How to register a venture capital company in Pakistan?

As Pakistan’s startup ecosystem continues to flourish, the need for venture capital (VC) firms has grown exponentially. These firms provide much-needed equity funding to early-stage, high-growth businesses. To formalize and regulate venture capital activities, Pakistan has developed a legal and procedural framework under the supervision of the Securities and Exchange Commission of Pakistan (SECP). Venture capital companies operate either as Venture Capital Companies (VCCs) or Private Equity and Venture Capital (PE&VC) Funds under the NBFC Regulatory Framework. This article provides a complete, step-by-step guide to registering a venture capital company in Pakistan, including legal requirements, capital thresholds, documentation, licensing procedures, tax implications, and post-registration compliance.

Understanding the Regulatory Framework
Venture capital companies and funds in Pakistan are regulated under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003, the NBFC Regulations, 2008, and the Private Equity and Venture Capital Fund Regulations, 2008. These frameworks are governed by the SECP and outline the eligibility criteria, licensing requirements, operational guidelines, and investor protection rules. There are two main structures under which VC entities can be registered:

1. Venture Capital Company (VCC) – a specialized NBFC that pools funds to invest in startups and high-growth ventures.

2. Private Equity and Venture Capital Fund (PE&VC Fund) – a trust-based investment vehicle managed by an NBFC.

Step 1: Incorporate a Company with SECP
The first step in registering a venture capital company is to incorporate a legal entity with the SECP. This is done through the SECP eServices Portal.
Key actions include:

• Reserve a company name with suffix “(Private) Limited” or “(Limited)” depending on structure

• Choose company type: preferably Private Limited Company under the Companies Act, 2017

• Prepare and submit incorporation documents including Memorandum and Articles of Association (MoA & AoA)

• Provide details of directors, registered office, and share capital

• Pay incorporation fee and receive Certificate of Incorporation

For companies planning to register as an NBFC for venture capital activities, the principal line of business must reflect investment management, private equity, or venture capital funding.

Step 2: Meet Eligibility Criteria for NBFC License
To operate as a VCC or manage a PE&VC Fund, the company must be licensed as a Non-Banking Finance Company (NBFC) by SECP. The following conditions must be met:

• Minimum Equity Requirement: Rs. 50 million for a VCC or as prescribed for a fund management company

• Fit and Proper Criteria: Sponsors, directors, and key management personnel must meet the SECP’s “Fit and Proper” standards

• Corporate Governance: Board must include independent directors, audit committee, and compliance framework

• Business Plan: A detailed 3-5 year business plan demonstrating operational strategy, funding model, and risk management

Step 3: Submit License Application to SECP
Once the legal entity is in place, submit an application for NBFC license in the category of Private Equity and Venture Capital under Rule 5 of the NBFC Rules, 2003.
The application should include:

• Duly filled Form I (Application for NBFC License)

• Memorandum and Articles of Association showing relevant business objectives

• Certified copy of Certificate of Incorporation

• List of sponsors/directors with CNIC/passport copies and profiles

• Auditor’s certificate verifying paid-up capital

• Organizational chart showing governance structure

• Bank statement confirming paid-up capital

• Affidavits and declarations under the Fit and Proper Criteria

• Proposed internal policies on investments, compliance, client onboarding, and anti-money laundering
  After initial scrutiny, SECP may ask for clarifications or additional documents. Upon satisfaction, it will issue a Letter of Intent (LOI), which allows the applicant to fulfill remaining conditions for license issuance.

Step 4: Fulfill Conditions of the Letter of Intent (LOI)
Once the LOI is issued, the applicant is required to:

• Establish physical office premises suitable for operations

• Appoint qualified CEO, CFO, and Compliance Officer

• Implement IT infrastructure and documentation standards

• Open an operational bank account for the venture capital company

• Finalize agreements with custodians, legal advisors, and fund administrators (if applicable)

• Submit proof of readiness to commence business, including staffing, software, and investor onboarding processes
  After satisfactory verification, SECP grants a License to undertake Venture Capital Business as an NBFC.

Step 5: Register as a PE&VC Fund (if applicable)
If the venture capital activities are to be structured as a trust-based fund, the following steps are required:

• Form a Trust Deed between the VCC (or fund manager) and Trustee (usually a commercial bank)

• Register the trust deed with SECP under Regulation 5 of the PE&VC Fund Regulations, 2008

• Submit application for registration of the fund along with details of:

  • Fund’s name and category

  • Investment strategy

  • Target fund size and investor categories

  • Tenure and exit strategy

  • Risk management policies

• SECP reviews and grants Certificate of Registration for the PE&VC Fund

• Fund manager then raises capital from qualified investors and launches the fund

Step 6: Comply with Regulatory Filings and Approvals
Once registered, a venture capital company must comply with ongoing SECP regulations, including:

• Annual submission of audited financial statements

• Quarterly progress and investment reports

• Disclosures of portfolio companies and valuation metrics

• Investor communications and grievance redressal mechanisms

• Periodic review of Fit and Proper status of directors

• Notification of changes in control, shareholding, or key management

Step 7: Tax Registration and Compliance
Venture capital companies must register with:

• Federal Board of Revenue (FBR) for National Tax Number (NTN) and Income Tax

• Provincial Revenue Authorities for Sales Tax on Services, if applicable
  Income of the VC company from management fees, consulting, and success fees is taxable under the Income Tax Ordinance, 2001. However, capital gains on disposal of shares held for more than one year may be taxed at reduced rates, subject to applicable capital gains tax laws.
  PE&VC Funds structured as trusts may be eligible for pass-through taxation, whereby income is taxed in the hands of investors, not the fund.

Step 8: Open Bank Accounts and Set Up Investment Infrastructure
Post-licensing, the VC company must open operational and escrow bank accounts. Additionally, firms must:

• Deploy accounting and reporting software

• Implement Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures

• Develop Investment Committee and due diligence protocols

• Appoint external auditors and compliance professionals
  These measures ensure that investment processes are transparent, auditable, and compliant with SECP’s requirements.

Step 9: Fundraising and Capital Deployment
After all approvals are obtained, the VC firm can begin:

• Fundraising from accredited investors, family offices, DFIs, or government-backed platforms like Ignite or PSEB

• Screening startups and investment opportunities through a structured pipeline

• Executing investments via convertible notes, equity shares, or SAFEs (Simple Agreement for Future Equity)

• Monitoring portfolio companies and offering value-added services such as mentoring, board representation, or strategic introductions

• Planning exits through IPOs, mergers, acquisitions, or buybacks

Step 10: Maintain Annual Renewals and Compliance Reporting
Venture capital companies must submit the following to SECP annually:

• Renewal application with license fee

• Audited accounts by a QCR-rated chartered accountant

• Compliance certificate by the Compliance Officer

• Details of investments, exits, and NAV (Net Asset Value)

• Information on investor relations and complaints
  Non-compliance may lead to penalties, suspension of license, or cancellation.

Key Challenges and Regulatory Considerations
While registering a venture capital company in Pakistan is now more structured, certain challenges remain:

• Long turnaround times for license issuance due to due diligence and documentation review

• Ambiguity in taxation of carried interest or performance fees

• Complex registration of trust-based funds and custodial requirements

• Need for coordination between SECP, SBP, FBR, and provincial authorities

• Lack of standardization in startup valuations and reporting standards

Government Incentives and Ecosystem Support
To support venture capital activity, various government bodies have launched incentive programs:

• Ignite Fund (Ministry of IT) – co-investment grants for VC-backed tech startups

• Pakistan Software Export Board (PSEB) – tax benefits for IT-focused VCs

• Startup Pakistan Initiative – public-private partnership to scale incubation and VC funding

• Ease of Doing Business Reforms – digital registration, tax facilitation, and legal reforms to promote investment

Conclusion
Registering a venture capital company in Pakistan involves multiple steps, from company incorporation to licensing with SECP as an NBFC or fund manager. While the process is rigorous, it is designed to ensure transparency, investor protection, and proper governance. With growing opportunities in fintech, e-commerce, healthtech, agritech, and logistics, the need for venture capital is greater than ever. By following the regulatory framework, meeting the eligibility criteria, and adhering to tax and compliance laws, investors and entrepreneurs can successfully establish a licensed VC company. As the startup ecosystem in Pakistan continues to mature, regulated venture capital will play a pivotal role in fueling innovation, generating employment, and attracting foreign investment.