Abstract
The Companies Act, 2017 was enacted to modernise Pakistan’s corporate law, replace the Companies Ordinance, 1984, simplify incorporation, promote electronic filing, improve corporate governance, protect investors and facilitate the formalisation of business activity. The Act represents a significant legislative advance. It introduced single-member companies, simplified memorandum requirements, electronic service, video-link participation, inactive-company status, book-entry shares, mediation and conciliation, easier amalgamation of wholly owned subsidiaries and more structured corporate regulation.
However, after several years of operation, it is clear that the next stage of reform must move beyond incorporation simplification. Ease of doing business depends not only on how quickly a company may be registered, but also on how efficiently it may operate, raise capital, resolve disputes, restructure, exit, attract foreign investment and avoid unnecessary tax leakage. Pakistan’s company-law regime remains comparatively compliance-heavy for micro, small, private, family-owned, dormant and start-up companies. Company-bench jurisdiction in the High Courts has not delivered timely commercial justice in many matters because of delay, docket congestion, procedural complexity, lack of specialist financial infrastructure and prolonged liquidation proceedings. Further, foreign investors face uncertainty in withholding tax, treaty relief, foreign tax credit, indirect transfers, repatriation and double taxation.
This article argues that Pakistan’s Companies Act, 2017 should now be amended around three pillars: risk-based corporate regulation, SECP-level corporate ADR and tax certainty for domestic and cross-border investment. Drawing comparative lessons from the United Kingdom, Singapore, India, the United Arab Emirates and New Zealand, the article recommends amendments relating to micro and small-company classification, audit exemption, digital governance, start-up finance, shareholders’ agreements, decriminalisation of technical defaults, SECP procedural safeguards, fast-track mergers, easy exit, corporate mediation, expert determination, arbitration, foreign tax credit, treaty relief at source and tax-neutral restructuring. It concludes with a proposed draft legislative framework.
Keywords
Companies Act 2017; SECP; ease of doing business; company law reform; corporate ADR; mediation; arbitration; company bench; liquidation; small companies; audit exemption; start-ups; shareholders’ agreements; foreign investment; FBR; double taxation; tax treaties; Pakistan corporate law.
1. Introduction
Company law is one of the central instruments of economic development. It creates the legal personality through which capital is pooled, risk is allocated, management is structured, assets are held, employment is generated and investment is mobilised. A company is not merely a registration number. It is a legal technology for enterprise.
The traditional advantages of incorporation are well known: separate legal personality, limited liability, perpetual succession, transferability of interests, access to capital and continuity beyond the lives of individual members. These features explain why the company has been described as one of the most powerful legal inventions of modern commerce. At the same time, these same features create risk. Limited liability may shield irresponsible conduct; separation of ownership and control may permit abuse by directors; dispersed shareholding may weaken accountability; and complex corporate groups may conceal beneficial ownership, related-party transactions or tax avoidance.
The function of company law is therefore to strike a balance between facilitation and regulation. Too little regulation invites fraud, minority oppression, creditor prejudice and market abuse. Too much regulation discourages formalisation, raises transaction costs, deters investment and pushes businesses into informality.
Pakistan’s Companies Act, 2017 was enacted in this context. It replaced the Companies Ordinance, 1984 and attempted to modernise corporate law. The Act introduced several reforms designed to make doing business easier. These included simplified incorporation, single-member companies, simplified memorandum requirements, electronic filing, electronic service, video-link meetings, inactive-company status, book-entry shares, mediation and conciliation, and simplified amalgamation of wholly owned subsidiaries.¹
Yet the question now is not whether the Companies Act, 2017 was an improvement over the Companies Ordinance, 1984. It clearly was. The real question is whether it is sufficient for Pakistan’s present economic needs. The answer is no. Pakistan requires a second-generation corporate reform agenda.
That agenda must be based on the following proposition: the law should regulate according to risk, not merely according to legal form. A listed bank, a public-interest insurance company, a private family company, a one-person consultancy, a dormant asset-holding vehicle, an agricultural company, a professional services firm and a technology start-up do not create the same regulatory risk. They should not carry the same compliance burden.
This article therefore argues that the Companies Act, 2017 should be amended to create a more commercially intelligent corporate law regime. The reform should have three dimensions: first, corporate facilitation through simplified compliance for micro, small, private, dormant and start-up companies; secondly, corporate dispute resolution through SECP-level ADR as the first institutional forum for company disputes; and thirdly, tax certainty through FBR reforms to reduce double taxation, treaty uncertainty and tax friction in foreign and cross-border investment.
2. Historical Background and Purpose of the Companies Act, 2017
The Companies Ordinance, 1984 served Pakistan’s corporate sector for more than three decades. However, by the second decade of the twenty-first century, it had become increasingly clear that Pakistan required a modern corporate statute capable of addressing electronic filing, digital records, beneficial ownership, international financial reporting, corporate governance, cross-border investment, minority protection, regulatory enforcement and ease of doing business.
The Companies Act, 2017 was promulgated in that context. It was intended to make corporate law more responsive to contemporary commercial realities. Its stated policy orientation was facilitative as well as regulatory. The Act simplified registration and post-incorporation compliance in several respects. It introduced a simple memorandum structure based on principal line of business. It facilitated single-member companies. It allowed electronic service of documents. It recognised video-link participation. It introduced resolutions by circulation for certain unlisted companies. It provided for inactive companies. It simplified some amalgamation procedures. It introduced mediation and conciliation. It also expanded SECP’s powers in investigation, information gathering, enforcement and administration.²
These reforms were significant. They reflected the understanding that company law should not be a mere penal code for corporations; it should be an enabling framework for enterprise.
However, the Act also introduced a stricter regulatory environment. It enhanced SECP’s authority, increased disclosure requirements and created more extensive governance obligations. Such regulation may be justified for public-interest companies. It is less justified where applied with equal intensity to small private companies, family businesses or dormant companies. The next reform must therefore distinguish between entities requiring strong public oversight and entities requiring facilitation.
3. Achievements of the Companies Act, 2017
The Companies Act, 2017 deserves acknowledgment for several important reforms.
3.1 Simplified incorporation
The Act simplified the memorandum of association by focusing on the principal line of business. This reduced the artificial complexity of long object clauses and allowed businesses to incorporate more easily.
3.2 Single-member companies
The recognition of single-member companies was an important step in encouraging individual entrepreneurs to formalise their businesses while enjoying limited liability.
3.3 Electronic service and filing
The Act recognised electronic means for service of notices and documents on members, companies, the registrar and the Commission. It also reflected a policy shift towards e-filing and automation.
3.4 Video-link participation and electronic voting
The Act permitted participation in meetings through video link and recognised voting through electronic means. This was an important modernisation, especially for geographically dispersed shareholders.
3.5 Resolution by circulation
The Act allowed members of private companies and certain unlisted public companies to pass resolutions by circulation, reducing the need for formal meetings in appropriate cases.
3.6 Inactive company status
The concept of inactive company status provided flexibility for companies formed for future projects or asset-holding purposes.
3.7 Simplified amalgamation
The Act simplified amalgamation of wholly owned subsidiaries into holding companies and related intra-group arrangements.
3.8 Mediation and conciliation
The Act introduced the concept of a mediation and conciliation panel maintained by the Commission. This was a progressive step and should now be expanded into a full corporate ADR framework.
3.9 Beneficial ownership and transparency
The Act strengthened beneficial ownership reporting and global beneficial ownership information, reflecting contemporary anti-money laundering and tax transparency concerns.
3.10 Corporate governance
The Act improved governance requirements for public-interest companies, including independent directors, female representation and related-party transaction controls.
4. Why Further Reform Is Necessary
Despite these achievements, the Act has not fully delivered ease of doing business. The problem lies not only in the statute itself but also in the interaction of company law, court process, SECP administration and taxation.
4.1 Formal incorporation is not enough
A country cannot claim true ease of doing business merely because incorporation is faster. The real test is whether a company can open and operate bank accounts efficiently, obtain NTN and tax registration without duplication, comply with annual requirements at reasonable cost, raise capital flexibly, resolve internal disputes quickly, restructure without unnecessary court delay, wind up or exit without procedural paralysis, repatriate profits lawfully, avoid double taxation and obtain regulatory certainty.
Pakistan’s existing regime still falls short on many of these measures.
4.2 Small businesses remain overburdened
Pakistan’s economy contains a large informal sector. A modern Companies Act should encourage informal businesses to enter the documented economy. But if incorporation brings excessive filing obligations, professional costs, tax exposure, uncertain notices, penalties and litigation risk, many businesses will prefer to remain informal.
Small businesses require trust-based compliance with strong anti-fraud safeguards. They do not require the full compliance architecture of listed or public-interest companies.
4.3 Company disputes are commercially urgent
Company disputes are different from ordinary civil litigation. A delay in a property suit may be harmful, but a delay in a company dispute may destroy a going concern. A shareholder deadlock may stop operations. A valuation dispute may prevent exit. A director dispute may paralyse bank operations. A liquidation delay may destroy asset value. A minority oppression petition may become commercially meaningless if relief is granted after years.
Therefore, dispute resolution is central to ease of doing business.
4.4 Tax uncertainty discourages foreign investment
Foreign investors do not assess company law in isolation. They assess the full legal and fiscal environment. If Pakistan offers easy incorporation but uncertain withholding tax, slow refunds, unclear treaty relief, risk of double taxation and unpredictable tax treatment of indirect transfers, foreign investment will remain cautious.
Thus, Companies Act reform must be linked with FBR reform.
5. Comparative Lessons from Other Jurisdictions
5.1 United Kingdom
The United Kingdom’s company-law regime is built on differentiated compliance. The Companies Act, 2006 and Companies House framework recognise that micro, small, medium and large companies should not be treated identically. Small private companies may qualify for audit exemption if they meet prescribed criteria relating to turnover, assets and employees.³ Shareholder protection, creditor protection and transparency remain important, but the compliance burden is calibrated.
The UK model is useful for Pakistan because it demonstrates that ease of doing business is not achieved by abolishing regulation. It is achieved by aligning regulation with risk.
The UK also offers a useful example of transparent digital company administration through Companies House. However, recent UK reforms also show that digital facilitation must be accompanied by identity verification, anti-fraud controls and greater transparency. The lesson for Pakistan is therefore not deregulation, but proportionate and digitally reliable regulation.
Lesson for Pakistan: introduce clear micro, small and medium company categories, based on turnover, assets and employees, not merely paid-up capital.
5.2 Singapore
Singapore is one of the most relevant models for Pakistan. Its corporate law regime is strict but efficient. The small-company audit exemption is based on objective criteria: annual revenue, total assets and number of employees. A company must generally satisfy at least two of the prescribed criteria, and where it belongs to a group, the group must also satisfy the relevant thresholds.⁴
Singapore’s approach is commercially sensible. It recognises that paid-up capital alone is not an accurate measure of business size or regulatory risk.
Lesson for Pakistan: adopt a multi-factor test for audit exemption and compliance relief.
5.3 India
India’s Companies Act, 2013 is more compliance-heavy than the UK or Singapore models, but India has increasingly moved towards ease-of-doing-business reforms, including decriminalisation of procedural defaults, fast-track mergers and simplification of corporate actions. Recent Indian reform proposals indicate a continued shift towards flexible buy-backs, faster mergers and reduced procedural burden.⁵
Lesson for Pakistan: technical defaults should be treated through civil penalties and rectification, not criminalisation, unless there is fraud or dishonest intent.
5.4 United Arab Emirates
The UAE’s corporate law reforms reflect an investor-friendly approach, particularly in relation to ownership flexibility, commercial structuring and foreign investment. The UAE model demonstrates that company law can be used as a tool of economic competitiveness.⁶
Lesson for Pakistan: company law should facilitate foreign ownership, free-zone companies, special economic zones, holding structures, technology companies and export-oriented businesses.
5.5 New Zealand
New Zealand’s corporate registry is online-first, accessible and user-friendly. Its Companies Office model demonstrates the importance of a simple digital registry, integrated information and predictable compliance processes.⁷
Lesson for Pakistan: SECP should move towards a fully digital, mobile-friendly, API-enabled company registry integrated with FBR, banks, provincial labour departments and social security institutions.
6. Reform Principle: Risk-Based Corporate Regulation
Pakistan should introduce a statutory principle of proportional regulation. The Companies Act, 2017 should expressly provide that compliance obligations shall be interpreted and administered having regard to company size, turnover, assets, employee count, public-interest character, public funds exposure, regulatory sector, listed or unlisted status, group structure and risk of investor or creditor prejudice.
The central division should be between public-risk companies and private low-risk companies.
Public-risk companies include listed companies, public-interest companies, banks, insurance companies, securities intermediaries, public sector companies, companies holding public funds, companies with large public shareholding, companies receiving deposits and companies with systemic economic relevance.
Private low-risk companies include micro companies, small private companies, single-member companies, dormant companies, asset-holding companies, professional services companies, family companies and start-ups.
This distinction should become the organising philosophy of the Act.
7. Proposed Classification of Companies
Pakistan should insert a new classification regime in the Companies Act, 2017.
7.1 Micro companies
A micro company should be a private company satisfying at least two of the following conditions:
- turnover below a prescribed threshold;
- assets below a prescribed threshold;
- not more than 10 employees;
- no public funds;
- not part of a public-interest group.
Compliance treatment should include no mandatory audit, simplified financial statements, an annual digital confirmation statement, minimal filing, simplified strike-off, no mandatory company secretary and permission to maintain digital-only records.
7.2 Small companies
A small company should satisfy at least two of the following:
- turnover below a prescribed threshold;
- assets below a prescribed threshold;
- not more than 50 employees.
Compliance treatment should include audit exemption unless members, lenders or regulators require audit, simplified accounts, reduced filing fee, simplified board and member procedures and eligibility for fast-track merger and restructuring.
7.3 Medium companies
Medium companies should be subject to intermediate compliance, including reviewed financial statements or simplified audit depending on risk.
7.4 Public-interest companies
Public-interest companies should be subject to full audit, governance, disclosure, beneficial ownership, related-party transaction and board-composition requirements.
8. Audit Reform
Pakistan’s current reliance on paid-up capital thresholds is insufficient. Paid-up capital does not reliably reflect risk. A company may have small paid-up capital but large turnover. Another company may have substantial capital but no active business.
Audit exemptions should therefore be based on turnover, balance-sheet total, employee count, public-interest risk and group-level exposure.
A private company should be exempt from statutory audit if it satisfies at least two of the prescribed criteria. However, audit exemption should not apply where the company is listed, the company is a public-interest company, the company is a financial institution, the company is an insurance company, the company holds client money, the company receives public deposits, the company is a subsidiary of a public-interest company, members holding at least 10 per cent voting power demand audit, a lender requires audit or SECP orders audit for recorded reasons.
This would reduce compliance cost without compromising investor protection.
9. Digital Corporate Governance
The Companies Act, 2017 permits electronic service, video-link participation and electronic voting. However, the law requires more detail.
A new schedule should be inserted into the Act on Electronic Corporate Governance. It should define electronic service, deemed receipt, proof of delivery, approved file formats, digital signatures, video-link quorum, electronic voting authentication, recording of meetings, interruption of connectivity, audit trails, preservation of electronic records, cybersecurity and admissibility of digital corporate records.
This is essential because disputes over notice, quorum and voting can invalidate corporate decisions.
The law should provide that where a company uses an approved electronic system and maintains the prescribed audit trail, a notice, resolution, vote or meeting shall not be invalid merely because a member later denies receipt, unless actual prejudice or fraud is established.
10. Shareholders’ Agreements and Private Company Flexibility
Private companies frequently depend on shareholders’ agreements. These agreements regulate rights and obligations that may not fully appear in the articles. They often include reserved matters, pre-emption rights, drag-along rights, tag-along rights, put and call options, deadlock mechanisms, valuation formulas, board nomination rights, investor consent rights, founder vesting, anti-dilution protection, confidentiality, non-compete or non-solicitation provisions and arbitration clauses.
Pakistan’s Companies Act should expressly recognise shareholders’ agreements for private companies, provided they are not inconsistent with the Act, articles or public policy.
This is particularly important for family companies, joint ventures, private equity investment and start-ups.
11. Start-Up Company Reform
Pakistan needs a special chapter on start-up companies. Traditional company law is not adequate for venture capital and innovation enterprises.
The Act should recognise convertible notes, SAFE-type instruments, employee stock option plans, sweat equity, founder vesting, differential voting rights, preference shares, anti-dilution provisions, simplified private placement, simplified valuation rules, digital share registers, fast-track allotments and model start-up articles.
A start-up should not be forced to use outdated capital-raising tools. Pakistan must compete with Singapore, Dubai, Abu Dhabi, London and Delaware-style jurisdictions. If Pakistani start-ups cannot raise capital efficiently through Pakistani entities, they will continue to incorporate holding companies abroad.
12. Decriminalisation of Technical Defaults
Criminal law should be reserved for real misconduct. Late filing, clerical errors, defective forms, non-material omissions and procedural defaults should ordinarily attract civil penalties and rectification, not prosecution.
The Companies Act should distinguish between procedural defaults and serious misconduct.
Procedural defaults should include late filing, defective return, non-material omission, delay in notice, minor register defects and technical non-compliance.
Serious misconduct should include fraud, falsification of accounts, concealment of beneficial ownership, fraudulent trading, market manipulation, money laundering, deliberate obstruction of investigation, misappropriation of company assets and fraudulent related-party transactions.
This reform would improve business confidence without weakening enforcement.
13. SECP Powers and Procedural Safeguards
The Companies Act, 2017 expanded SECP’s powers. Such powers are necessary in a modern regulatory state, but they must be accompanied by due process.
The Act should expressly require written reasons for coercive action, prior notice unless urgency exists, opportunity of hearing, proportionality, protection of legal privilege, inventory of seized documents, time limit for retention of seized material, digital-copy protocol, right of representation and independent appeal.
SECP should regulate firmly, but fairly. Regulatory credibility depends not only on power, but on transparency, consistency and procedural justice.
14. Company Bench Jurisdiction: Why Reform Is Needed
The Companies Act, 2017 recognises company benches of the High Courts. The concept is sound. But in practice, High Court company jurisdiction has not become the fast commercial remedy that business requires.
There are several reasons.
First, High Courts are overburdened with constitutional, civil, criminal, banking, tax, service and urgent writ matters. Company petitions compete with an already congested docket.
Secondly, company disputes are often financially and commercially complex. They may involve valuation, accounting, beneficial ownership, oppression, mismanagement, solvency, liquidation accounts, related-party transactions and restructuring. These issues require specialised commercial expertise.
Thirdly, liquidation proceedings are especially slow. Once liquidation begins, assets often deteriorate, employees leave, records become disputed, creditors commence parallel proceedings and the company ceases to function as a going concern. Delay in liquidation often destroys value.
Fourthly, company litigation is often used strategically. Majority shareholders may delay proceedings to exhaust minority shareholders. Minority shareholders may use petitions to force settlement. Creditors may use winding-up petitions as debt-recovery devices. Directors may use procedural objections to paralyse corporate decision-making.
Fifthly, many corporate disputes do not require judicial determination at first instance. They require mediation, valuation, expert determination, early neutral evaluation or arbitration.
Therefore, Pakistan needs a tiered corporate dispute-resolution model.
15. SECP-Level Corporate ADR: The Necessary Reform
The Companies Act, 2017 already recognises mediation and conciliation. This framework should be expanded into a full SECP-level corporate ADR regime.
Pakistan should establish a Corporate Dispute Resolution Centre under SECP supervision but with operational independence. It should provide mediation, conciliation, expert determination, early neutral evaluation, arbitration, online dispute resolution, emergency interim recommendations and settlement recording and enforcement.
The following disputes should be referred to corporate ADR before company-bench litigation:
- shareholder deadlock;
- oppression and mismanagement disputes;
- transfer of shares;
- pre-emption rights;
- valuation disputes;
- dividend disputes;
- related-party transaction disputes;
- disputes between directors;
- disputes between members and management;
- family-company succession disputes;
- beneficial ownership disputes;
- start-up founder disputes;
- investor exit disputes;
- restructuring disagreements;
- creditor-company settlement disputes;
- inactive-company and strike-off disputes.
This reform would reduce court burden, preserve commercial value and provide faster business justice.
16. Mandatory Pre-Litigation Corporate Mediation
The Act should provide that certain company disputes shall not be filed before the Company Bench unless the applicant first obtains a Certificate of Non-Settlement from the SECP Corporate ADR Centre.
The mediation should be completed within 30 days ordinarily, extendable by another 30 days with consent.
Mandatory pre-litigation ADR should not apply where urgent injunction is required, assets are being dissipated, records are being destroyed, fraud is alleged with prima facie evidence, limitation is about to expire, public interest is involved, criminal conduct is involved or SECP itself is a party or regulator in the matter.
This balances business efficiency with access to justice.
17. Expert Determination in Company Disputes
Many company disputes are not legal disputes in the strict sense. They are valuation or accounting disputes.
Expert determination should be available for fair value of shares, buy-out price, pre-emption price, net asset value, solvency assessment, dividend computation, related-party pricing, transfer pricing within corporate groups, merger valuation, liquidation asset valuation and minority exit valuation.
The expert may be a chartered accountant, valuer, insolvency professional, investment banker, actuary or sector expert.
The parties may agree that expert determination is binding. Otherwise, the expert report may guide SECP or the Company Bench.
18. Arbitration of Corporate Disputes
Pakistan should expressly recognise arbitration clauses in shareholders’ agreements, joint venture agreements, articles of association, investment agreements, share subscription agreements, share purchase agreements and founder agreements.
However, arbitration should be subject to safeguards where third-party rights, public shareholders, creditors or statutory regulatory issues are involved.
Private-company disputes should be arbitrable unless they involve public interest, criminal misconduct, regulatory sanctions, winding up in rem, rights of non-consenting shareholders or statutory relief requiring court or SECP order.
A modern Companies Act should clarify corporate arbitrability rather than leave parties uncertain.
19. Independence and Conflict of Interest in SECP-Level ADR
A key concern is that SECP may itself be regulator, complainant, investigator or enforcement authority. In such cases, SECP-controlled dispute resolution may create perceived conflict of interest.
Therefore, private corporate disputes may be administered by the SECP Corporate ADR Centre, but regulatory disputes involving SECP must be referred to independent neutrals. Serving SECP officers should not act as mediators or arbitrators in matters involving SECP. Neutrals should disclose conflicts. Panels should include retired judges, senior corporate lawyers, chartered accountants, accredited mediators, arbitrators, valuers and insolvency experts. Parties should have a limited right to object to a neutral for conflict or lack of independence.
This would preserve confidence in the ADR process.
20. Enforcement of Corporate ADR Settlements
A mediated settlement should not remain merely a private understanding. It should be capable of being converted into an SECP-approved settlement order, a consent order of the Company Bench, an arbitral award on agreed terms, a registrable corporate instrument, an amendment to articles, a share transfer instrument or a restructuring plan.
Where a settlement affects shareholding, directorship, articles, capital structure, beneficial ownership or statutory registers, it should be filed with the registrar.
21. Fast-Track Mergers and Restructuring
Pakistan already permits simplified amalgamation of wholly owned subsidiaries in certain circumstances. This should be expanded.
Fast-track merger should be available for holding company and wholly owned subsidiary, sister companies under common ownership, small companies, start-up companies, dormant companies, intra-group restructuring, family-company restructuring, companies with no creditor objection and companies approved by high shareholder threshold.
The procedure should be digital, time-bound and based on creditor and shareholder protection rather than unnecessary court involvement.
22. Easy Exit and Dormant Companies
A business-friendly corporate regime must allow not only easy entry but easy exit.
A company with no liabilities, no assets requiring liquidation, no pending litigation, no tax dispute, no regulatory objection and no employee claims should be struck off through a simple online process.
Restoration should also be available where restoration is just, no third-party prejudice is caused, creditors or members require restoration, the company was struck off by mistake or assets are discovered later.
This will reduce dead companies on the register and encourage honest closure.
23. Unclaimed Dividends and Investor Funds
Unclaimed dividends should not be treated as a revenue source. They belong beneficially to shareholders or their successors.
The law should provide a separate trust-style account, online claimant portal, indefinite right of recovery, annual audit, public reporting, succession-linked claims, court-stay mechanism where ownership is disputed and prohibition against arbitrary transfer to general revenue.
Investor education is important, but it should not be funded in a manner that weakens proprietary rights.
24. Beneficial Ownership Reform
Beneficial ownership transparency is necessary for anti-money laundering, tax compliance and corporate accountability. But compliance must be practical.
Pakistan should introduce a digital beneficial ownership register, clear reporting thresholds, privacy safeguards, safe harbour for good-faith reporting, alignment with FATF expectations, integrated SECP-FBR reporting, separate treatment for listed companies, regulated entities and private companies, and penalties for wilful concealment rather than innocent error.
Beneficial ownership rules should detect abuse without frightening legitimate investors.
25. FBR and Tax Reform: Why Company Law Alone Is Insufficient
Ease of doing business cannot be achieved through company law alone. Taxation is equally important.
Foreign investors consider corporate tax rate, withholding tax on dividends, withholding tax on interest, tax on royalties, tax on technical services, offshore digital services taxation, permanent establishment risk, capital gains tax, indirect transfer taxation, foreign tax credit, treaty relief, repatriation of profits, advance tax, minimum tax, super tax and tax dispute resolution.
If tax law is uncertain, company-law reform loses much of its value.
Pakistan has a double-taxation treaty network and FBR provides resources on double taxation agreements, treaty withholding rates, mutual agreement procedure, advance rulings and international tax matters.⁸ But in practice, investors often face uncertainty, documentation burdens, delayed refunds and withholding at domestic rates even where treaty relief may ultimately be available.
26. Double Taxation in Foreign and Cross-Border Investment
Double taxation may arise in several ways.
26.1 Juridical double taxation
This occurs when the same taxpayer is taxed on the same income in two countries. For example, a Pakistani resident company may earn foreign income that is taxed abroad and then taxed again in Pakistan.
Foreign tax credit rules should prevent this, but the process must be clear, predictable and time-bound.
26.2 Economic double taxation
This occurs when corporate profits are taxed at the company level and then again as dividends in the hands of shareholders. In cross-border cases, dividends may suffer withholding tax in the source country and further tax in the residence country.
Pakistan should reduce economic double taxation for genuine investment, especially where dividends are paid to substantial corporate shareholders.
26.3 Withholding tax overreach
Withholding tax is a major source of uncertainty for foreign investors. Payments such as dividends, interest, royalties, technical services and digital services may be taxed at source. Where treaty relief applies, the investor should not be forced to suffer excess withholding and then seek refund.
Pakistan should move towards treaty relief at source.
26.4 Indirect transfer taxation
Pakistan taxes certain offshore transfers where the value is derived from Pakistani assets. This may be justified to prevent avoidance, but it should not penalise genuine group restructuring.
Safe harbours should be introduced for internal group restructuring, no change in ultimate beneficial ownership, listed foreign securities with small Pakistan exposure, low-value transactions, treaty-protected transfers, share-for-share reorganisations and mergers and demergers approved by competent authorities.
27. Proposed FBR Reforms
27.1 Treaty relief certificate
A non-resident investor should be able to obtain a digital treaty relief certificate by submitting a tax residence certificate, beneficial ownership declaration, no-permanent-establishment declaration where relevant, income details and the treaty article relied upon.
Once issued, the payer should withhold tax at treaty rate.
27.2 Automatic or time-bound foreign tax credit
Foreign tax credit should be allowed within a fixed period. If the Commissioner does not decide within the statutory period, provisional credit should be allowed subject to later verification.
27.3 Participation exemption
Pakistan should consider a participation exemption for dividends received by a Pakistani holding company from a foreign subsidiary where substantial shareholding exists, the foreign subsidiary is subject to tax abroad, the dividend is not deductible abroad and anti-abuse rules are satisfied.
This would encourage Pakistani groups to hold international investments through Pakistan.
27.4 Tax-neutral restructuring
Mergers, demergers, share swaps, intra-group transfers and start-up restructuring should be tax-neutral where ownership continuity exists and the principal purpose is not tax avoidance.
27.5 International tax advance ruling
A binding advance ruling should be available for treaty eligibility, permanent establishment, withholding tax, capital gains, indirect transfers, transfer pricing methodology, royalties, technical services, digital services and foreign tax credit.
27.6 International Tax ADR Panel
FBR should establish an International Tax ADR Panel for disputes involving treaty relief, withholding tax, permanent establishment, transfer pricing, foreign tax credit, indirect transfers, tax-neutral restructuring and repatriation of profits.
The panel should include tax experts, retired judges, chartered accountants, international tax specialists and accredited mediators.
28. Integration of SECP and FBR Systems
Pakistan should create a true one-window corporate and tax system.
Upon incorporation, a company should automatically receive a corporate registration number, NTN, withholding tax profile, sales tax registration where applicable, employer registration where applicable, beneficial ownership profile, digital tax dashboard, SECP compliance calendar and FBR compliance calendar.
No company should be required to submit the same information separately to SECP and FBR.
This integration would reduce compliance cost and improve documentation.
29. Proposed Draft Amendments to the Companies Act, 2017
29.1 Principle of proportional regulation
Proposed section:
The Act shall be administered in a manner that promotes formalisation of business, investor protection, creditor protection, beneficial ownership transparency, digital governance, efficient dispute resolution and proportionality of compliance, having regard to the size, nature, ownership structure, risk profile and public-interest character of a company.
29.2 Classification of companies
Proposed section:
The Commission may classify companies as micro companies, small companies, medium companies, large companies and public-interest companies on the basis of turnover, assets, number of employees, nature of business, public funds exposure, listed status, regulatory status and such other criteria as may be prescribed.
29.3 Audit exemption
Proposed section:
A micro company shall not be required to have its financial statements audited unless required by its articles, members holding not less than ten per cent voting power, a lender, a regulator or the Commission for reasons recorded in writing.
A small company shall be exempt from audit if it satisfies the prescribed criteria relating to turnover, assets and employees.
The exemption shall not apply to listed companies, public-interest companies, financial institutions, insurance companies, companies holding public money, companies receiving deposits, subsidiaries of public-interest companies, or such other companies as may be prescribed.
29.4 Annual confirmation statement
Proposed section:
Where there is no change in particulars previously filed with the registrar, a company may file an annual digital confirmation statement in lieu of a detailed annual return.
A micro company or small company shall not be required to file repetitive particulars where no change has occurred.
29.5 Electronic corporate governance
Proposed section:
Any notice, meeting, resolution, vote, register, return, certificate or corporate record maintained or transmitted through electronic means shall be valid if it satisfies the prescribed standards of identity verification, integrity, accessibility, retrievability, audit trail and cybersecurity.
29.6 Shareholders’ agreements
Proposed section:
A shareholders’ agreement relating to a private company shall be valid and enforceable between the parties, provided that it is not inconsistent with this Act, the memorandum, the articles or public policy.
A shareholders’ agreement may contain provisions relating to reserved matters, transfer restrictions, pre-emption rights, drag-along rights, tag-along rights, deadlock resolution, valuation, put and call options, founder vesting, investor consent rights and dispute resolution.
29.7 Start-up companies
Proposed section:
The Commission may prescribe criteria for recognition of a start-up company. A start-up company may, subject to prescribed safeguards, issue convertible notes, employee stock options, sweat equity, preference shares, differential voting rights and such other instruments as may be notified.
29.8 Corporate Dispute Resolution Centre
Proposed section:
The Commission shall establish or recognise a Corporate Dispute Resolution Centre for mediation, conciliation, expert determination, early neutral evaluation and arbitration of corporate disputes.
The Centre shall maintain panels of accredited mediators, conciliators, arbitrators, chartered accountants, cost and management accountants, valuers, insolvency professionals, governance experts and such other experts as may be prescribed.
29.9 Mandatory pre-litigation mediation
Proposed section:
No petition relating to a private-company shareholder dispute, valuation dispute, transfer dispute, deadlock, oppression or mismanagement shall be entertained by the Company Bench unless the applicant has first attempted mediation or obtained a certificate of non-settlement from the Corporate Dispute Resolution Centre.
This requirement shall not apply where urgent interim relief is required, fraud is alleged with prima facie material, assets are likely to be dissipated, records are likely to be destroyed, limitation is likely to expire, criminal conduct is involved or public interest requires immediate judicial intervention.
29.10 Expert determination
Proposed section:
Where a dispute involves valuation, accounting treatment, share price, financial adjustment, solvency, dividend computation, related-party pricing or restructuring feasibility, the Corporate Dispute Resolution Centre may refer the matter to expert determination.
29.11 Independence where SECP is involved
Proposed section:
Where the Commission, registrar or any authorised officer is a party, complainant, prosecutor or regulator in a dispute, the matter shall not be mediated or determined by any serving officer of the Commission.
Such matter shall be referred to an independent neutral selected from a notified panel.
29.12 Decriminalisation of procedural defaults
Proposed section:
A procedural default under this Act shall, unless accompanied by fraud, wilful concealment, falsification, market abuse, money laundering, obstruction, dishonest intent or prejudice to public interest, be punishable by civil penalty only.
29.13 Fast-track merger
Proposed section:
Fast-track merger, amalgamation, reconstruction or arrangement may be permitted for holding companies and wholly owned subsidiaries, sister companies, small companies, start-up companies, dormant companies, intra-group restructuring and such other classes as may be prescribed.
29.14 Easy exit
Proposed section:
A company having no liabilities, no assets requiring liquidation, no pending litigation, no tax dispute and no regulatory objection may apply for voluntary strike-off through an online process.
The registrar shall strike off the name of the company within the prescribed period unless objection is received.
30. Proposed Draft Amendments to FBR Laws
30.1 Treaty relief certificate
Proposed section in the Income Tax Ordinance, 2001:
A non-resident person entitled to relief under an agreement for avoidance of double taxation may apply electronically to the Commissioner for a treaty relief certificate.
The application shall be accompanied by a tax residence certificate, beneficial ownership declaration, income details, permanent establishment declaration where applicable and such other documents as may be prescribed.
The Commissioner shall decide the application within thirty days.
Where no decision is communicated within thirty days, provisional treaty relief shall apply, subject to subsequent verification.
A payer shall withhold tax at the treaty rate where a valid treaty relief certificate is produced.
30.2 Foreign tax credit
Proposed section:
A resident taxpayer shall be entitled to credit for foreign income tax paid on foreign-source income included in taxable income in Pakistan.
Foreign tax credit shall be allowed in the year in which the related income is taxed in Pakistan.
Excess foreign tax credit may be carried forward for five tax years, subject to prescribed limitations.
The Commissioner shall decide a foreign tax credit claim within sixty days.
30.3 Participation exemption
Proposed section:
Dividends received by a resident company from a foreign subsidiary shall be exempt from tax in Pakistan where the resident company holds not less than twenty-five per cent of voting power or share capital of the foreign subsidiary, the foreign subsidiary is subject to tax in its jurisdiction of residence, the dividend is not deductible in the jurisdiction of the paying company and prescribed anti-abuse conditions are satisfied.
30.4 Tax-neutral restructuring
Proposed section:
No gain or loss shall be recognised on transfer of assets, shares or business undertaking pursuant to a merger, amalgamation, demerger, share-for-share exchange or intra-group restructuring approved under the Companies Act, 2017, where continuity of ownership and business is maintained.
This relief shall not apply where the principal purpose of the transaction is tax avoidance.
30.5 Safe harbour for indirect transfers
Proposed amendment:
No tax shall be imposed on an indirect transfer outside Pakistan where the transfer is part of internal group restructuring and ultimate beneficial ownership remains unchanged, the value derived from Pakistan assets is below the prescribed threshold, the transfer relates to listed securities traded on a recognised foreign stock exchange and the seller does not hold a substantial interest, or the transfer is otherwise protected by an applicable treaty.
30.6 International tax advance ruling
Proposed section:
A non-resident investor, foreign company, Pakistani company receiving foreign investment or Pakistani company investing abroad may apply for an advance ruling on permanent establishment, treaty eligibility, beneficial ownership, withholding tax, capital gains, indirect transfers, royalty characterisation, technical services, digital services, transfer pricing or foreign tax credit.
The ruling shall be issued within ninety days and shall be binding unless obtained by fraud, misrepresentation or concealment.
30.7 International Tax ADR Panel
Proposed section:
The Board shall establish an International Tax Alternative Dispute Resolution Panel consisting of tax experts, retired judges, chartered accountants, international tax specialists and accredited mediators.
The Panel may resolve disputes relating to treaty relief, withholding tax, permanent establishment, transfer pricing, foreign tax credit, indirect transfers, repatriation of profits and tax treatment of mergers and restructuring.
31. Policy Recommendations
The following reforms are recommended:
- Introduce micro, small and medium company categories.
- Replace paid-up capital thresholds with turnover, assets and employee-count criteria.
- Expand audit exemption for private companies.
- Permit annual digital confirmation where no change has occurred.
- Insert a statutory schedule on electronic corporate governance.
- Recognise shareholders’ agreements.
- Introduce start-up company provisions.
- Permit modern instruments such as convertible notes and employee stock options.
- Decriminalise procedural defaults.
- Strengthen SECP procedural safeguards.
- Establish SECP-level Corporate Dispute Resolution Centre.
- Require pre-litigation mediation in private-company disputes.
- Introduce expert determination for valuation and accounting disputes.
- Recognise corporate arbitration.
- Create independence safeguards where SECP is involved.
- Expand fast-track mergers.
- Simplify voluntary strike-off and restoration.
- Reform unclaimed dividend rules.
- Create digital beneficial ownership register with safeguards.
- Integrate SECP and FBR systems.
- Introduce treaty relief certificate.
- Reform foreign tax credit.
- Provide participation exemption for foreign dividends.
- Permit tax-neutral restructuring.
- Create safe harbours for indirect transfers.
- Establish international tax advance rulings.
- Create FBR International Tax ADR Panel.
32. Conclusion
The Companies Act, 2017 was an important legislative reform, but Pakistan now requires a more ambitious second-generation company-law agenda. The country’s economic challenge is not merely to regulate existing companies. It is to encourage informal businesses to formalise, support start-ups, attract foreign capital, protect investors, reduce court delay, enable corporate restructuring and create confidence in lawful repatriation and taxation.
The central weakness of the present regime is that it still relies too heavily on formal compliance and court-based dispute resolution. A modern economy requires faster, more specialised and more commercially responsive systems.
Company-bench jurisdiction in the High Courts has not become the efficient business remedy originally expected. Delay, docket congestion, lack of financial specialisation and prolonged liquidation proceedings have weakened its practical value. Corporate disputes require speed. They require mediation, expert determination, valuation, restructuring expertise and enforceable settlements. SECP-level ADR should therefore become the first institutional forum for most private-company disputes.
Similarly, company-law reform will remain incomplete unless tax law is modernised. Foreign investors require certainty on withholding tax, treaty relief, foreign tax credit, indirect transfers, permanent establishment, capital gains and repatriation. Pakistan should move from refund-based treaty relief to relief at source, from uncertainty to advance rulings, and from adversarial tax disputes to international tax ADR.
The future of Pakistani company law should rest on three pillars: risk-based regulation, corporate ADR and tax certainty. Regulation should be strict for public-interest companies and simple for small private enterprise. Corporate disputes should be resolved through fast, expert, SECP-level mechanisms before court litigation. Tax rules should be clear, treaty-compliant and investment-friendly.
The objective is not deregulation. The objective is intelligent regulation. Pakistan needs a company law that protects investors without suffocating enterprise; enforces compliance without criminalising honest error; facilitates investment without enabling abuse; and resolves disputes before commercial value is destroyed.
If the Companies Act, 2017 is amended along these lines, it can become not merely a regulatory statute, but a genuine engine of economic formalisation, corporate confidence and investment-led growth.
Footnotes
- Companies Act 2017; see also Securities and Exchange Commission of Pakistan, Companies Act 2017 and related statutory materials; see further Mian Zafar Iqbal Kalanauri, ‘The Companies Act, 2017 Will Make Doing Business in Pakistan Easier’ unpublished article on file with author.
- Companies Act 2017, provisions relating to incorporation, electronic filing, service of documents, meetings, inactive companies, amalgamation, mediation and conciliation.
- Companies Act 2006 (UK); Companies House, ‘Audit Exemptions for Private Limited Companies’ and related guidance on small and micro-entity accounts.
- Companies Act 1967 (Singapore); Accounting and Corporate Regulatory Authority, ‘Audit Exemptions’ guidance.
- Companies Act 2013 (India); Ministry of Corporate Affairs materials; Corporate Laws Amendment proposals reported in 2026 concerning buy-backs, fast-track mergers and procedural decriminalisation.
- Federal Decree-Law No 32 of 2021 on Commercial Companies (United Arab Emirates).
- Companies Act 1993 (New Zealand); New Zealand Companies Office, Companies Register and online filing framework.
- Income Tax Ordinance 2001; Federal Board of Revenue, ‘Double Taxation Agreements’, ‘Treaty Withholding Rates’, ‘Mutual Agreement Procedure’ and international tax resources.
- Salomon v A Salomon & Co Ltd [1897] AC 22.
- Foss v Harbottle (1843) 2 Hare 461.
- Ebrahimi v Westbourne Galleries Ltd [1973] AC 360.
- Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426.
- Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656.
- Bushell v Faith [1970] AC 1099.
- Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821.
- Prest v Petrodel Resources Ltd [2013] UKSC 34.
- DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852.
- Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] Ch 258.
- Hub Power Company Ltd v WAPDA PLD 2000 SC 841.
- Arbitration Act 1940.
- Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act 2011.
- Electronic Transactions Ordinance 2002.
- Qanun-e-Shahadat Order 1984.
- Securities and Exchange Commission of Pakistan Act 1997.
- Income Tax Rules 2002.
- OECD, Model Tax Convention on Income and on Capital.
- OECD, Base Erosion and Profit Shifting Project materials.
- UNCITRAL Model Law on International Commercial Arbitration 1985, as amended in 2006.
- United Nations Convention on International Settlement Agreements Resulting from Mediation 2018.
- UNCITRAL Legislative Guide on Insolvency Law.
Bibliography
Primary Sources
Companies Act 2017.
Companies Ordinance 1984.
Securities and Exchange Commission of Pakistan Act 1997.
Income Tax Ordinance 2001.
Income Tax Rules 2002.
Electronic Transactions Ordinance 2002.
Qanun-e-Shahadat Order 1984.
Arbitration Act 1940.
Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act 2011.
Companies Act 2006 (United Kingdom).
Companies Act 1967 (Singapore).
Companies Act 2013 (India).
Federal Decree-Law No 32 of 2021 on Commercial Companies (United Arab Emirates).
Companies Act 1993 (New Zealand).
Cases
Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656.
Bushell v Faith [1970] AC 1099.
DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852.
Ebrahimi v Westbourne Galleries Ltd [1973] AC 360.
Foss v Harbottle (1843) 2 Hare 461.
Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821.
Hub Power Company Ltd v WAPDA PLD 2000 SC 841.
Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] Ch 258.
Prest v Petrodel Resources Ltd [2013] UKSC 34.
Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426.
Salomon v A Salomon & Co Ltd [1897] AC 22.
Secondary and Institutional Sources
Accounting and Corporate Regulatory Authority Singapore, guidance on audit exemptions and small-company compliance.
Companies House, United Kingdom, guidance on audit exemptions, small companies and micro-entities.
Federal Board of Revenue, Double Taxation Agreements and International Tax Resources.
Federal Board of Revenue, Treaty Withholding Rates.
Federal Board of Revenue, Mutual Agreement Procedure guidance.
New Zealand Companies Office, Companies Register and online filing resources.
OECD, Model Tax Convention on Income and on Capital.
OECD, Base Erosion and Profit Shifting Project materials.
Securities and Exchange Commission of Pakistan, Companies Act 2017, regulations, circulars and statutory guidance.
UNCITRAL, Model Law on International Commercial Arbitration.
UNCITRAL, Legislative Guide on Insolvency Law.
UNCITRAL, United Nations Convention on International Settlement Agreements Resulting from Mediation 2018.