Cos issuing shares with differential rights: SECP issues consultation paper eliciting public inputs

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has a proposed policy framework for the issuance of ordinary shares with varied rights and privileges by companies.

In this regard, the SECP on Wednesday issued a consultation paper eliciting public inputs.

The initiative aims to enhance corporate governance, protect shareholder interests, and foster a transparent capital market by establishing clear regulatory guidelines for companies issuing shares with differential rights, including variations in voting power, dividend entitlements, and liquidation preferences.

The SECP is of the opinion that variation in the rights attached to various classes of shares should be in line with the overarching policy principles laid down in the law. The sponsors/majority shareholders and the board of directors of a company ought to consider these principles while structuring transactions for fresh issue of shares having varying rights. Transactions that violate these principles need to be discouraged.

Considering the stage of development of our market and its investors, it is proposed that issuance of ordinary shares with varied rights and privileges by companies should be subject to reasonable limits in Pakistan, so as to uphold principles of corporate governance, rights of ordinary and minority shareholders, price discovery, fairness, and public interest. The guidelines are also accordingly proposed to be introduced for all companies that intend to issue such shares in future.

The consultation paper outlines key regulatory and compliance considerations, addressing governance challenges such as control concentration, shareholder activism, and equitable decision-making. It also emphasizes the importance of market transparency and fair price discovery to ensure that investors holding shares with varied rights have clear valuation mechanisms and viable exit options. A comparative analysis of international best practices has been conducted to assess global regulatory approaches and develop a framework suited to Pakistan’s financial ecosystem.

SECP has highlighted potential risks associated with differential share structures, including governance imbalances and reduced minority shareholder influence, and is proposing reasonable limits to maintain fairness and uphold investor confidence. The Commission encourages stakeholders, including investors, corporate entities, and legal experts, to provide feedback to help refine the proposed framework, SECP added.

Copyright Business Recorder, 2025