SECP amends regulations to greatly facilitate SMEs and Startups

The Securities and Exchange Commission of Pakistan (SECP) has introduced amendments in the Companies (Further Issue of Shares) Regulations, 2020 to address the impediments faced by the corporate sector, particularly startups and small companies, in raising equity through conventional modes. Key changes include permission to convert one class of shares into another class, issuance of shares with differential rights without approval of the SECP, and specification of mechanism for valuation of non-cash assets.

As per the law, companies can have more than one kind of shares conferring varying rights of dividend, voting and participation depending upon the needs of its capital providers. The requirement of prior approval of SECP has now been abolished. Such a measure will considerably help reduce administrative burden and will contribute towards growth of fast-paced corporate world by removing a layer of regulatory approval.

Another vital amendment is to permit conversion of one class or kind of shares into another class or kind e.g. ordinary into preference shares. Currently, the Regulations only allow conversion of preference shares into ordinary shares while no mechanism is provided for other classes of shares. The change aims to facilitate companies in maintaining an optimal capital structure considering their own financial needs and demands of their shareholders.

Besides, a complete mechanism for valuation of immovable property, intangible assets or services has been introduced. Now, the consulting engineers registered with Pakistan Engineering Council and QCR rated chartered accountant firms will be eligible to conduct valuation for the purposes of the Act.

These amendments have been introduced in consideration of numerous queries and suggestions received from small companies and startups, and are at par with the international jurisdictions.