OPINION: Companies Act 2017: Significant proposed amendments by SECP — I

General

The Securities & Exchange Commission of Pakistan (SECP) has issued a very reasonable and useful ‘Concept Paper’ on the proposed changes in the Companies Act, 2017. This document proposes major changes in the Companies Act, 2017 after around eight years of its enactment (2017-2026).

The document, unlike many earlier documents issued by the regulators, adequately identifies the rationale for amending the respective provisions. Commission is to be complimented for the same.

All the amendments proposed are steps in the right direction. However there are certain matters which require reconsideration. These include the approval of a scheme of arrangement by the Commission instead of the High Court. The original text of the Companies Act, 2017 provided what has been proposed now; however, on account of sensitivity of the matter and related aspects the authority of the High Courts was retained. It is suggested that there should be reconsideration on this subject.

It is encouraging that a positive amendment has been made by deleting the matter relating to beneficial ownership by non-residents.

It is to be examined whether or not the mandatory payment of dividend is an infringement of the right of management. The insertion of statutory provisions for allowing revisions of financial statements for earlier three years, with caveats, is a positive step.

It is suggested that clarity be introduced with respect to half-yearly and quarterly reporting by the listed companies. The concept of half-yearly reporting is to be prescribed in the statute and the matter of quarterly accounts be left for the management without any prescription in the statute.

The comments in the following paragraphs are summarised contents for ease of understanding. For detailed review, respective sections of the Companies Act 2017 and the Concept Paper which has been attached as Annexure https://www.secp.gov.pk/document/concept-paper-proposed-amendments-in-companies-act-2017/?wpdmdl=63428&refresh=6968d2d7d43b01768477399be read. These notes have been arranged in the order of preference as considered by the authors of these notes.

Karachi

January 15, 2026

1. Deletion of the Concept of Memorandum of Association: The concept of a memorandum of association is proposed to be eliminated.

The only relevant document will be Articles of Association.

Notwithstanding the omission of the memorandum of association under this Act, any company incorporated prior to the commencement of this amendment shall continue to operate lawfully, and its memorandum of association, as filed with the registrar, shall be deemed to form part of its articles of association.

Explanation.— For the purposes of this section and any other provision of this Act, the expression “memorandum” shall, in relation to a company incorporated prior to the commencement of this amendment, mean the memorandum of association as originally filed or as altered from time to time under any previous company law, and shall, after such commencement, be deemed to form part of the company’s articles of association.

2. Books of Accounts: The books of accounts of every company are presently required to be kept for ten (10) years. It is proposed to reduce this period to five (5) years.

3. Approval of Mergers etc: At present the approval of schemes of arrangement, inter alia for listed entities (mergers etc) are exercised by the High Court. This right emanates as the statute provides that this right shall be exercised by the Court for such companies or class of companies or having such capital, as may be notified by the concerned Minister-in-Charge of the Federal Government. At present, these are being exercised by the courts by virtue of the notification no. SRO. 1351/2023 dated 22 September 2023.

The Commission considers that in order to facilitate the corporate sector, the matters to approve compromise, arrangement, reconstruction and amalgamation are proposed to be exclusively given under the jurisdiction of the Commission for the disposal of such cases on a fast track basis. Accordingly, it is proposed to authorize the Commission to approve schemes of arrangement for all classes of companies.

It is considered that on account of sensitivity of the matter and other considerations the present process be continued. The ultimate objective is to have special benches in the High Court dealing with corporate matters or the introduction of a Corporate Law Tribunal.

4. Register of Global Beneficial Ownership: The requirement for shareholders and officers of Pakistani companies to declare their foreign shareholdings under this section resulted in duplication of reporting obligations already enforced by the Federal Board of Revenue (FBR) and other relevant authorities under tax and anti–money laundering frameworks.

Since uncoordinated dual reporting created unnecessary administrative burden and compliance overlap, the provision has been omitted to streamline regulatory processes, eliminate redundancy, and ensure that disclosure of foreign assets and ownership interests remains governed under the relevant tax and financial reporting laws.

This is a very positive step as determination of ‘beneficial ownership’ is a subject related to tax in certain cases. There is no reason for having this provision in the corporate statute.

5. Number of Directors: Minimum number of directors of a company shall:

(a) a single member company shall have at least one director;

(b) every other private company shall have not less than two directors;

(d) a listed company shall have not less than seven directors:

6. No limitation of members in private companies: The maximum number of members in a private limited company of fifty (50) is proposed to be dispensed with.

7. Limitation of size of partnership: The number of partners in a partnership is limited. Now this limitation is proposed to be eliminated.

8. Further Issue of Share Capital: It is proposed to remove Commission’s approval for issuance of shares by way of other than right for all companies.

A new sub-section is proposed to be inserted to regulate the ‘offer price’ of the shares in case of right and other than right shares offer.

9. Related Party Definition: The related party definition has been replaced to mean the same as defined under International Financial Reporting Standards (IFRS).

Under IFRS (IAS 24), a related party is a person or entity connected to the reporting entity (the company preparing financial statements) through control, joint control, significant influence, or key management roles, including their close family members, or entities within the same group, associates, and joint ventures. These relationships require disclosure because they can impact financial reporting, allowing transactions with parties not at arm’s length to be identified, such as a parent selling goods to a subsidiary at cost

10. Waqf Management Company: Under Section 42(5A) the Commission may permit a Waqf Management company to be licensed as a not-for-profit company in such form and manner and subject to such fee as may be specified.

The Waqaf management Company shall manage and administer Waqf assets in accordance with Shariah principles and the objectives of the Waqf as declared by the Waqif at the time of its creation under their respective laws for the time being in force.

11. Special Audit by the Commission:

a. The Commission may upon an application made by members holding not less than 10% voting rights in a company order a special audit of the company and appoint an auditor to carry out detailed scrutiny of the affairs of the company.

Provided that the auditor appointed for the purposes of the special audit shall be subject to the regulatory oversight of the Audit Oversight Board under the applicable laws and regulations.

b. Provided further that the Commission may, on its own motion, order a special audit of the company on the receipt of a report under sub-section (5) of section 221 or on the report by the registrar under sub-section (6) of section 254. This is a new provision.

(2) On receipt of the special audit report, the commission may issue such directions for immediate compliance to the company and its management as the Commission deems fit.

12. Filing of unaudited financial statements or information. A company, having such paid-up capital or such other parameters as may be notified by the Commission, shall file the duly authenticated financial statements or information, on prescribed format, whether audited or not and duly approved in the general meeting within one hundred twenty days of close of financial year, with the registrar or within such time as prescribed by the Commission.

This is a new provision and will provide improved transparency in the corporate sector.

13. Interim Quarterly financial statements and results of listed companies. Every listed company shall prepare the half yearly financial statements within the period of—

(a) thirty days of the close of first and third quarters of its year of accounts; and

(b) sixty days of the close of its second quarter of its year of accounts:

Provided that the cumulative figures for the half year, presented in the second quarter accounts shall be subjected to a limited scope review by the statutory auditors of the company in such manner and according to such terms and conditions as may be determined by the Institute of Chartered Accountants of Pakistan and approved by the Commission. This is generally called ‘limited review’

At present, there is a requirement of quarterly financial statements.

In addition to the same, every listed company shall prepare the financial results of the first, second and third quarter, duly approved by the Board of Directors, of its financial year in the manner prescribed by the Commission.

These financial statements are not required to have limited review by the auditors.

The proposed shift from quarterly to half-yearly financial reporting aims to reduce the regulatory compliance burden on listed companies and align Pakistan’s disclosure regime with international practices.

It is considered that this statutory requirement be dispensed with as the preparation of financial statements is a management function. Public reporting is a separate subject which has been adequately covered under half-yearly requirements.

14. Dividend to be paid only out of profits. Any dividend may be paid by a company either in cash or in kind only out of its profits, including accumulated profits or reserves, subject to the solvency test as specified by the Commission.

Provided that a company shall declare dividend at least once in every three years, subject to the availability of accumulated profits or reserves and satisfaction of the solvency test.

This means that if profit and reserves are available then dividend would necessarily be required to be paid. This is a very important change. There are many companies which do not pay dividends despite huge reserves.

Nevertheless the right of the regulator to compulsorily require payment of dividend needs to be examined.

15. Definition of Member: A new definition of the term “member”, has been inserted to mean:

a) every subscriber to the articles of association, who is deemed to have agreed to become a member and becomes a member upon the registration of the company;

b) every other person to whom shares of any class or kind have been allotted, or who has otherwise become the holder of such shares; and

c) in the case of a company not having a share capital, every person who has agreed to become a member of the company; and whose name is entered in the register of members of the company.

16. Voluntary Revision of Financial Statement: Where it appears to the directors of a company that the financial statements of the company are not in compliance with the provisions of this Act, the directors may prepare revised financial statements in respect of any of the three preceding financial years.

Provided that in the case of a listed company, such revised financial statements shall be prepared only after obtaining prior approval of the Commission, and in the case of any other company, with the approval of the general meeting through a special resolution, in such form and manner as may be specified.

Provided further that no company shall prepare or file revised financial statements more than once in a financial year:

Provided further that the detailed reasons for such revision shall be disclosed in the financial statements of the relevant financial year in which such revision is made.

Where copies of the previous financial statements have been sent out to members or delivered to the registrar or laid before the company in general meeting, the revisions shall be confined to-

(a) the correction in respect of which the previous financial statements did not comply with the provisions of this Act; and

(b) the making of any necessary consequential alteration.

The Commission may make regulations for carrying out the purposes of this section and may, in particular-

(a) make different provisions according to which the previous financial statements are replaced or are supplemented by a document indicating the corrections to be made; and

(b) make provisions with respect to the functions of the company’s auditor in relation to the revised financial statements; and

(c) require the directors to take such steps as may be specified.

This is a very relevant, important and necessary change.

17. “Registrar of Companies” has been defined which means the Registrar of Companies designated as such by the Commission and posted at head office of the Commission and who is head of the offices for the registration of companies in Pakistan and performing other work under the Act;

18. “Special resolution” shall now mean:

(a) a resolution which has been passed by a majority of not less than three-fourths of such members of the company entitled to vote as are present in person or by proxy or vote through postal ballot at a general meeting of which a notice of period as notified in section 132 and 133 of the Act. The said notice shall specify the intention to propose the resolution as a special resolution has been duly given:

Provided that if seventy-five percent of all the members entitled to attend and vote at any such meeting agree, a resolution may be proposed and passed as a special resolution at a meeting of any shorter notice been given; or which less than twenty-one days notice has been given.

(b) a resolution approved by the Board of Directors representing not less than seventy-five percent of the total voting rights in the company, where the company is exempted from holding a general meeting under sub-section (1) of sections 132 and 133 of the Act.

(To be continued)

Copyright Business Recorder, 2026