The government of Pakistan carried out various amendments in Companies Act 2017 through promulgation of Companies (Amendment) Ordinance, 2020. The Ordinance received go ahead by the President of Pakistan on recommendation of Securities Exchange Commission of Pakistan (SECP). The amendments will provide an enabling regulatory framework to facilitate startups in Pakistan and attract local and international innovators. These amendments also could be fruitful for improving ease of doing business as well as World Bank’s global rankings.
The amendments have been made after consultation with the concerned stakeholders. The amendments have been made to promote ease of doing business, encourage startups, improve protection of minority shareholders. Further, some anomalies in the provisions of the Act have also been removed.
What are the amendments in Companies Act
Through the amendments proper definition of startup companies has been laid down. The Startup Company means a company that is in existence for not more than ten years from the date of its incorporation, has a turnover of up to five hundred million rupees and is working towards the innovation, development or improvement of products or processes or services. However, a company formed by splitting up or reconstruction of an existing company shall not be a startup company.
Further, employees’ stock options and buyback of shares has also been allowed for all companies. Earlier this was allowed for public and listed companies only. These amendments will help address the employee retention and reward issues particularly faced by startup companies. It would also facilitate startups in case, any founding member needs to exit the company.
Moreover, the requirement relating to payment of subscription amount within 30 days of incorporation has been discontinued. Besides, provisions relating to mandatory requirement for common seal, real estate companies and inactive companies have also been omitted.
The companies can keep unclaimed dividends with themselves. The markup (if any) accrued on such amount shall be used for corporate social responsibility initiatives.
In view of complex valuations, legal entitlement of properties and requirements of other regulatory compliance the authority to approve scheme of arrangements by member or creditors has been granted to High Courts. Earlier, scheme of arrangements of small sized companies were approved by the SECP. The approval for scheme of arrangement of medium, large sized and public interest companies is already granted by the Court.
A new section 479A has been inserted to enable review or revision of any order passed by the registrar, SECP or any officer of the SECP to improve the efficiency of the adjudication process. The aggrieved person can submit a review application within sixty days from the date of order.
A person or company submits false or incorrect statement in any material particular, or omits any material fact knowing it to be material, shall now be liable to a penalty.
