The federal government has amended the Companies Act, 2017 that is aimed primarily at the promotion of startups, the ease of doing business, and improving the general business climate.
According to details, after the approval by the National Assembly Finance and Revenue Committee, the Ministry of Finance presented the Companies (amendments) Bill, 2020 in the Lower House of the Parliament, which was approved by the majority of votes.
The Securities and Exchange Commission of Pakistan (SECP) had proposed dozens of amendments for the Companies Act, 2017 that is essentially aimed at the promotion of startups, improving the general business climate, promoting the ease of doing business, and removing anomalies/ambiguities in the Companies Act.
The SECP had proposed the concept of ‘Startup Companies’ to promote innovation and technological developments through Section 2(1)(67).
Similarly, by amending Sections 83 and 83A, the government has allowed private companies to issue shares other than right and cash. It has also allowed all the companies to issue employees stock option schemes and buy back their shares. Earlier, it had been restricted to the public and public listed companies respectively.
According to the details, the government has exempted private companies having paid-up capital up to Rs. 1 million from the filing of unaudited financial statements.
Ease of Doing Business
The government has reportedly amended the Companies Act, 2017 to meet the benchmarks of the World Bank’s Ease of Doing Business Report.
Officials said that the government has abolished the requirement of the common seal by the amended Sections 18, 23, 62, 137, 20, 203, and 337.
Meanwhile, the minority shareholders can also protect their rights for the discovery of any documents from the defendant during court proceedings, the threshold for member resolution reduced from 10 percent to 5 percent, disclosure of individual directors’ remuneration while the court may declare void the contracts that are prejudiced to the interests of members or suffer from a conflict of interest on the part of any director or board.
Meanwhile, at the request of the SECP, the government has abolished additional requirements for a married woman or a widow to mention her husband’s name for the registration of a company to meet the benchmarks of the World Bank’s Women, Business and Law report.
Officials said that the government has also made it mandatory for every company irrespective of paid up capital for the filing of annual return, while now a listed company may hold its AGM at a place other than its registered office subject to the approval of the Commission.
Furthermore, the listed companies can also hold EOGM on shorter notices, subject to the approval of the Commission. Besides, the CEO can now declare the evidencing receipt of consideration against the issue of shares, instead of auditor certificates.
The Cost and Management accountants will be eligible for appointments as auditors of a private company having paid-up capital up to Rs. 10 million instead of Rs. 3 million.
Changes to Improve the Business Climate
As per the details, the government has barred the SECP from mediation matters pending in order to improve the business climate.
Meanwhile, the SECP has revamped the procedure for the handling of unclaimed dividends. Besides, the unclaimed dividends will be kept in a separate bank account, and the interest accrued thereon will be used for CSR/Investor Education.
Additionally, the companies can sell and dispose of sizable parts of assets on special resolution instead of ordinary resolution.
The government has also approved the proposals of civil penalty for the provision of false statements to the SECP.
The parliament has also approved the omission of Section 456 (that never came into force) as regulation of real estate business as a provincial subject.
The Companies (2nd Amendment) Ordinance
According to the details, the government has also approved the proposal of the SECP regarding disqualifications on the grounds of a plea bargain with the National Accountability Bureau (NAB).
The SECP had also proposed for the protection of independent and non-executive directors, for the omission or commission occurred without their knowledge, which was also approved.
Officials said that the government can now nominate the CEO of a public sector company, while the 10 percent threshold for the reporting of any foreign shareholding to the company by its officers/substantial shareholders has also been abolished.