SECP Amends Regulations to Facilitate SMEs and Startups

The 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 the 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 share, 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 the administrative burden and will contribute towards the growth of the fast-paced corporate world by removing a layer of regulatory approval. Another significant amendment is to permit the 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 the demands of their shareholders. Furthermore, a complete mechanism for the 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.