The Securities and Exchange Commission of Pakistan (SECP) has amended the Companies (Further Issue of Shares) Regulations 2020, to address the challenges that the corporate sector, particularly startups and small businesses, encounter in obtaining equity through traditional channels.
In a statement on Tuesday 23rd November 2021, the commission announced several key changes, including the right to convert shares into another class, issuance of shares with differential rights without agency approval, and definition of the mechanism for valuing non-cash assets.
According to the law, companies may have more than one type of share, granting different rights of dividend, voting, and participation under the needs of their capital providers.
The SECP’s prior approval is no longer required. By removing a layer of regulatory approval, this measure will aid in reducing the administrative burden and contribute to the corporate world’s growth.
The proposal also allows conversion of one class or type of shares into another class or type of shares, including converting ordinary shares into preference shares.As of now, only preference shares can be converted into ordinary shares; no mechanism is provided for other classes of shares.
Companies will be facilitated in maintaining an optimal capital structure that considers their own financial needs and those of their shareholders. Furthermore, a complete system for valuing movable and intangible assets has been established.
As a result, consulting engineers registered with the Pakistan Engineering Council and QCR-rated chartered accountant firms will conduct valuations under the Act. These modifications were brought in after numerous queries and suggestions from small businesses and startups, and they are on par with the international standards.