Listing changes the nature of a company. Decisions that were private become disclosable, transactions with the family become related-party matters requiring approval, and the board acquires obligations owed to shareholders it will never meet.

Companies that list without changing how they are run discover this through regulatory action.

The framework

Listed companies operate under the Companies Act 2017, the Listed Companies (Code of Corporate Governance) Regulations, the Securities Act 2015, the PSX Rule Book and applicable SECP regulations.

In substance the requirements address:

  • Board composition — the number of directors, representation of independent directors, and limits on the number of directorships an individual may hold
  • Independent directors, with a defined test of independence and a real role
  • Board committees — audit and human resource and remuneration committees, with prescribed composition and terms of reference
  • Directors' training requirements
  • Separation of the chairman and chief executive roles
  • Internal audit and risk management functions
  • External audit, auditor independence and rotation
  • Related-party transactions, with approval and disclosure requirements
  • Disclosure — periodic financial reporting and immediate disclosure of material information
  • Insider trading prohibitions and closed periods
  • Reporting on compliance with the Code

Requirements are amended periodically; confirm the current text rather than working from an older version.

The obligations that cause the most difficulty

Immediate disclosure of material information. Anything likely to affect the price must be disclosed promptly and to the market as a whole. The failures we see: telling a major shareholder or a broker first; delaying while management "confirms" something already known; and disclosing selectively in a briefing.

Have a written policy identifying who decides what is material, who makes the disclosure, and how leaks are handled.

Insider trading and closed periods. Directors, officers and connected persons cannot deal on unpublished price-sensitive information, and dealing is restricted around results. Maintain an insider list, require pre-clearance for dealings, and brief family members — trades by relatives are the most common route to an enforcement problem.

Related-party transactions. In owner-dominated groups — which is most of the Pakistani listed market — transactions with the sponsor family's other companies are routine business. Under listing they require the prescribed approval process, arm's-length pricing and disclosure, and interested directors must not vote.

This is where governance findings concentrate. Also treat it as a tax question, since the same transactions are examined by FBR. See transfer pricing and related-party transactions.

Independent directors who are not independent. Appointing a family friend or a long-standing adviser satisfies the form and not the substance, and it undermines the audit committee, which is where independence does the work.

Minority shareholder rights. Listed status brings shareholders who can requisition meetings, ask questions and bring proceedings for oppression or mismanagement. Managing that constructively is cheaper than litigating it. See shareholders' agreements and deadlock.

Directors' personal position

Directors of listed companies carry the general duties under the Companies Act, plus the specific obligations of the listing framework — and enforcement under the Securities Act and SECP's powers reaches individuals, with penalties and disqualification.

Practical protections for a director:

  • Read the papers and ensure minutes record dissent where you disagree
  • Insist that material information reaches the board rather than staying with management
  • Ensure the audit committee has direct access to internal and external auditors without management present
  • Check what D&O insurance exists, what it covers, and whether it survives your departure
  • Take independent advice where the board is being asked to approve something you do not understand

See directors' duties and personal liability.

Takeovers and substantial acquisitions

Acquisitions of substantial shareholdings and control of listed companies are regulated, with disclosure thresholds and public offer obligations once control thresholds are crossed. Anyone building a stake needs to know the thresholds before crossing them, not afterwards.

Competition clearance may also be required. See competition law and the CCP and buying a business: share or asset purchase.

Thinking about listing

Before an IPO, the work is largely cleanup and it takes longer than founders expect:

  1. Corporate records — share transfer chain, registers, minutes, filings
  2. Financials audited to the required standard, and historic positions resolved
  3. Related-party arrangements documented and priced defensibly
  4. Tax exposures quantified and dealt with
  5. Title to properties and assets confirmed, and IP registered in the company's name
  6. Employment documentation, gratuity funding, EOBI and SESSI, harassment committee
  7. Litigation disclosed and assessed
  8. Board reconstituted to meet the composition requirements, with genuine independents and functioning committees
  9. Policies adopted — disclosure, insider trading, related-party, whistleblowing

See registering a company with SECP and choosing a business structure.

Alternatives exist for companies not ready for a main-board listing, including the growth board framework, with lighter requirements — worth considering rather than either listing prematurely or not at all.

Ongoing compliance calendar

Quarterly and annual financial reporting, the annual general meeting and the notices it requires, the statement of compliance with the Code, immediate disclosures as events occur, board and committee meetings at the prescribed frequency, and maintenance of the statutory registers and insider list.

Missing deadlines is the most easily avoided category of enforcement, and the most common.

How the firm can help

We advise listed companies and their boards on the Code's requirements, prepare disclosure, insider trading and related-party policies, review related-party transactions before they are approved, act in SECP and exchange enquiries and enforcement, advise on substantial acquisitions and takeovers, and run pre-IPO corporate and legal cleanup.

See corporate and commercial or legal opinions and due diligence, or contact the firm.