President Alvi approves amendments to companies Act, 2017

ISLAMABAD: President Dr Arif Alvi on Monday approved amendments to the Companies Act, 2017, in order to provide an enabling regulatory framework to facilitate startups in the country.

According to a statement issued by the Securities and Exchange Commission of Pakistan (SECP), these amendments were planned by the SECP to support “promote and nurture startups” while also attracting local and international innovators.

The Companies Act, 2017 was reviewed by the SECP in consultation with different external and internal stakeholders.

The statement further said  “On the basis of the suggestion received during the consultation process, various amendments were proposed by the regulator 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 have been promulgated through the Companies (Amendment) Ordinance, 2020 promulgated on April 30, it added.

According to the new rules, employee stock options and buyback of shares has been permitted for all companies; earlier this was allowed for public and listed companies only.

The statement said “These amendments will support address the employee retention and reward problem faced by startups. They will also facilitate startups in case the founding member needs to exit the company.”

Now, a listed company may hold an extraordinary general meeting at a shorter notice with the commission’s approval, the press release said, adding that all companies will be needed to file annual returns with the registrar. “The chief executive officer shall now be appointed by the board of directors in all companies.”

Meanwhile, the procedure for handling unclaimed dividends has been revised; now unpaid dividend accounts shall be maintained by companies and any markup accrued on such an account shall be used by companies for corporate social responsibility initiatives.

Amendments have been introduced to lower the threshold for proposing member resolutions (from 10 per cent to 5pc), mandatory disclosure of company’s director’s remuneration and enhanced protection for minority shareholders in transactions involving conflict of interest of a company’s directors.

“In view of complex valuations, legal entitlement of properties and requirements of other regulatory compliances the authority to approve the scheme of arrangements by member or creditors has been granted to high courts”.

Earlier, the scheme of arrangements for small sized companies and companies wholly owned by the government were approved by the commission while the scheme of arrangement of medium sized, large sized and public interest companies were approved by the court,” the statement said.

“Provisions relating to the mandatory requirement for common seal, real estate companies and inactive companies have also been omitted,” it added.

The amendments, in addition to improving ease of doing business, will also positively impact the country’s position in global rankings, the statement concluded.