Companies (Amendment) Bill, 2021 to promote EODB

June 21, 2022: The Companies (Amendment) Bill, 2021 was primarily proposed to promote start-ups, business innovation, and entrepreneurship, improve the general business climate and promote Ease of Doing Business (EODB).

According to the Security and Exchange Commission of Pakistan (SECP) annual report, instrumental amendments ranging from the definition of start-ups, provision of exit mechanism through buy-back of shares by any company, exemption from filing of unaudited financial statements for private companies having insignificant paid-up capital; and abolishment of company seal to the change in threshold from 10% to 5% required to give notice of shareholders’ resolution, aiming at protecting interests of minority shareholders, as well as the abolishment of the requirement to mention husband’s name by a married woman for registration of a company (in line with World Bank’s Women, Business and Law Report), are expected to secure further up-gradation in upcoming Ease of Doing Business Report by the World Bank.

On June 10, 2021, the National Assembly approved the Financial Institutions (Secured Transactions) (Amendment) Bill, 2020, which, besides promising efficient administration of the Secured Transactions Registry through delegation of powers of the Federal Government to SECP, aims to extend the scope of the Secured Transaction Act, 2016 to future assets and products, in order to enhance access to finance for small & medium-sized entities. These amendments are expected to substantially improve Pakistan’s ranking in the Getting Credit” indicator in the World Bank’s Ease of Doing Business Index, the report said.

In March 2021, Pakistan significantly improved its score on the entrepreneurship indicator of the Woman, Business and the Law (WBL) index, from 50 to 75 points, as per the WBL Report 2021.

The rise was mainly attributed to reforms introduced by the SECP, enabling women to register a company effectively and promptly. In the 2021 report, Pakistan improved its score on two indicators: entrepreneurship and workplace, resulting in an increase in overall score to 55.6, from 49.4 in 2020, the report added.

SECP has notified draft amendments in the Companies (General Provisions and Forms) Regulations, 2018 on May 25, 2021, soliciting public comments. The amendments aim to improve the quality of information through simplification of statutory forms, and a significant reduction in the number of forms, thereby greatly reducing the regulatory burden.

In March 2021, SECP notified draft amendments in Companies (Further Issue of Shares) Regulations, 2020 to address the impediments faced by the corporate sector, particularly startups and small companies, in raising equity through conventional modes. In line with international best practices, proposed changes include permission to convert one class of shares into another class, issuance of shares with differential rights without the approval of SECP, and specification of mechanism for valuation of non-cash assets. This will reduce the administrative burden and contribute to growth by removing a layer of regulatory approval.

APP