Form 16 SECP: Notice to Members for Providing Ultimate Beneficial Owner (UBO) Information in Pakistan

In an era of heightened global scrutiny over financial transparency, Pakistan is taking robust steps to combat money laundering and terrorism financing. A key instrument in this endeavor is Form 16 – Notice to Members for Providing Particulars of Ultimate Beneficial Owners (UBOs). This official notice, though not filed with the Securities and Exchange Commission of Pakistan (SECP) directly, is a crucial internal compliance measure mandated for companies to identify the natural persons who ultimately own or control them.

What is Form 16?

Form 16 is a statutory notice issued by a company to its own members (shareholders), formally requesting them to disclose comprehensive particulars of their Ultimate Beneficial Ownership (UBO). This requirement is integral to Pakistan’s commitment to international anti-money laundering (AML) and counter-terrorism financing (CTF) efforts, aimed at fostering greater corporate transparency.

It’s important to clarify that Form 16 is an internal communication from the company to its shareholders, not a document submitted to the SECP. Its purpose is to gather the necessary data from shareholders, which the company then records in its internal Register of Ultimate Beneficial Owners (Form 17), a document that is subsequently filed with the SECP.

Legal Basis for Form 16

The mandate for companies to issue Form 16 is firmly established within Pakistan’s corporate law framework, reflecting the country’s adherence to international standards for combating financial crimes.

Form 16 is governed by:

• Section 123A of the Companies Act, 2017: This pivotal section introduces the specific requirement for companies to identify and maintain a register of their ultimate beneficial owners. It provides the legal authority for companies to demand UBO information from their members.
• Regulation 19(1) of the Companies (General Provisions and Forms) Regulations, 2018: These regulations provide the detailed format and procedural aspects for issuing Form 16, ensuring consistency and clarity in the information sought.
• Pakistan’s commitment to the FATF recommendations on transparency of legal persons: The Financial Action Task Force (FATF) is an intergovernmental organization that sets international standards to prevent money laundering and terrorist financing. Pakistan’s implementation of these recommendations, particularly those related to beneficial ownership transparency, directly translates into requirements like Form 16.

Who is an Ultimate Beneficial Owner (UBO)?

Understanding the concept of a UBO is central to Form 16. An Ultimate Beneficial Owner (UBO) is defined as the natural person who ultimately owns or controls a company, either directly or indirectly, and through whom a transaction is being conducted. Identifying the UBO helps to peel back layers of complex corporate structures to reveal the real individual behind them.

A UBO typically meets one or more of the following criteria:

• Ownership of Shares: Directly or indirectly holding a significant percentage of the company’s shares. While the threshold can vary by jurisdiction, a common benchmark is more than 25% ownership.
• Voting Rights: Holding a significant proportion of the voting rights in the company.
• Significant Influence or Control: Exercising significant influence or control over the company, even without formal share ownership or voting rights. This could be through contractual arrangements, familial ties, or de facto control.

Purpose of Issuing Form 16

The issuance of Form 16 serves several critical objectives for both the company and the regulatory environment:

• Gather Accurate UBO Information: The primary purpose is to systematically collect precise and verifiable information from shareholders/members about their respective UBOs.
• Maintain Internal UBO Register (Form 17): The data gathered through Form 16 is essential for the company to accurately populate and maintain its internal Register of Ultimate Beneficial Owners (Form 17), which is a mandatory record.
• Ensure SECP Compliance with AML/CTF Regulations: By facilitating the collection of UBO data, Form 16 helps companies meet their obligations under the Companies Act, 2017, and broader anti-money laundering and counter-terrorism financing regulations overseen by the SECP.
• Identify Natural Persons Behind Legal Entities: It provides a mechanism to identify and document the actual natural persons who stand behind legal entities, dissolving layers of corporate anonymity that could otherwise be exploited for illicit purposes.

When is Form 16 Issued?

The issuance of Form 16 is not a one-off event but can be triggered at various points in a company’s lifecycle or due to specific events:

• At the Incorporation of a Company: While the initial subscriber/member details are known, the company may issue Form 16 to confirm the ultimate beneficial ownership from the outset, especially if the initial members are corporate entities.
• On Any Change in Shareholding or Control: Whenever there is a transfer of shares, a new issuance of shares, or any other event that leads to a change in the company’s shareholding or control structure, Form 16 should be issued to the affected members.
• On a Periodic Basis: Companies may choose to issue Form 16 periodically (e.g., annually or biennially) as part of their ongoing compliance framework, to ensure the UBO register remains current and accurate.
• When the SECP Directs: The SECP may, at any time, direct a company to update its UBO register, which would necessitate the re-issuance of Form 16 to relevant members.

Key Contents of Form 16

To effectively gather the required information, Form 16 is structured to include specific details and requests. Typically, Form 16 will contain:

• Company Name and Registration Number: Clear identification of the issuing company.
• Date of Notice: The date on which the notice is issued to the member.
• Details of the Legal Provision: A reference to Section 123A of the Companies Act, 2017, which mandates the notice and the provision of UBO information.
• Request for UBO Information: A clear and precise request for the following particulars of the Ultimate Beneficial Owner:
  • Full name of the UBO
  • CNIC (Computerized National Identity Card) number or Passport number (for foreign nationals)
  • Nationality
  • Percentage of ownership/control held by the UBO
  • Nature of ownership/control (e.g., direct, indirect through a trust, through another company)
  • Residential address
• Deadline for Information: A specified timeframe within which the member must provide the requested information. This is typically 14 days from the date of the notice.
• Statement on Non-Compliance Consequences: A clear warning about the potential consequences of failing to provide the required information, as stipulated under the Companies Act, 2017.
• Signature of Company Secretary/Authorized Officer: The official signature of the company secretary or another duly authorized officer, authenticating the notice.

What Happens After Form 16 is Issued?

The process initiated by Form 16 does not end with its dispatch. It triggers further actions and responsibilities for the company:

• UBO Register Update (Form 17): Once members respond to Form 16 and provide the requested UBO data, the company must then use this information to update its Register of Ultimate Beneficial Owners (Form 17). This internal register is then the basis for any subsequent filing with the SECP regarding UBOs.
• Consequences of Member Non-Response: If a member fails to provide the required UBO information within the stipulated deadline, the company has recourse:
  • Reporting to SECP: The company may be obligated to report the non-compliance of the member to the SECP.
  • Restriction of Share Rights: The company may impose restrictions on the rights attached to the shares held by the non-compliant member. This could include, but is not limited to, restrictions on:
    • Voting rights: The member may be prevented from exercising voting rights at general meetings.
    • Dividend distribution: Dividends attributable to those shares may be withheld or placed in a separate account until compliance.
    • Transfer of shares: The ability to transfer or sell the shares may be restricted.

Format & Delivery of Form 16

To ensure legal validity and proper record-keeping, the format and delivery of Form 16 are important:

• In Writing: Form 16 must be issued in written form. This can be via email, courier service, or hand delivery.
• Documented Service: The company should ensure that the service of the notice is properly documented. This includes keeping records of dispatch (e.g., courier receipts, email delivery confirmations, acknowledgment of receipt for hand delivery).
• Standard Format: Ideally, companies should draft Form 16 using the standard format provided in the SECP’s Companies (General Provisions and Forms) Regulations, 2018, to ensure all necessary particulars are requested.

Consequences of Non-Compliance

Non-compliance with the UBO transparency requirements, whether by the company or its members, carries significant penalties:

• If a Member Fails to Respond:
  • The company may impose restrictions on the shares as outlined above.
  • The non-compliant member may also face penalties under the Companies Act, 2017.
• If the Company Fails to Comply (e.g., by not issuing Form 16 or not maintaining UBO register):
  • The SECP may initiate investigation or enforcement action against the company and its directors.
  • The company may face monetary penalties for not maintaining a proper UBO register or for failing to take steps to identify its UBOs.
  • This non-compliance could also impact the company’s reputation and its ability to conduct certain transactions.

Frequently Asked Questions (FAQs) – Form 16

Q1: Is Form 16 filed with SECP? A: No. Form 16 is an internal notice issued by the company to its shareholders. It is not directly filed with the SECP. The information gathered through Form 16 is then used to populate Form 17 (Register of Ultimate Beneficial Owners), which is a document submitted to the SECP.

Q2: What is the next step after collecting UBO data via Form 16? A: Once the company collects the UBO data from its members using Form 16, it must then record this information in its internal Form 17 (Register of Ultimate Beneficial Owners). This register needs to be maintained by the company. Depending on SECP requirements, summaries or certified copies of Form 17 might be required for submission.

Q3: Can companies ignore this notice process? A: Absolutely not. Issuing Form 16 and maintaining UBO records is a legal requirement under Section 123A of the Companies Act, 2017. Non-compliance by the company attracts significant penalties and regulatory action from the SECP.

Q4: Do single-member companies need to issue Form 16? A: In a single-member company (SMC), the UBO is typically the sole member. While the UBO is clearly identifiable, the company still has a statutory obligation to maintain proper documentation confirming the UBO, even if a formal Form 16 to oneself seems redundant. Best practice suggests documenting the UBO information directly into the Form 17 register, acknowledging the legal requirements, even if a direct “notice” isn’t strictly necessary.

By diligently implementing the process surrounding Form 16, companies in Pakistan contribute significantly to the national and international efforts to enhance corporate transparency and combat financial crime, ensuring a more robust and accountable corporate sector.