Pakistan has proposed a new regulatory framework for venture capital businesses, with the draft Venture Capital Act, 2026 proposing fines of up to Rs. 100 million and imprisonment of up to three years for businesses operating without the required license or registration.
The draft legislation is currently under consultation with the Board of Investment (BOI) and other stakeholders. It aims to establish a formal regulatory framework for venture capital funds, fund managers and investments in startups and other high-growth businesses.
Under the proposed law, a startup would generally be a company that has existed for no more than 10 years and has not recorded annual turnover exceeding Rs. 500 million in any financial year since incorporation.
The company would also need to meet criteria related to innovation, product or service development, scalability, employment or wealth creation. Businesses created by splitting or reconstructing an existing company would not qualify as startups.
The proposed framework would allow venture capital funds to invest in startups and unlisted early-stage or high-growth companies, particularly businesses developing new technologies, products, processes or services.
The draft law proposes a two-tier regulatory structure under which venture capital fund management companies would require licenses, while individual venture capital funds would need separate registration.
Public and private limited companies and limited liability partnerships would be eligible to apply for a venture capital management license, subject to prescribed requirements.
A fund management company would be required to maintain minimum equity or capital of Rs. 15 million. Applicants would also need to provide details of promoters, directors, majority shareholders, the CEO and compliance officer.
At least one director or designated partner would need relevant venture capital experience.
The proposed application fee for a venture capital fund management license is Rs. 200,000. The SECP would be required to decide a complete application within 45 working days.
Existing private fund management companies already involved in private equity or venture capital activities could be deemed licensed after confirmation, although they would be required to separate their existing activities from venture capital operations.
Licensed managers would be allowed to establish and manage venture capital funds, manage investments and provide related advisory services.
The draft law also sets eligibility requirements for individual investors.
Pakistani and foreign individual investors would need annual income of at least Rs. 5 million and net assets of at least Rs. 15 million, excluding their personal residence. Investors would also have to acknowledge that they understand the risks associated with venture capital investments.
Institutional investors could include financial institutions, companies, insurers, securities brokers, collective investment schemes, voluntary pension funds, foreign companies and other entities approved by the SECP.
The proposed legislation would give the Securities and Exchange Commission of Pakistan (SECP) powers to obtain information from venture capital funds, managers, promoters, directors and key executives.
The regulator could suspend or cancel licenses or registrations in cases involving fraud, financial misconduct, investor deception and other specified violations.
Fund managers would also be required to protect investor interests, maintain separate fund assets, operate risk-management systems, manage conflicts of interest and provide required information to investors and the regulator.
The draft proposes fines of up to Rs. 50 million for several regulatory violations, including false or misleading disclosures, failure to provide information, misappropriation of assets, undisclosed conflicts of interest and breaches of investment restrictions.
However, the proposed punishment is significantly higher for businesses conducting venture capital activities without the required license or registration.
Such businesses could face 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 a 12-month transition period to obtain approval. Businesses that fail to comply would be prohibited from accepting new investments and would have to wind down within 30 days after the transition period.
The proposed framework would require venture capital funds and managers to maintain audited financial statements and provide detailed reports covering portfolio composition, valuations, expenses, benefits received and overall performance.
The SECP could order special audits and issue directions to protect investors or prevent material harm and systemic risks.
Funds and managers would also have to comply with applicable anti-money laundering, counter-terror financing and know-your-customer requirements.
The proposed fund registration fee is Rs. 200,000, while 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.
The draft legislation remains under consultation and could be revised before being finalized. The SECP and federal government would also be empowered to introduce additional rules and regulations under the proposed framework.
