Law & Governance | August 2026 | 4 min read
⚡ Quick Takeaways
- The proposed Venture Capital Act, 2026 is under consultation with BOI and stakeholders.
- Unlicensed venture capital activity could face fines of up to Rs. 100 million.
- The draft creates separate licensing for fund managers and registration for funds.
- A startup would generally need to be under 10 years old with turnover below Rs. 500 million.
- Existing covered activities would get 12 months to seek approval after commencement.
Pakistan’s proposed venture capital law aims to bring startup investment, fund managers and high-growth business financing into a formal regulatory framework. The draft combines lighter licensing with sharper penalties, making compliance a central issue for firms already operating in or around venture capital activity.
| Rs. 100m Top unlicensed activity fine |
3 years Maximum imprisonment |
45 days SECP decision timeline |
Draft Law Targets Unlicensed VC Activity
The newly proposed Venture Capital Act, 2026 would impose a fine of up to Rs. 100 million, imprisonment of up to three years, or both on businesses that conduct venture capital activity without the required license or registration.
The draft is currently under consultation with the Board of Investment and other stakeholders. It seeks to establish a standalone regulatory framework for venture capital funds, fund managers and investment in startups and other early-stage or high-growth businesses.
Because the law remains a draft, its final wording may change before enactment. Even so, the proposal signals that Pakistan wants more venture funding to move through regulated local structures rather than informal, offshore or loosely documented arrangements.
Startup Definition and Eligible Investments
The proposed framework gives a formal definition to startups. A company would generally qualify if it has existed for no more than 10 years, has not recorded annual turnover above Rs. 500 million in any financial year since incorporation, and meets the draft criteria for innovation, scalability, employment or wealth creation.
Companies formed by splitting or reconstructing an existing company would not qualify as startups. The draft also defines eligible venture capital investments to include startups and unlisted early-stage or high-growth businesses, particularly those developing technology, products, processes or services.
Funds could make follow-on investments in existing portfolio companies for up to 10 years from the initial investment. They could also invest in units of other registered venture capital funds, provided the underlying funds and additional fees are disclosed.
| Compliance Note: The proposal gives existing covered activities 12 months after commencement to obtain approval before restrictions apply. |
Licensing and Penalty Snapshot
| Area | Draft Requirement | Amount or Timeline | Compliance Signal |
| Unlicensed VC | No VC business without approval | Up to Rs. 100m or 3 years | Highest penalty risk |
| Manager license | Fund management company license | Rs. 200,000 fee | Entry control |
| Fund registration | Separate registration per fund | Rs. 200,000 fee | Fund-level oversight |
| Minimum capital | Equity or capital for manager | Rs. 15m | Financial capacity test |
| Transition | Approval for existing activity | 12 months | Limited grace period |
How Funds and Investors Would Be Regulated
The draft creates a two-tier system. Venture capital fund management companies would need licenses, while each venture capital fund would require separate registration through its management company. Public and private limited companies and limited liability partnerships could apply if they meet prescribed requirements.
A fund management company would need minimum equity or capital of Rs. 15 million. Applications would include details of promoters, directors, majority shareholders, the chief executive officer and compliance officer, while at least one director or designated partner would need relevant venture capital experience.
Individual Pakistani or foreign investors would need annual income of at least Rs. 5 million and net assets of at least Rs. 15 million, excluding their personal residence. They would also have to acknowledge that they understand venture capital risks. Institutional investors would include financial institutions, insurers, brokers, companies, collective investment schemes, pension funds, foreign companies and SECP-approved entities.
SECP Powers and Investor Safeguards
The Securities and Exchange Commission of Pakistan would have broad powers to obtain information from funds, managers, promoters, directors and key executives where required for regulatory purposes or where it suspects a breach. It could suspend or cancel licenses or registrations for fraud, financial misconduct, investor deception or failure to manage an active fund for two financial years, subject to stated exceptions and hearing rights.
The draft proposes fines of up to Rs. 50 million for violations such as false or misleading disclosures, failure to provide information, misappropriation of assets, undisclosed material conflicts and material breaches of investment restrictions. The SECP could also order reimbursement of profits gained, losses avoided and investigation costs.
Managers would have to keep fund assets separate from their own, maintain proper accounts, operate risk-management systems, manage conflicts of interest and provide information to investors and the regulator. Funds would also need audited financial statements, portfolio reporting and compliance with AML, CFT and KYC requirements.
Investors would have approval rights over major changes. Managers would need to notify investors and SECP before material changes involving strategy, key management, fund life or legal structure, while placement memorandum changes would need approval from at least 51 percent of unit holders by value.
Disclaimer: This article is based on the proposed Venture Capital Act, 2026 and contemporaneous reporting. The legislation remains a draft under consultation, and final provisions may change before enactment or notification.
