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SECP proposes CAP2021 to promote startups, business innovation

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Zubair Yaqoob
The author has diversified experience in investigative journalism. He is Chief content editor at wnobserver.com

The Companies Amendment Bill 2021 has been proposed by the Securities and Exchange Commission of Pakistan (SECP), primarily to promote startups, business innovation, entrepreneurship, and improve general business climate and promote ease of doing business. The bill will now be tabled in the Senate of Pakistan.

A new definition is proposed to the definition clause of Companies Act and also in the Third Schedule to allow special privileges to be granted to startup companies engaged in technology-enabled products and services and are estimated to be the backbone of the economy going forward.

The proposed definition of a “startup company” means a company that: (a) is in existence for not more than ten years from the date of its incorporation or such other period or periods as may be specified; and (b) has a turnover for any of the financial years since incorporation that is not greater than five hundred million rupees or such other amount or amounts as may be specified; and (c) is working towards the innovation, development or improvement of products or processes or services or is a scalable business model with a high potential of employment generation or wealth creation or for such other purposes as may be specified; or (d) such other companies or classes of companies as may be notified by the Commission, provided that a company formed by the splitting up or reconstruction of an existing company shall not be considered as a startup company.

Moreover, private companies allowed to issue share as other than right and other than cash, while all companies allowed to issue employees stock option schemes and buyback their shares [Section 83A, 86, 88]- earlier it was restricted to public and public-listed companies respectively.

In addition, private companies having Paid-up Capital up to Rs1 million are exempted from filling of unaudited financial statements [Section 234].

To meet benchmarks of World Bank’s Ease of Doing Business Report, the requirement of common seal of a company is proposed to be abolished. Also, to protect minority shareholder’s rights discovery of any documents from the defendant during court proceedings is allowed [Section 6], the threshold for member resolution proposed to be reduced from 10 percent to 5 percent [Section 140], disclosure of individual directors’ remuneration [Section 227].

Court may declare those contracts void that are prejudicial to the interest of members or suffers from conflict of interest on the part of any director or board [Section 287].

Other important amendments include board resolution through circulation is required to be signed by all directors. Proposed amendment allows that board resolution through circulation approved by all directors shall be valid.

However, keeping in view recommendation of BoI (PRMI) and similar practice in other jurisdiction, it is proposed that board resolution approved by majority of directors may be considered valid.

To meet benchmarks of World Bank’s Women, Business and Law report, Additional requirement to mention husband’s name by a married woman or widow for registration of a company proposed to be abolished [Section 31, 37, 435].

Moreover, requirement to deposit subscription money in bank account within 30 days of incorporation and reporting the same to registrar along with certificate from practicing CA or CMA verifying receipt of money so subscribed is cumbersome for companies. This requirement needs to be simplified to facilitate startups.

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