Amendments to Companies Act 2017 have been approved by the President to facilitate Startups
For the purpose to provide am enabling regulatory framework and to facilitate startups in Pakistan amendments in Companies Act 2017 have been approved by President Dr. Arif Alvi. The Securities and Exchange Commission of Pakistan (SECP) had proposed these amendments to help in promoting and nurturing startups as well as to attract local and international innovators.
In consultation with various external and internal stakeholders including PBC, ICAP, ICMAP, OICCI, and PICG, etc. the Companies Act, 2017, promulgated on May 31, 2017, was reviewed by the SECP. SECP received feedback during the consultation and on this basis, SECP proposed various amendments to promote ease of doing business, encourage startups, improve the protection of minority shareholders and remove some anomalies noted in the provisions of the Act. These amendments have been enacted through Companies (Amendment) Ordinance, 2020 promulgated on April 30, 2020.
To encourage startups, besides adding the definition of startup companies, employees stock options and buyback of shares has been allowed for all companies which were previously allowed to public and listed companies only. These amendments will help address employee retention and reward issues particularly faced by startup companies. Any founding member would be facilitated who needs to exit the company,
In order to facilitate small companies, requirement relating to the payment of subscription money within 30 days of incorporation by subscriber and filing of auditor certificate has been removed.
With the approval of the Commission, a listed company is allowed to hold an extraordinary general meeting at shorter notice. Further, irrespective of paid-up capital, filing an annual return with the registrar is the requirement for all companies. The Board of directors shall appoint the CEO in all the companies.
A revision has been made in the procedure for handling of unclaimed dividends. Now unpaid dividend account shall be maintained by companies and any markup accrued on such account shall be used by companies for corporate social responsibility initiatives.
Amendments have been introduced to lower threshold for proposing member resolution (from 10% to 5%), mandatory disclosure of the company’s director’s remuneration, and enhanced protection to minority shareholders in transactions involving conflict of interest of a company’s directors. Because of complex valuations, the legal entitlement of properties and requirements of other regulatory compliances the authority to approve a scheme of arrangements by members or creditors has been granted to High Courts. Earlier, the scheme of arrangements of small-sized companies and companies wholly owned by the government was approved by the Commission while the scheme of arrangement of medium-sized, large-sized, and public interest companies was approved by the Court.
A new provision has been inserted to enable review or revision of any order passed by the registrar, Commission or any officer of the Commission to improve the efficiency of the adjudication process. Besides, provisions relating to the mandatory requirement for common seal, real estate companies, and inactive companies have also been omitted.
These amendments besides improving ease of doing business, in general, will also positively impact the country’s position in global rankings.
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