December 19, 2019: To create an enabling regulatory environment that promotes startups and business innovation, the Securities and Exchange Commission of Pakistan (SECP) has decided to propose amendments in the Companies Act 2017.
SECP believes that regulatory policies that reduce the structural and financial hurdles for innovative startups can play a useful role in enhancing the nation’s innovative capacity. Therefore, to promote startups and to nurture their growth, SECP has initiated a process to develop a comprehensive policy.
In this respect, to shape regulatory thinking, the SECP has initiated the consultative process to seek stakeholders and experts opinion for the creation of a conducive environment for startups. In this regard, SECP has conducted consultative sessions in Karachi, Islamabad and Lahore with eminent industry partners and subject matter experts to have their opinion, feedback and discuss a possible way forward. The participants also discussed current private equity and venture capital regime and proposed amendments in the regulatory framework for venture capital.
Based on the extensive public consultation process, SECP presented proposals to its Policy Board to eliminate various arduous requirements in the Company Act. The Policy Board approved amendments to 3rd Schedule to the Companies Act, 2017 prescribing an appropriate definition for the term “startups” providing, immediate through limited, facilitation for the formation of “startups”.
Other proposed changes include introducing an appropriate definition for startups, allowing employee stock options scheme to facilitate employee retention and reward issues, simplifying buyback of shares by companies, relaxing conditions for issuing shares with differential rights and streamlining the valuation mechanism for sweat equity. The proposed amendments are in line with international best practices and will create an enabling ecosystem for startups and promote digital entrepreneurship.
The SECP would publish the proposed amendments for wide public consultation. The final draft of proposed amendments will be presented to the federal government for proceeding in formal legislative process.
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