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An In-Depth Overview of the Companies Act 2017 (Pakistan)
What is Companies Act 2017?
Companies Act 2017 was another structural change in Pakistan’s corporate sector as it repealed the Companies Ordinance 1984. The Act was introduced to improve the corporate governance practices, increase transparency and ease the complexity of compliance as adopted by firms working in Pakistan. It aligns the country’s corporate rules with other advanced nations while enhancing the flow of operations of corporations and at the same time safeguarding the investors’ interest’s.
The Companies Act 2017 was passed in order to supersede the Companies Ordinance 1984 which was out dated. The previous law was unable to cope with the challenges in the corporate structure of Pakistan especially due to globalization and advancement in technology. The proposed new Act should further the changes towards a more friendly business environment even as corporate conduct is made more and less questionable.
The following are the objective of the Companies Act 2017 (Pakistan):
Enhancing Corporate Governance: Assuring the increased shareholders’ control over the management and improvement of the governance standards in companies.
Simplifying Business Operations: Increasing the ease of doing business by the provision of smooth measures and standard procedures governing incorporations and operating practices among firms.
Promoting Transparency: The call for increased standard on disclosure for both financial reporting and determining corporations’ business strategies.
Facilitating Growth of SMEs: Offering better and less invasive terms of regulation to the small enterprises.
The following objectives are in tune with the government’s perspective of encouraging a healthy, moral and non-corrupt corporate culture in the country of Pakistan.
Compliance Requirements of the Companies Act 2017
The Companies Act 2017 made many changes which had its effects on the operations of companies in Pakistan. Some of the major reforms include: Some of the major reforms include:
Simplified Incorporation Process: There are less formalities required by companies to register hence it is easier for new companies to do so.
Corporate Social Responsibility (CSR): Corporate social responsibilities are in a way encouraged where organizations engage their businesses in social causes though not compulsory.
Director Accountability: The Act increases the legal responsibility of directors and the senior management through the fiduciary duties that they are required to observe and uphold at all times for the benefit of the company.
Enhanced Transparency: The Act prescribes on beneficial ownership disclosure and introduce higher level of requirements for financial reporting.
Insolvency Laws: An efficient law to handle corporate insolvency and restructuring procedures was initiated.
These changes are to set a new reflecting the objective of improving the Pakistani corporate environment and try to make it more competitive as well as fair for the business entities and shareholders.
Impact of the Companies Act of 2017 Failure to do so will result in severe consequences for the businesses in Pakistan.
According to the Companies Act, 2017 (Pakistan), there are legal changes that impact how companies work as these changes bring in higher compliance standards and Company laws paying much attention to corporate governance. Some key ways in which it impacts businesses are: Some key ways in which it impacts businesses are:
Incorporation: Incorporation of new company takes relatively short time now on account of reduced paper work and faster clearances.
Reporting Requirements: Now companies are required to register annual financial statements and other corporate documents.
Governance Structures: It requires that larger firms should have independent directors while adequate board committees to monitor major organizational structures.
Accountability for Directors: According to Schilling, directors and senior management are now at the hook of legal responsibility because of the concept of personal liability of misconduct.
However, in the case of Pakistan, the legal imperative is also part of the corporate strategy because of the need to inspire confidence among the stakeholders especially the investors.
Corporate Governance under the Companies Act 2017 (Pakistan)
Among all the legislations and laws that created Companies Act 2017, the concept of corporate governance is one of the most important components. In the Act, there is the section of ethical standards that focus on reporting of corporate standards and practices at various stages of corporate management.
Key provisions related to corporate governance include:
Independent Directors: Large firms are expected to have independent directors in their boards so that the board can make a decision independently in the best interest of the company.
Audit Committees: It is mandatory for companies to form audit committees that will be in charge of internal control and more so in the preparation of financial statements.
Disclosure of Interests: The directors should be able to declare any interest that they have in relation to any of the business decisions they make so that there is fairness in the making of such decisions.
These rules are made to act as a guide to corporate governance so that firms can be run in an ethical manner and therefore shield the shareholders and other stakeholders.
Corporate Governance under the Companies Act 2017 (Pakistan)
Some of the key compliance obligations include:
Annual Returns: According to the SECP act of 1997 it is mandatory for all the companies to submit their annual returns every year.
Board Meetings: Board meetings should be conducted from time to time so as to effectively monitor the companies’ activities.
Audits: Every company must get itself audited once a year and then it has to submit audited financial statements to the SECP.
Shareholder Meetings: Some of the Meetings include Annual general meetings which must be conducted to let the shareholders know about the financial position of the company.
Any failure in compliance with the above mentioned requirements attracts severe penalties and fines for the company and its directors.
The Companies Act 2017 and Its benefits to SMEs Businesses in Pakistan
The Companies Act 2017 aims at the promotion of SMEs in Pakistan as the Act elaborates to de-barricade the legal environment and minimize regulatory hurdles. Some key provisions that benefit SMEs include:
Simplified Registration: One of the benefits out of incorporation of the act is that SMEs can easily register their businesses, and this is because registration is now easy compared to the past.
Lower Compliance Costs: As you can imagine, concerns of compliance related to audit and reporting are much fewer for those businesses that are not very large.
Access to Capital: Some of the provisions of the Act aim at removing some constraints in the ability of SMEs to access capital through equity and debt offerings.
These measures have help SMEs to expand and develop their businesses without being dragged down by a lot of bureaucratic formalities.
Penalties Legal Enforcement In light of the Companies Act 2017
The Companies Act 2017 brings changes in procedures and has severe penalties in the case of non-compliance. Key areas where enforcement is particularly stringent include:
Late Filings: For failure in filing annual returns or financial statements and where the failed company is a listed company they are subject to hefty fines.
Director Liability: Managers can also be held individually responsible for the breaches of duty such as negligence in the management of cash resources and embezzlement.
Misrepresentation: There are penalties for which companies convicted of misrepresentation or falsification of its financial data can be charged with criminal offenses.
This means that compliance is important in organizations therefore it is either designed internally or there is legal compliance to keep organizations out of trouble legally.
Comparison Between Companies Ordinance 1984 and Companies Act 2017 (Pakistan)
The legal framework in the country has under gone a lot of changes to suit the ever changing needs of the corporate bodies in Pakistan and this is seen from the comparison of the Companies Ordinance 1984 to the Companies Act 2017. Key differences include:
Corporate Governance: The above stated Act has been enacted in 2017 and it puts in place higher standards on corporate practices such as independence of directors and audit committees.
Transparency and Disclosure: The 2017 Act highlight a call for more elaborate reporting of the financial/ownership data.
Corporate Social Responsibility: The 2017 Act has provisions to encourage CSR of the companies which was not present in the earlier ordinance.
It is important to point out that these differences represent the government’s attempts at progressing the modern legislation for enterprises in Pakistan in accordance with the global level.
Major Changes to The Companies Act 2017, Pakistan
The Companies Act 2017 was established with several modifications having been made to fit the advancement of businesses. Examples of these amendments are changes in the corporate governance provisions, relaxation of the compliance provisions for small businesses and changes in CSR regulations.
Probable Developments in Corporate Regulation in Pakistan in the forthcoming Years
In the future, it can be expected that the rules and regulations set by the corporate laws in Pakistan will also change in the future and they will put much emphasis on easing the burden of compliance, on the use of technology, and on liberalization of the laws to encourage foreign investment. The government might consider bringing changes in the Companies Act 2017 as external environment for business is changing more than ever.
Services in relation with the Companies Act 2017
Audits: Consulting on matters of compliance with and compliance to the Companies Act 2017 so that your business will not be found lacking in any aspect.
Registration and Licenses: All kind of Registration and Licenses Service available.
For more information on how we can help your business go to Arette Management Consultant.
FAQ
1. What is the purpose of the Companies Act 2017 (Pakistan)?
Some of the intended benefits of the Act includes improvement of the corporate governance practices, reducing of opaqueness of businesses and simplification of business processes.
2. How has the Act affected SMEs?
These reforms are very clear when one looks at the Act as it presents new simplified procedures with small measures of compliance for SMEs.
3. What are the penalties for non-compliance?
Failure to report or false reporting is capable of attracting severe penalties to the company and the directors risk being held personally responsible for the breach of specified duties or fraud.
4. Where can I download the Companies Act 2017 (Pakistan) PDF?
The Original Act is available only on SECP’s official website The website also offers downloadable versions of the Act.
5. How is the Companies Act 2017 different from the Companies Ordinance 1984?
The 2017 Act includes more stringent governance requirements and emphasizes transparency and CSR.
6. Can Arette Management Consultants help my business comply with the Companies Act 2017?
Yes, through the Arette Management Consultants offers business wide services, that would help companies to operate legally and meet all requirements of the Act.
Contact us to learn how your business can comply with the Companies Act 2017.
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