presents the Legal &

Regulatory Obligations &

Requirements which a business woman

has to face in order to convert her

small scale bakery business into a

Private Limited Company.

AN CAKES Bakery and Confectionary Products

AN CAKES

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LEGAL OBLIGATIONS & REQUIREMENTS FOR ESTABLISHING

AN CAKES Bakery & Confectionary Business.

SUBMITTED TO

Ms. Mahreen Nazar Faculty of Institute of Business Administration, Karachi

SUBMITTED BY

Tayyab Nihal ERP : 08695

Adnan Siddique ERP : 08702

Syed Muhammad Asad ERP : 08691

SUBMITTED ON

28TH DECEMBER, 2014

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ACKNOWLEDGEMENT

13th December 2014

First and foremost, we would like to thank Allah Almighty, for giving us the strength to

complete the research project we started.

Secondly, we would particularly like to thank the owner of AN Cakes for sharing the history

of her business and her vision of expanding the bakery business. Her sincere pursuit of

passion and motivation helped us a lot in compiling this report. For the confidentiality

purpose real name of owner is kept hidden and referred as Mrs. A, throughout the text.

We would like to thank Ms. Mahreen Nazar, the instructor of LREB for her coaching &

sharing ideas & real life examples throughout the course. Without his guidance and support,

this report could not be completed.

The three members of our group were a source of encouragement throughout, and we

pitched in with an appreciable effort.

Lastly, I wish to express my sincere gratitude to IBA.

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TABLE OF CONTENTS

TABLE OF CONTENTS

Acknowledgement 3

Table Of Contents 4

Introduction & Objective 5

Economic Overview Of Bakery Industry 5

Market Assessment 6

Establishment Of Own Business "An Cakes" 7

Legal Requirements 7

1. Registration Of Intellectual Property: ......................................................................... 7

Trademark Registry: .......................................................................................................... 7

Copyright Registry: ............................................................................................................ 8

2. Registration Of Private Limited Company.................................................................. 8

Seek Approval From The Concerned Ministry. ................................................................. 8

Seek Approval For The Availability Of The Proposed Name. .......................................... 8

File A Range Of Documents To The Registrar. ................................................................ 8

Receive Certificate Of Incorporation Or Certificate Of Commencement Of Business ..... 9

Other Registrations If Required ......................................................................................... 9

Regulatory Requirement 10

PSQCA (Pakistan Standards And Quality Control Authority) ........................................... 10

Drug Regulatory Authority Of Pakistan (Drap) .................................................................. 10

Pakistan Biscuit & Confectionery Manufacturers Association ........................................... 10

Pakistan Food Association .................................................................................................. 10

ISO Certification ................................................................................................................. 10

Financial Information 11

Setup Expenses .................................................................................................................... 11

Legal & Regulatory Expenses ............................................................................................. 11

Product Range 12

Memorandum Of Association Of An Cakes 12

Article Of Association Of An Cakes 12

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INTRODUCTION & OBJECTIVE

In 2012, a simple housewife living in Karachi, Mrs. A*, decided to follow her lifelong

passion to enter into baking and prepare innovative, delicious and delightful cakes &

confectionary items for her family. The cakes were really delicious and even much better in

quality and appearance then the ones available in the market. As she worked more on baking,

the quality cakes keep on increasing and love of baking grew into a dream of creating her

own business.

Finally, in 2013, she took the first step and started baking & delivering cake from her house

under the name of AN Cakes. In the early days, Mrs. A* did all of the baking and Mr. A*

handled customer orders, sales, and deliveries; along with the support of other family

members.

In spite of being operated at very small scale, AN Cakes becomes immediate success and

quantum of orders is increasing drastically. Therefore, she has decided to expand AN Cakes

business and convert AN Cakes from household operated small scale business into a Private

Limited Company.

This report presents the legal obligations and requirement for the AN Cakes in order to

establish Private Limited Company and secure its Trademark. This report also contains some

information about the economic overview of bakery Industry of Pakistan along with its

market assessment.

ECONOMIC OVERVIEW OF BAKERY INDUSTRY

Demand Analysis

According to Pakistan Biscuit & Confectionery Manufacturers Association, Pakistan’s

Bakery and Confectionary Industry has grown with an average annual rate of 6.5% to 7.5%

during 2002-2010. The industry as a whole can be divided between two broader sections

namely branded segment and generic segment.

The demand for products is subject to raw material prices and changing consumer trends.

Driven by advertising initiatives, consumer preferences are continually changing in favor of

new packaged products, chocolates and other snacks. Independent retailers and wholesalers

are still the largest delivery channel to customers. Foreign or imported brands as well as large

scale local confectionery companies are successfully targeting the lower segment of the

market by introducing low end products between the price range of PKR 5 to PKR 25.

The demand is still quite high for traditional occasions such as religious and weddings.

Although considering rising inflation, economic instability and reduction in consumer

purchasing power makes it increasingly difficult for the middle class to afford such products

and thereby reducing consumption.

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Supply Analysis

The supply of other food products (Bakers and Confectioners) is currently sufficient to

fulfill customer needs but in such an industry opportunity, growth and higher sales are

achieved through a demand pull generated by introducing new and innovative products,

product substitution and varied packaging.

The industry has grown rapidly over the last decade with numerous household brand names

emerging on the scene and gaining success. However, challenges for future growth and new

entrants are: increasing prices of raw material, high dependency on advertising and brand

creation, excise and import duties on raw materials.

MARKET ASSESSMENT

The services segment of Bakers and Confectioners constitutes the Bakers (Including bakery

items production and Sale from shops) and Confectioners.

At present, the Baker and Confectioners segment in Pakistan is part of the relatively

unorganized segment with sales being primarily generated via bakeries, shops, café, hotels

and restaurants, predominantly which have limited financial and banking history.

Most businesses are family owned with members of one family performing different

functions of business. Underlying issues inherent to the segment include:

1) Unwillingness to Expand

2) Inability to assemble and deploy intellectual, human and financial resources effectively

3) Lack of vision for growth

4) Limited perception of business requirements

5) Restricted funding sources

6) Inability to identify and explore new ideas

7) Inability to deploy technology based equipment

8) Unable to focus on brand creation

The business owners in consist mainly of people in the age group of 31-40 years. Due to the

labor intensive and manual nature of work, education is not considered as a major factor for

business owners. However, they require skilled workers who have the knowledge of baking

and confectionary production for business operations. Predominantly businesses are run by

families, preferring family members to undertake organization functions.

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ESTABLISHMENT OF OWN BUSINESS "AN CAKES"

Despite of challenges like increase in price of raw material, saturation of bakeries in the

urban cities; therefore is bright future if AN Cakes because AN Cakes deals in very

specialized customer made fondant cakes and this will be its main stream product line. AN

Cakes will be provide these state of the art cakes at an affordable price and with promised

quality. This main point will be the main USP (unique selling proposition) of AN Cakes,

which will bring success to this entity.

Along with this there would be other bakery & confectionary items like cupcakes, Swiss role,

simple chocolate & vanilla cakes, cheese cakes, brownies etc.

LEGAL REQUIREMENTS

In order to establish a new local business following Legal and Regulatory requirements needs

to fulfilled.

1. Registration of Intellectual Property:

AN Cakes provides very specialized custom made cakes and confectionary items, which are

not available in local bakeries and the concept of “Fondant” cakes and cupcakes is fairly new

in Pakistan and only hand full of people have expertise to develop them, none in commercial

business, therefore it is very important to safeguard the Product Decoration Themes & Brand

Name form being copied (Trademark Infringement).

These protections can be obtained by registering AN Cakes under Trademark and AN Cakes

Logo under Copyright form Intellectual Property Organization of Pakistan (IPO).

Trademark Registry:

A trademark is a distinctive sign or indicator used by an individual, business organization or

other legal entity to identify for consumers that the products or services on or with which the

trademark appears originate from a unique source, designated for a specific market, and to

distinguish its products or services from those of other entities.

Trademark is register by Trade Marks Registry (TMR) authority, which is premier body of

Intellectual Property Organization of Pakistan (IPO-Pakistan) works for the registration of

trade and services marks under the Trade Marks Ordinance, 2001.

Products of AN Cakes will be registered in class 30 of Goods which includes Coffee, tea,

cocoa, sugar, rice, tapioca, sago, artificial coffee; flour and preparations made from cereals,

bread, pastry and confectionery, ices; honey, treacle; yeast, baking-powder; salt, mustard;

vinegar, sauces (condiments); spices; ice.

Following Trademark can be registered through Trademark Registration Form (Rs. 6000).

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After successful registration, AN Cakes logo will be published in THE TRADE MARKS

JOURNAL for others reference. Services

Copyright Registry:

Copyright is a legal concept, enacted by most governments, giving the creator of original

work exclusive rights to it, usually for a limited time.

AN Cakes will be registered under category II of copyright, which includes following

items: Artistic works (Paintings, Photographs, Maps, Charts, Calligraphies, Sculptures,

Architectural Works, Drawings, Label Designs, Logos, and Monograms etc.)

Steps for registration are Filing of application (Rs 1000), Examination, Publication in

newspaper, Opposition, if any and Issuance of Certificate by Registrar (Registration). After

successful copyright registration following Logo will be legally protected.

2. Registration of Private Limited Company

Other foremost legal requirement in starting new business is formation and registration of

company as per the Company Ordinance 1984 form Security & Exchange Commission of

Pakistan (SECP).

Following steps are required for formation/incorporation of a company in Pakistan;

Seek Approval from the concerned ministry.

Prior approval of the Ministries/Departments etc. may be needed due to law/legislation before

commencing on formation/incorporation of a company in Pakistan which includes a Banking

Company, Non-Banking Finance company, Security Service Company, Corporate Brokerage

House, Money Exchange Company, Association not for profit and Trade Organization. There

is no such requirement for Bakery and Confectionary Company.

Seek approval for the availability of the proposed name.

Second step is to get approval for the availability of proposed name. Company proposed

name is AN Cakes (Private) Limited, and till date there is no other company with same

name.

File a range of documents to the Registrar.

After getting approval of proposed name next step is to file following documents for

Registration

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1. Memorandum of Association

It is the constitution of a company. It contains the objective of a company for which

the company is being established, the name of the company, its registered office,

capital and limited liability clause of members.

Memorandum of Association of AN Cakes is attached here within.

2. Article of Association

It is a document containing the bye-laws of a company. It contains the procedure of

meeting, elections of directors, power and function of directors and other important

information. It is signed by the members with their particulars and number of share

subscribed.

Article of Association of AN Cakes is attached here within.

3. Statutory Declaration

It is a form to be filled and signed by the promoter involved in registration of a

company stating there in that all legal requirements for registration of the company

have been duly complied.

4. Original Copy of Challan

Original Copy of Challan worth Rs 54000 will be attached with the form.

Receive Certificate of Incorporation or Certificate of Commencement of Business Once the company is successfully registered by SECP, a Certificate of Incorporation or

Certificate of Commencement of Business will be issued and in return following two

documents, Consent of directors & Notice to registered office, will be submitted in SECP.

Other registrations if required

After incorporation of the company, proceed with other registrations if required which may

include local chamber of commerce, State Bank of Pakistan, Income Tax registrations, Sales

Tax registration and so forth.

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REGULATORY REQUIREMENT

A part form Legal Requirements there are several regulatory requirements for Bakery and

Confectionary Business in Pakistan, which needs to be followed. Some of the prominent

regulators and local authorities which may have direct influence on the business are given

below;

PSQCA (Pakistan Standards and Quality Control Authority)

AN Cakes is all about quality and delivering best products to our customers therefore in order

to guarantee that quality is up to the mark and no compromise will be made in quality it is

very important to have certification of PSQCA. This certification will enhance AN Cakes

image and helps to keep in line with corporate goal.

For further details, please visit http://psqca.com.pk/

Drug Regulatory Authority of Pakistan (DRAP)

Other important regulator of Food Industry of Pakistan is Drug Regulatory Authority of

Pakistan (DRAP). It was established under the DRAP Act 2012 to provide effective

coordination and enforcement of the Drugs Act, 1976 (XXXI of 1976).

DRAP registration procedure and current good manufacturing practices are available on its

website http://www.dra.gov.pk/gop/ and its registration fees in Rs 10,000.

Pakistan Biscuit & Confectionery Manufacturers Association

Pakistan Food Association

Trade associations have a crucial role to play in promoting best practice; enhancement of a

company's reputation therefore it is recommended for AN Cakes to join Pakistan Biscuit &

Confectionery Manufacturers Association and Pakistan Food Association.

ISO Certification

Also it is mandatory to acquire ISO 9001:2000 certification, which assures that AN Cakes

products are produced by meeting well-defined standards of quality and consistency.

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FINANCIAL INFORMATION

This excerpt of report will give estimated expenses which will occur in the process of

establishing AN Cakes (Pvt) Limited Company. The expenses include setup cost, legal &

regulatory cost and other miscellaneous expenses.

Setup Expenses

Cost Head Cost Basis Set up Expense

Land/building Purchase & renovation of a small factory facility Rs 3,000,000

Machinery and Equipment

Purchase specialized baking equipment and machinery.

Rs 1,000,000

Outlets Rent & Renovation of two outlets in posh Area of Karachi

Rs 500,000

Cash and other assets Cash in hand, current baking equipment etc. Rs 500,000

Nominal Share Capital Value Rs 5,000,000

Raw material Purchases of raw material Rs 150,000

Working Staff Hiring of 5~7 working staff Rs 100,000

Total Startup Cost Rs 5,250,000

Legal & Regulatory Expenses

Cost Head Cost Basis Legal Expense

Trademark Registry Cost of Trademark Registration Form Rs. 6,000

Copyright Registry Cost of Copyright Application Rs 1,000

Company Registration Cost

SECP official fees based on capital of Rs 5M. Rs 54,000

Other registrations Cost Income Tax registrations, Sales Tax registration etc.

Rs 10,000

PSQCA Certification PSQCA official fees Rs 15,000

DRAP Certification DRAP official fees Rs 10,000

Pakistan Food Association

Association membership fees Rs 5,000

ISO Certification ISO official fees Rs 20,000

Total Legal & Regulatory Cost Rs 121,000

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PRODUCT RANGE

Attachments:

MEMORANDUM OF ASSOCIATION OF AN CAKES

ARTICLE OF ASSOCIATION OF AN CAKES

Disclaimer:

All pictures used in this report are actual products of AN

Cakes.