The Securities and Exchange Commission of Pakistan (SECP) has introduced a major regulatory change that will affect all newly incorporated unlisted companies in the country. Starting from March 3, 2025, the SECP has mandated that all unlisted companies with share capital must issue their shares in book-entry form only, effectively banning the practice of maintaining physical share certificates.
This move, outlined in S.R.O. 246(I)/2025, was officially announced by the SECP on Monday. The directive is clear: any unlisted company incorporated on or after March 3, 2025, will be required to maintain its shares in electronic form through a Central Depository. The decision to prohibit physical share certificates aligns with global trends towards digitization, aiming to streamline operations, reduce fraud, and enhance market transparency.
Under this new procedure, companies cannot convert their book-entry shares back into physical shares at any point. This step is aimed at ensuring that the process of share issuance and ownership remains digital and secure. Furthermore, the replacement of shares from book-entry to physical certificates will be explicitly prohibited. The SECP’s regulations will play a key role in modernizing how unlisted companies manage and track their shares.
According to the SECP, at the time of incorporation, the company’s subscribers—those founding members who are involved in the establishment of the company—must consent to the contractual arrangements with the Central Depository. This includes agreeing to the terms and conditions for maintaining the shares in book-entry form. Additionally, the company will be required to make payments for an annual fee and a security deposit to facilitate the process.
The SECP has also made it clear that all unlisted companies will have to comply with the procedural requirements outlined by the Central Depository, which will facilitate the issuance and maintenance of shares in book-entry form. The Central Depository, responsible for managing the electronic records of shares, will handle the registration and transfer of shares in this digital format.
For regulatory compliance, the SECP requires that any changes in the company’s shareholding be documented and reported using the prescribed forms under the Companies Act, 2017. This includes submitting additional documents issued by the Central Depository when the company introduces its shares in book-entry form, especially in cases where there is a change in shareholding. This requirement will help ensure that the records are kept up to date and easily accessible for regulatory purposes.
The new rules have significant implications for unlisted companies, as they will no longer be able to issue physical share certificates. While this shift may initially seem challenging, it is part of the SECP’s broader effort to modernize Pakistan’s corporate sector, reduce administrative costs, and prevent fraudulent practices in the share issuance process.
Failure to comply with these new regulations will result in penal action, as per subsection (2) of Section 510 of the Companies Act, 2017. The SECP has emphasized that any person or entity that contravenes the rules will be liable for penalties, underscoring the importance of adherence to the new guidelines.
In conclusion, the SECP’s directive marks a significant step toward digitizing the corporate landscape in Pakistan. By mandating that shares of newly incorporated unlisted companies be issued only in book-entry form, the SECP is not only aligning with global best practices but also laying the groundwork for a more transparent and efficient financial ecosystem in the country. As the deadline approaches, unlisted companies must ensure they are fully compliant with the new regulations to avoid penalties and ensure smooth operations moving forward.