The Securities and Exchange Commission of Pakistan has published the draft Venture Capital Bill, 2026 for public consultation, proposing a dedicated statutory framework for venture capital funds and the companies that manage them.
The Securities and Exchange Commission of Pakistan (SECP) has placed the draft Venture Capital Bill, 2026 in the public domain and invited stakeholder comments before it is finalised and notified as the Venture Capital Act, 2026. RIAA Barker Gillette submitted its comments to the Commission on 9 September 2026. They were offered in support of the Bill, directed at a single question: what would prevent an institutional or foreign investor, or a domestic fund manager with a credible track record, from choosing to operate under the Act rather than around it.
Background
Venture capital is presently regulated as a form of non-banking finance business. It falls under Part VIII-A of the Companies Ordinance, 1984, the only Part of that Ordinance preserved when the remainder was repealed by the Companies Act, 2017, and under the rules made thereunder. The licensing category is shared with leasing and housing finance. The Venture Capital Bill would replace that arrangement with a dedicated primary statute, a purpose-built licence for a venture capital fund management company, separate registration of the fund, and express recognition of follow-on investment and of investment by one registered fund into another.
Issues raised in our comments
Ring-fencing of fund assets: The Bill requires the fund management company to segregate the assets of the fund from its own, and a breach of that obligation attracts a penalty. It does not provide that the assets of the fund are unavailable to the creditors of the fund management company, nor does it address the position of the fund if the fund management company becomes insolvent. Under the NBFC and REIT frameworks, the separation of scheme property is proprietary rather than contractual.
Definition of a venture capital fund: The definition requires that unit holders have no control over the management of the fund and no right to give directions in respect of that management. Institutional limited partners commonly require protective rights, including representation on an advisory committee, consent rights over conflicts of interest and valuation policy, and rights of removal of the manager. A fund established on those terms may fall outside the definition, and therefore outside the licensing requirement altogether.
Offshore holding structures: The Bill defines a startup company by reference to the Companies Act, 2017, which points to a company incorporated in Pakistan. A substantial proportion of venture-backed Pakistani businesses are held through a holding company incorporated in Delaware, the Cayman Islands, Singapore or the Abu Dhabi Global Market, with a Pakistani operating subsidiary beneath it, because that is where preference shares, convertible instruments and option pools are issued and enforced. A registered fund unable to subscribe at the holding-company level could not participate in the rounds through which Pakistani start-ups are in fact funded. An investment of that kind is also an outward remittance governed by the Foreign Exchange Regulation Act, 1947 and the State Bank of Pakistan’s Foreign Exchange Manual, neither of which presently addresses a registered venture capital fund.
Tax treatment: The exemption presently available to a venture capital fund is conditioned on the distribution of ninety per cent of accounting income in each tax year. That condition is drawn from the REIT regime. A venture capital fund draws down committed capital in tranches, acquires minority holdings in unlisted companies that do not pay dividends, and realises its return on exit, conventionally seven to ten years after first investment.
Implications and Next Steps
The tax treatment and the exchange-control position cannot be settled by the Commission acting alone. The first requires the agreement of the Federal Board of Revenue, and the second that of the State Bank of Pakistan. In the case of REITs, the regulatory framework and the fiscal treatment were developed in parallel, and the same approach is available here.
“The architecture of the Bill is sound, and it gives venture capital a statutory identity it has not previously had in Pakistan,” said Shahmeer Naveed Arshad, Partner at RIAA Barker Gillette. “Its uptake will depend on whether the fiscal and exchange-control frameworks are settled alongside the Act rather than left to follow it.”
Looking Ahead
Consultation on the Venture Capital Bill is continuing, and the SECP has begun convening stakeholders on the legal and regulatory framework for private equity and venture capital. In the coming months, we anticipate that the fiscal and exchange-control measures accompanying the Bill will do much to determine the level of participation in the regime in its early years.
For more information on the Venture Capital Bill, 2026, contact Bilal Shaukat, Managing Partner – Pakistan, or Shahmeer Naveed Arshad, Partner.
This article is not legal advice; it provides information of general interest about current legal issues.
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RIAA Barker Gillette is Pakistan’s premier law firm, with an on-the-ground presence in three major cities in Pakistan: Karachi, Islamabad and Lahore, and affiliated offices in Dubai (DIFC) and London.
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