Companies Act 2017: Significant proposed amendments by SECP — II

19- Change of name: A company can change its name subject to section 10, by special resolution. Section 10 relates to names not allowed.

Previously, approval of the Commission was required. The registrar’s existing powers under section 10 to review proposed name appropriateness remain intact, thereby ensuring that regulatory safeguards are still maintained.

Where a company changes its name it shall, for a period of ninety days from the date of issue of a certificate by the registrar under sub-section (1), continue to mention its former name along with its new name on the outside of every office or place in which its business is carried on and in every document or notice referred to in section 22.

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

Provided that this requirement shall not apply to a single member company and private company, not being Public Interest Company and subsidiary of listed company.

20. Commencement of Business: The requirement under section 19 for a separate declaration of “commencement of business” has become redundant and unnecessary in view of the existing legal and procedural framework. It is now proposed to be eliminated

21. Registered Office: A company shall have a correspondence or registered office to which all communications and notices shall be addressed. In case no registered office address is notified by the Company at time of incorporation, correspondence address shall be deemed as registered office address of the Company for all purposes of the Act.

22. Principal Line of Business: Under the proposed amendment principle line may be replaced with sector name only in order to simplify procedure and cater requirement of economic survey and other government organization.

The International Standard Industrial Classification (ISIC) will be adopted for sector classification for which concept paper has already been issued. Moreover, change in sector is also not required to be reported on any separate form, such change will be updated in annual return and updated Articles of Association shall be filed with annual return.

23. Merger of Public Sector not for profit companies: Public sector company, directly or indirectly wholly owned by Government, may be merged into another public sector for-profit company, directly or indirectly wholly owned by Government, or its assets can be transferred to another public sector for-profit company, directly or indirectly wholly owned by Government, provided that the transferor company has obtained funds or donations or seed money or capital only from the Government. Provided that section 42 company may be merged into another section 42 company, preferably having similar or identical objects subject to the provisions contained in section 284 of the Act.

24. Private Company to Single Member Company: (1) A private company, not being a public interest company and a subsidiary of a listed company may be converted into a single-member company without prior approval of the Commission in writing by passing a special resolution.

25. Issue of Shares at Discount: Subject to sanction of resolution for issue of shares at discount in the case of listed company the mandatory approval of Commission is being dispensed with. This is a step in the right direction.

26. Reduction in Capital: A private limited company having a share capital may reduce its share capital by special resolution and supported by a solvency statement of all the directors, as referred in Section 89A.

The company may reduce its share capital in any way, namely-

(a) cancel any paid-up share capital which is lost or un-represented by available assets; or for which subscription money has not been received from subscribers;

(b) pay off any paid-up share capital which is in excess of the needs of the company.

27. Solvency Statement: A solvency statement has been introduced which shall be made as a declaration verified by an affidavit to the effect that the directors have made a full inquiry into the affairs of the company and, having done so, have formed the opinion that the company is able to pay or otherwise discharge its debts as they become due.

It is proposed to be prescribed. This is necessarily required as proposed for voluntary winding up of private limited companies.

28. Auditor’s Services: An auditor appointed under this Act shall provide to the company only such other services as are approved by the Board of Directors or the audit committee, as the case may be, but which shall not include any of the following services, whether such services are rendered directly or indirectly to the company, or its holding company or subsidiary company, namely:-

(a) accounting and book keeping services;

(b) internal audit;

(c) design and implementation of any financial information system;

(d) actuarial services;

(e) investment advisory services;

(f) investment banking services;

(g) rendering of outsourced financial services;

(h) management services; and

(i) any other kind of services as may be specified: Provided that an auditor or audit firm who or which has been performing any non-audit services shall comply with the provisions of this section before the closure of the first financial year of the company.

Explanation.—For the purposes of this sub-section, the term “directly or indirectly” shall include rendering of services by the auditor,—

(i) in case of auditor being an individual, either himself or through his relative or any other person connected or associated with such individual or through any other entity, whatsoever, in which such individual has significant influence or control, or whose name or trade-mark or brand is used by such individual;

(ii) in case of auditor being a firm, either itself or through any of its partners or through its parent, subsidiary or associate entity or through any other entity, whatsoever, in which the firm or any partner of the firm has significant influence or control, or whose name or trade mark or brand is used by the firm or any of its partners.

At present, PSX Rule Book lists down the prohibited services. Pursuant to this a statutory auditor of a listed company is prohibited to provide following non-assurance services:

(a) Preparing financial statements, accounting records and accounting services;

(b) Financial information technology system design and implementation, significant to overall financial statements;

(c) Appraisal or valuation services for material items of financial statements;

(d) Acting as an Appointed Actuary within the meaning of the term defined by the Insurance Ordinance, 2000;

(e) Actuarial advice and reviews in respect of provisioning and loss assessments for an insurance entity;

(f) Internal audit services related to internal accounting controls, financial systems or financial statements;

(g) Human resource services relating to:

(i) Executive recruitment;

(ii) Work performed (including secondments) where management decision will be made on behalf of a listed audit client;

(h) Legal Services;

(i) Management functions or decisions;

(j) Corporate finance services, advice or assistance which may involve independence threats such as promoting, dealing in or underwriting of shares of audit clients;

(k) Any exercise or assignment for estimation of financial effect of a transaction or event where an auditor provides litigation support services as identified in subsection 607 of the Code of Ethics for Chartered Accountants;

(l) Share Registration Services (Transfer Agents); and

(m) Any other service(s) which the Council with the prior approval of the Commission, may determine to be a “prohibited service”.

29. Register of members: Every company shall keep an electronic register of its members. An electronic register must contain such particulars of each member as may be specified.

30. Power of Court to Rectify the Register of Members: Section 126 of the Companies Act, 2017 empowered the Court to order rectification of the register of members or debenture-holders in cases of fraudulent or erroneous entry, omission, or unnecessary delay. While this provision provided judicial oversight, in practice it resulted in lengthy, costly, and time-consuming litigation, even for matters of a purely administrative or procedural nature. With the evolution of corporate regulation and increased reliance on electronic filings and real-time data maintenance, the continued requirement of approaching courts for rectification of registers become disproportionate and inconsistent with modern regulatory practices. The retention of section 126 also resulted in duplication of remedies, as similar relief mechanisms already exist under sections 87 and 464 of the Act. Moreover to cater this, section 74A is inserted and sec 464(7) is amended to further address it.

31. Statutory Meeting: The elimination of the requirement of holding a statutory meeting is proposed as the provision has no practical utility in the present regulatory framework.

The original objective of ensuring initial disclosure of a company’s affairs is already achieved through existing requirements. .

32. Annual General Meeting: Every company is required to hold an annual general meeting within sixteen months from the date of its incorporation and thereafter once in every calendar year within a period of one hundred and twenty days following the close of its financial year. This requirement is proposed to be eliminated for private companies, not being public interest companies and subsidiaries of listed companies, where the board of directors holds at least seventy five percent of voting rights.

33. Provisions as to meetings and votes.— A company may hold a general meeting-

a) at a physical venue; or

b) by using virtual meeting technology through service providers in the manner prescribed; or c) both at a physical venue and by using virtual meeting technology through service providers in the manner prescribed.

Provided that from a date to be notified by the Commission, every company shall be required to hold e-meetings and conduct e-voting through a prescribed e-platform, in the manner specified by the Commission, for such class or classes of companies as may be notified.’

Explanation: “Service provider” means any person registered by the Commission to provide an e-platform for meetings in terms of Section 134A.

34. Independent and Female Directors’ Shareholding: Independent and woman directors are now not required to become a member.

Companies face considerable practical difficulties in allocating nominal shareholding to the independent and woman directors for the purpose of satisfying the requirements of this section. Independent and female directors also face considerable difficulties dealing with ownership of the companies in which they are acting as independent directors, including cumbersome asset disclosures and tax-related disclosures at the time of transfer of shares.

35. Independent Director: The independent director of a listed company shall be elected or appointed in the same manner as specified by the Commission.

36. Disqualification of Director: Where a person has been penalised under section 127 of the Act or has contravened the provisions of the sections 182, 184, 197, 208, 222, 243, 254, 261, 272, 324, 400, 401, 402, 405, 418, 424 and 497 or has been penalized under section 193 of the Act, the said person cannot be a director.

37. Loan to Directors: Restriction on loan to directors shall not apply in case of loan given to the chief executive or the whole-time director who is an employee of the company, subject to the condition that the loan is given as per the approved company policy for loans to employees.

38. Method of Contracting: These provisions do not relate to Company have been deleted.

39. Liability of Undesired Activities: Liability for “undesired activities” is subjective and restrictive for shareholders. Eliminating the section will reduce ambiguity and will give freedom to shareholders who are actual owners of the company.

40. Inspection of books of account by the Commission: It is proposed that for the purpose of ascertaining whether a company who is complying with or has complied with any provision or requirement of this Act or the terms and conditions of licence or registration, the Commission may from time to time inspect any record or document relating to any company. This provision already exists however it is proposed to clarify the matter.

41. Declaration of Dividend: At present, the following condition prevails:

(2) No dividend shall be declared or paid by a company for any financial year out of the profits of the company made from the sale or disposal of any immovable property or assets of a capital nature comprised in the undertaking or any of the undertaking of the company, unless the business of the company consists, whether wholly or partly, of selling and purchasing any such property or assets, except after such profits are set off or adjusted against losses arising from the sale of any such immovable property or assets of a capital nature: Provided that no dividend shall be declared or paid out of unrealized gain on investment property credited to profit and loss account.

The provision is proposed to be replaced by:

(2) A resolution of directors passed under subsection (1) shall contain a statement that, in the opinion of the directors, the company will immediately after the distribution, satisfy the solvency test.

The deletion of sub-section (2) removes restriction on dividend distribution from capital gains, which no longer reflects modern accounting standards and business realities. Instead, the proposed proviso introduces a solvency test to ensure that dividends, whether from current or accumulated profits, are declared only when the company can meet its financial obligations

42. Unclaimed Dividend: The unclaimed dividend shall vest with the Federal Government with oversight by the Commission.

43. Cost Audit. Provisions relating to “Audit of Cost Accounts” are proposed to be eliminated.

44. Right of Commission: A new provision has been inserted to the effect that the Commission may investigate a dispute exists among the members or directors regarding shareholding or directorship arising from a fraudulent entry, an entry made without sufficient cause, or an omission in the relevant statutory register.

45. Management by Administrator. The Commission or the registrar has been given powers to appoint administrators on its own motion also if a situation for appointment of administrator exists. Previously, this right was subject to the approval of members having not less than sixty percent of the paid up capital of a company or a secured creditor or secured creditors having interest equivalent

46. Process of voluntary winding up: The amendment proposes that the Court has no role in the process of voluntary winding-up proceedings, which are intended to be managed independently by the company and its creditors without judicial intervention. Accordingly, the power to approve any extension in the completion of winding-up proceedings has been aligned with the voluntary nature of the process and vested in the company, through a special resolution in the general meeting, and in the creditors’ meeting in case of a creditors’ voluntary winding up. This change ensures procedural consistency, reduces unnecessary court involvement, and promotes efficiency, self-regulation, and timely closure of companies.

47. Unregistered Company: An unregistered company “includes any partnership, association or company consisting of more than seven members”. This definition is proposed to be deleted.

48. Security clearance of shareholder and director.—The Commission may require the security clearance of any shareholder or director or other office bearer of a company or class of companies as may be notified by the concerned Minister-in-charge of the Federal Government.

Explanation.— For the purposes of this section, the expression “Minister-in-Charge of the Federal Government” shall mean the Minister-in-Charge of the Ministry of Interior and Narcotics Control.

49. Acceptance of returns or documents. Where a return, statement or document is filed or delivered to the registrar in compliance with the provisions of this Act or the rules or regulations made thereunder, and upon examination, the registrar is satisfied that-

(a) the document is complete in all material respects and complies with the requirements of law;

(b) all prescribed fees and penalties, if any, have been duly paid; and

(c) the document is properly authenticated in the manner prescribed, the registrar shall accept such return or document for registration and record the same in the register.

The registrar shall issue a certificate, acknowledgment, or such other confirmation of acceptance as may be prescribed.

Acceptance of a document or return under this section shall not be construed as a certification of the correctness, validity, or legality of the contents thereof, and the responsibility for the accuracy and completeness of the information contained therein shall remain with the company and its officers.

50. Record-keeping and Transmission of Data. Every company shall maintain its records, including but not limited to books of account, registers, financial statements, and all other statutory documents, in physical, electronic, or digital form, ensuring that such records are-

(i) clear, legible, accessible, and capable of being readily retrieved;

(ii) maintained in a manner that ensures authenticity, integrity, and reproducibility in accordance with applicable legal standards;

(iii) capable of being produced or presented to the Commission or any other authority when so required under the law; and

(iv) protected from unauthorized access, alteration, or destruction.

(2) Without prejudice to the generality of sub-section (1), the Commission may, by notification or directive, require any company or class of companies to:-

(i) maintain records in such system, programme, or format - whether physical, electronic, digital, or any combination thereof - as may be specified; and

(ii) provide, submit, or transmit data or information in real time, periodic, or batch form through such physical or automated mechanism as may be prescribed, including but not limited to Application Programming Interfaces (APIs), Data Acquisition Portals (DAPs), Secure File Transfers (FTPs), or other secure and automated data-sharing systems.

(3) The Commission may prescribe such standards, security protocols, and procedures as it considers necessary to ensure the confidentiality, reliability, and lawful use of data transmitted or maintained under this section.

51. Review and revision.-Any order, other than an order under section 479, passed under this Act by the registrar or an officer exercising powers of the Commission, not being an order of the Court, shall be subject to revision by the registrar or the Commission, upon application being made by any aggrieved person within sixty days from the date of such order and the revision order shall be final.

The Commission or the registrar may, upon an application being made to it within sixty days from the date of any order passed by it otherwise than in revision under sub-section (1), or on its own motion, review such order, and such review order shall be final.

An order passed or made by the Federal Government under this Act shall be subject to review by the Federal Government of its own motion or on an application made to it within sixty days from the date of the order.

The orders relating to mergers, etc., are supposed to be excluded from this provision.

52. Appeal against order passed by officer of the Commission. Any person aggrieved by any order passed under this Act may, within thirty days of such order, except as otherwise provided in this Act, prefer an appeal to an officer authorized by the Commission where the order has been passed or upheld by the Registrar of Companies. Consequential to amendments proposed in section 464(6) & (7) where powers are given/amended to the Registrar of Companies. In light of these amendments, the appellate structure envisaged under section 480(a), which provides for an appeal to a registrar designated by the Commission against orders passed by officers subordinate to the Registrar, has become redundant and no longer relevant in the context of actions taken under sections 464(6) and (7).

53. Definition of the term ‘material’. It is proposed that it would mean any information which, if altered or obscured, would reasonably influence the decision of the stakeholders relying on such information.

(Concluded)

Copyright Business Recorder, 2026