President Dr Arif Alvi has approved amendments in Companies Act 2017 to provide an enabling regulatory framework to facilitate startups in Pakistan on 30th April 2020.
On the basis of feedback received during the consultation process, various amendments were proposed by the SECP to promote ease of doing business, encourage startups, improve protection of minority shareholders and remove some anomalies noted in the provisions of the Act.
The amendments included information that simplified the comprehension of what exactly is a startup company and how can it be facilitated smoothly?
Definition of a Startup Company:
67A: “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
Facilitating the Startups & other Businesses:
458A: Measures for greater ease of doing business.— Notwithstanding anything contained in this Act or in any other law for the time being in force, the Commission may implement measures for providing greater ease of doing business, improving regulatory quality and efficiency and facilitating innovation and the use of technology in conducting business by the corporate sector, including but not limited to-
(a) formalizing existing practices through regulations and implementing other measures for attaining international standards of regulatory quality and efficiency for greater ease of doing business;
(b) specifying modes and procedures for enabling greater ease of entry into and exit from the market to startup companies;
(c) constituting special task groups from the corporate sector for encouraging the use of financial technology in the conduct of business;
(d) creating environments for testing and examining the impact of innovation, new processes or technologies outside the existing regulatory framework including but not limited to crowdfunding, digital assets, open application programming interface (APIs), smart contracts, cloud based solutions and allowing the establishment and use of regulatory sandboxes;
(e) encouraging the use of technology for providing and meeting regulatory reporting requirements, risk assessment, customer due diligence, the issuance of suspicious transaction reports, keeping records and such other requirements as may be specified to meet anti-money laundering and counter-terrorism financing standards;
(f) improving regulatory compliance and specifying proportionate data-driven standards for the corporate sector to take measures for cyber-security, data sovereignty and algorithm supervision;
(g) specifying exemptions and incentives under the prevailing laws with the object of fostering innovation, promoting startups and entrepreneurship ecosystem in line with international best practices;
(h) improving regulatory monitoring, reporting and compliance requirements; and
(i) prescribing such other frameworks as may be notified by the Commission for stimulating innovation and financial inclusion in the conduct of business by the corporate sector through the use of financial technology, regulatory technology and supervisory technology:
Provided that the Commission may take such other measures prior to the issuance of regulations as it may deem fit through guidelines, policy papers, frameworks or any other modes or mechanisms.
These amendments were proposed by the Securities and Exchange Commission of Pakistan (SECP) to help promoting and nurturing of startups as well as to attract local and international innovators. The Companies Act, 2017, promulgated on May 31, 2017, was reviewed by the SECP in consultation with various external and internal stakeholders including PBC, ICAP, ICMAP, OICCI and PICG etc.
The Companies Act 2017, including all amendments made through Companies (Amendment) Ordinance, 2020 is available at SECP’s website.