New Law Proposes up to Rs. 100 Million Fine on Unlicensed Businesses

Notably, the newly proposed Venture Capital Act, 2026 imposes a fine of up to Rs.

Key points

• The newly proposed Venture Capital Act, 2026 imposes a fine of up to Rs.
• 200, 000, with the SECP required to decide a complete application within 45 working days.
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Notably, the newly proposed Venture Capital Act, 2026 imposes a fine of up to Rs. 100 million, along with imprisonment of up to three years, on businesses that conduct venture capital activities without the required license or registration.

Meanwhile, the draft law is at present under consultation with the Board of Investment (BOI) and other stakeholders and seeks to establish a formal regulatory framework for venture capital funds, fund managers and investment in startups and other high-growth businesses.

It additionally proposes a formal definition of a startup, covering businesses that have existed for no more than 10 years and have not recorded annual turnover above Rs. 500 million in any financial year since incorporation, provided they meet the proposed innovation, scalability or employment and wealth-creation criteria. SECP Proposes Simplified Venture Capital Framework to Boost Startup Investment.

Notably, the proposed law defines eligible venture capital investments to include startups and unlisted early-stage or high-growth businesses, particularly those developing technology, products, processes or services.

Funds could additionally produce follow-on investments in existing portfolio firms for up to 10 years from the initial investment and invest in units of other registered venture capital funds. What Qualifies As a Startup?

Under the draft, a startup would generally be a firm that has been in existence for no more than 10 years, has not recorded annual turnover above Rs. 500 million in any financial year since incorporation, and is engaged in innovation, product, process or service development or has a scalable business model with significant employment or wealth-creation potential. Firms formed by splitting or reconstructing an existing business would not qualify.

Notably, the framework would establish a two-tier system under which venture capital fund management firms would require licenses while individual venture capital funds would require separate registration.

Venture capital business could not be conducted without a license, with public and private limited firms and limited liability partnerships eligible to apply subject to prescribed requirements.

In practice, a fund management firm would require minimum equity or capital of Rs. 15 million. While at least one director or designated partner would need relevant venture capital experience, applications would include details of promoters, directors, majority shareholders, the CEO and compliance officer.

Meanwhile, the proposed license application fee is Rs. 200, 000, with the SECP required to decide a complete application within 45 working days.

Existing private fund management firms already conducting private equity or venture capital activities could be deemed licensed subject to confirmation, but would have to segregate their existing and venture capital activities. Pakistan Moves to Welcome Global Satellite Internet Firms.

Licensed managers could establish, launch, manage and administer venture capital funds, manage investments and provide ancillary advisory services.

They would have to act in investors' interests, follow the fund's stated investment objectives, keep fund assets separate from their own, maintain proper accounts, operate risk-management systems, monitor performance, manage conflicts of interest and provide information to investors and the regulator. They could solicit subscriptions only from eligible investors and through a placement memorandum. How Funds and Investors Would be Regulated?

Each venture capital fund would have to be separately registered through its management firm. The registration application would cover its legal structure, target size, investment objectives, sectors, proposed life, placement memorandum, investor commitments and arrangements for protecting unit holders. Shariah-compliant funds would additionally submit their Shariah structure, opinion and screening criteria.

Meanwhile, a registered fund would operate separately from its management firm and could only be offered to eligible investors through a placement memorandum. It could additionally invest in another registered venture capital fund, provided the underlying funds and further fees were disclosed.

Investors would have a say in major changes. Managers would have to notify investors and the SECP seven days before material changes involving investment strategy, key management, fund life or legal structure. Changes to the placement memorandum would require approval from at least 51% of unit holders by value.

Individual Pakistani or foreign investors would need annual income of at least Rs. 5 million and net assets of at least Rs. 15 million, excluding their personal residence, and would have to acknowledge that they understand venture capital risks.

Eligible institutional investors would include financial institutions, firms, insurers, securities brokers, collective investment schemes, voluntary pension funds, foreign businesses and other SECP-approved entities. The placement memorandum would be required to disclose. Powers, Penalties and Compliance.

For context, the SECP would have broad powers to obtain information from funds, managers, promoters, directors and key executives where required for regulatory purposes or where it suspects a breach. It could suspend or cancel licenses or registrations for fraud, financial misconduct, investor deception or, subject to the stated exceptions, where an active fund has not been managed for two financial years. Managers would have to be given an opportunity of a hearing before such action.

While the SECP could impose conditions to protect investors or the public interest, voluntary cancellation of a fund would require approval from at least 75 percent of unit holders by value. Mughal Steel Joins Consortium to Bid for GEPCO Privatization.

In practice, the draft proposes fines of up to Rs. 50 million for violations including breaches of the law or regulatory directions, failure to provide information, false or misleading disclosures, misappropriation of assets, undisclosed material conflicts and material breaches of investment restrictions. The SECP could additionally order reimbursement of profits gained or losses avoided and recovery of investigation costs.

Operating a venture capital business without the required license or registration would carry a fine of up to Rs. 100 million, imprisonment of up to three years, or both. Existing unlicensed activities covered by the proposed law would receive 12 months after its commencement to obtain approval.

Those failing to do so would be barred from accepting new investments and would have to wind down within 30 days after the transition period.

Meanwhile, the framework would additionally require audited financial statements and detailed fund reporting covering portfolio composition and valuation, expenses and expense ratios, benefits received and overall performance.

For context, the SECP could order special audits and matter directions to protect investors or prevent material harm and systemic risk. Fund managers and funds would additionally have to comply with applicable AML, CFT and KYC requirements.

For context, the proposed license fee for a fund management firm is Rs. While fund registration would additionally cost Rs, 200, 000. 200, 000. Voluntary cancellation would cost Rs. 100, 000. Annual monitoring fees would range from Rs. 100, 000 or 0.02 percent of net assets for funds with assets up to Rs. 1 billion to Rs. 500, 000 for funds with assets above Rs. 5 billion. SECP Proposes Simplified Venture Capital Framework to Boost Startup Investment.

Meanwhile, the draft makes clear that SECP registration or approval would not constitute an endorsement of a fund manager's competence or a fund's investment performance.

It would additionally allow the SECP and federal administration to develop further regulations and rules. It would have to be published for public comments for at least 14 days. The SECP could amend the schedules to the Act through notification.

Meanwhile, the legislation remains a draft and is at present being taken through consultation with the BOI and other stakeholders. Stay Connected with ProPakistani.

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In short, new Law Proposes up to Rs. 100 Million Fine on Unlicensed Businesses is the central thread here, and readers can expect follow-up reporting as the picture becomes clearer.