Frequently Asked Questions about Venture Capital Funds In Pakistan

VENTURE CAPITAL FUNDS COMPANY IN PAKISTAN

Following are some frequently asked queries with reference to formation of Capital Venture Funds Company in Pakistan and are accordingly answered by quoting the prevailing laws, rules and regulations.

1) Minimum amount of paid up capital and either the whole amount is deposited in the bank at one time or not

Regulation 2:

“(iii) “Eligible Investor” means a person who has net assets of at least Rs. 15million excluding the value of personal residence and who furnishes a declaration to the Private Fund Management Company that he understands the risks of investment in a Private Fund.”

Regulation 8: – Role of Private Fund Management Company:

The Private Fund Management Company shall

have at least minimum equity of rupees ten (10) million;

Provided that this shall not be applicable to an NBFC having valid investment advisory license and complying with the minimum equity requirements required for investment advisory license.

2) Taxation of capital gain and annual taxation and audit requirement of Capital Venture Fund.

Regulation 8: – Role of Private Fund Management Company:

The Private Fund Management Company shall

…..

shall maintain at its registered office, proper books and record of accounts and activities undertaken in connection with the Private Fund in order to enable a true and fair view to be formed of the:

Assets and liabilities of the Private Fund;
The profits and loss accruing out of the operation of the Private Fund;
Transactions with respect to the Private Fund;
Amounts received in respect of issue of Units; and
Pay-outs, if any, by way of distributions to the

maintain the books of accounts and other records of the Private Fund at least for ten (10) years;
within four (3) months of close of the financial year of the Private Fun, prepare as per the approved applicable International Accounting Standards and International Financial Reporting Standards, and transmit to the unit holders and the Commission, with respect to the Private Fund:
1. The balance sheet stating details of investments depicting cost and realization value of such investments;
2. Profit and loss statement;
3. Cash flow statement; and
4. Statement of movement in NAV per Unit of the private

maintain register of unit holders as part of the records and exercise due diligence and take reasonable care to ensure that the register is accurate, complete and up-to-date and ensure that persons recorded in the register are eligible investors;
appoint external auditor of the Private Fund who shall be a Chartered Accountant and has received satisfactory rating under the Quality Control Review (QCR) Program of the Institute of Chartered Accountants of Pakistan and the appointed auditor shall give the report on annual accounts of the Private Fund containing the following:
1. Whether in the auditor’s opinion the accounts prepared for that period have been properly prepared in accordance with the relevant provisions of the Regulations;
2. Statement to the effect that the auditor has conducted audit of the Private Fund in accordance with the international standards on auditing as applicable in Pakistan;
3. Without prejudice to the foregoing, whether in the auditor’s opinion, a true and fair view is given of the disposition of Private Fund at the end of the period and of the transactions of the Private Fund of the period;
4. If the auditor is of the opinion that proper books and records have not been kept by the Private Fund or the accounts prepared are not in agreement with the books and record of the Private Fund, that fact; and
5. If the auditor has failed to obtain all the information and explanations which, to the best of his knowledge and belief, are necessary for the purpose of the audit, that

Regulation 15: – Fee Payable to the Commission:

The Private Fund Management Company managing a Private Fund within three month of the close of financial year of the Private Fund shall pay to the Commission an annual fee at such rate as specified in Schedule I, and such fee shall be chargeable to the Private Fund as an expense. (Under Schedule I, the Annual Fee for Private Fund is set at PKR. 250,000)

3) In case of foreign investors, either he is eligible for expatriation of all the amounts (Principal, Dividend and gain) or not.

The 2015 Regulations and the 2019 Amendments to the law place no restrictions on the foreign investors. So long as an investor falls within the eligibility criteria and has complied with the registration requirements and is willing to undertake risks as laid out in the Investment Policy and the Placement Memorandum, foreign investors can invest in the Capital Fund.

Since the law is silent on foreign investors, the law does not specify for the eligibility for expatriation of all the amounts.

4) How much time is required for registration of capital ventures.

No specific timeline is prescribed for the registration of a Capital Venture. The time required for registration is subject to the Registration procedure laid down under Regulation 5 of the Private Funds Regulations 2015.

5) Enlist the required documents for registration and eligibility criteria for investors and foreign investments

Regulation 2:

Regulation 3:

No person shall establish, launch, or raise money in Pakistan for investment in a Private Fund unless the Fund is registered under these Regulations.

Regulation 4 lays down the conditions for launch of a Private Fund:

A Private Fund shall be established and launched by the Private Fund Management Company duly licensed by the Commission for Private Funds subject to the following conditions:

It is established as a trust under the Trust Act, 1882 (II of 1882), or as company under Companies, Act 2017, or as limited liability partnership under Limited Liability Partnership Act 2017 or any other legal structure as approved by the Commission;
It is offered for subscription by Eligible Investors only;
It is registered with the Commission as a Notified Entity prior to its launch;
Its units are not listed on any Exchange; and
Private Fund Management Company or Private Fund, as the case may be, shall comply with such other condition as may be imposed by the Commission from time to

Regulation 5 provides the Procedure for Registration:

No Units of a Private Fund shall be offered for investment by Eligible Investors unless such fund is registered as a Notified Entity with the
Private Fund Management Company shall submit the draft Trust Deed along with the name and consent of the trustee of the proposed Private Fund in accordance with Schedule II or draft Memorandum of Association or draft Limited Liability Partnership Agreement along with custodian agreement for approval of the Commission as per schedule ;
Upon securing in-principle approval of the Commission, the Private Fund Management Company shall execute and seek registration of the Trust Deed in accordance with the provisions of the Trust Act, 1882 (II of 1882) or incorporate Company in accordance with Companies Act, 2017 or register limited liability partnership in accordance with Limited Liability Partnership Act, 2017 as the case may ;
The Private Fund Management Company shall seek approval of the Commission for registration of a Private Fund as a Notified Entity by submitting an application as per Form I along with fee as specified in Schedule
The Commission on being satisfied that the Private Fund is eligible for registration may register the Private Fund as a Notified Entity on such terms and conditions as it deems
After the registration of private fund as a Notified Entity by the Commission, the Private Fund Management Company shall offer the Private Fund for investment by Eligible Investors upon issuance of a Placement
A copy of the Placement Memorandum seeking subscription by Eligible Investors shall be submitted to the Commission fifteen (15) days prior to launch of a Private

Regulation 9: – Minimum Investment in a Private Fund:

The Private Fund Management Company may raise money for investment in a Private Fund from an Eligible Investor through issue of Units subject to the following conditions:

the Private Fund Management Company shall accept offer for subscription to the units of Private Fund from eligible investor only;
copy of the Placement Memorandum has been furnished to the prospective investor and acknowledgement that the investor has read and understood the documents is received in writing;
obtained the declaration as specified in Schedule V from Eligible Investor; and
total number of Eligible Investors in a Private Fund does not exceed fifty or number as defined in Private Placement of Securities Rules, 2017:

Provided that the above restriction shall not apply to investor as Qualified Institutional Buyer.