THE VENTURE CAPITAL COMPANIES AND VENTURE CAPITAL FUNDS RULES, 2000
CHAPTER I
PRELIMINARY

1.         Short title and commencement.- (1) These rules may be called the Venture Capital Companies and Venture Capital Funds Rules, 2000.
(2)       They shall come into force at once.
2.         Definitions.- In these rules, unless there is anything repugnant in the subject or context, -
(a)         "Commission" means Securities and Exchange Commission of Pakistan;
(b)         "Form" means a form set out in the Schedule to these rules;
(c)        "venture capital company" means a company which is principally engaged in financing a venture project, through equity or other instruments whether convertible into equity or not and provides managerial or technical expertise to venture projects; or acts as a management company for management of venture capital fund.
(d)        "venture capital fund" shall mean a company which is managed by a venture capital company and raises funds through private placement of equity and other securities, as specified in these rules and invests its resources in venture projects.
(e)        "venture project" means a company, as defined in the Companies Ordinance, 1984, a partnership or a sole proprietorship, which is engaged in a business activity and has such characteristics as may be notified by the Commission, from time to time to be treated as venture projects.
(f)         "Administrator" means a company or a person appointed by the Commission to manage the affairs of the venture capital company or the venture capital fund, as the case may be, on cancellation of licence granted to venture capital company or venture capital fund under these rules.

CHAPTER II
REGULATION OF THE BUSINESS OF VENTURE CAPITAL COMPANIES

3.         Eligibility conditions for grant of licence to a venture capital company.-  (1)         A venture capital company shall not be granted licence unless it fulfills the following conditions namely :-
(a)     it is incorporated as a public limited company under the Companies Ordinance, 1984;
(b)     it is not engaged in any business other than that of investment in venture projects.
(c)     it has a minimum paid-up share capital of one hundred million rupees subscribed by the promoters and by others through private placement;
(d)     it has certified that the chief executive of the venture capital company does not hold such office in any Bank or Non-Banking Financial Institution or Insurance Company or any competing business;
(e)     it has certified that not more than twenty five per cent of its directors are from the same family, including spouse, dependent lineal ascendants and descendants and dependent brothers and sisters ;
(f)      it has appointed as its chief accounting officer a person who is a chartered accountant or cost and management accountant or a person having Master's Degree in Commerce or Business Administration from a university recognized by the Universities Grants Commission with at least five years experience; and
(2)        The sponsors, directors, chief executive and chairman of the Board of Directors, fulfill the following conditions, namely:-
(a)        they have not been associated with any illegal banking business, deposit taking or financial dealings;
(b)        they and companies in which they are directors or hold ten percent or more beneficial interest, have no over-due loans or installments, outstanding towards banks or other financial institutions or defaulted in the payment of taxes;
(c)        they have never been convicted of fraud or breach of trust or economic offense or of an offense involving moral turpitude or removed from service for misconduct;
(d)        they have neither been adjudged as insolvent or compounded with their creditors;
(e)        the promoters and directors of such company are, in the opinion of the Commission, persons of means and integrity and have special knowledge of matters which the company may have to deal with as a venture capital company; and
(f)         the proposed chief executive and at least one of the proposed sponsor directors have senior management level experience in private industrial enterprises or the financial sector for at least five years.
4.         Condition for grant of licence.-  (1)  No venture capital company shall commence business unless a licence is granted under these rules.
(2)        For obtaining a licence a venture capital company shall:-
(a)     make an application to the Commission on Form I providing information as sought in Annex therein, along with all the relevant documents.
(b)     submit a bank draft payable to the Commission evidencing the payment of non-refundable application processing fee amounting to fifty thousand rupees; and
(c)     submit an undertaking that no change in the Memorandum and Articles of Association and in the directors shall be made without prior written authorization of the Commission and that all conditions for grant of licence shall be complied with.
(3)        On being satisfied that a venture capital company is eligible for the grant of a licence and that it would be in the public interest so to do, the Commission may grant a licence as specified in Form-II.
(4)        Without prejudice to any other conditions under these rules, the Commission may while granting licence impose any conditions, as it may deem necessary.
5.         Terms and conditions of operation.- Unless granted a general or specific waiver by the Commission, a venture capital company shall:-
(a)     not expose more than forty per cent of its equity to any single group of companies;
Explanation:-     For purpose of this rule group of companies shall mean companies managed by the members of one family including spouse, dependent lineal ascendants and descendants and dependent brothers and sisters ;
(b)     disclose in its accounts all investments in companies and group of companies exceeding ten per cent of paid up capital of venture capital company; and
(c)     ensure that the maximum exposure of the venture capital company to its directors, affiliated companies and companies in which any of the directors and their family members including spouse, dependent lineal ascendants and descendants and dependent brothers and sisters hold controlling interest shall not exceed ten per cent of the overall portfolio of venture capital.
6.         Renewal of Licence.- (1) The licence granted to the company under rule 4 shall be valid for one year and shall be renewable annually on payment of a fee of twenty thousand rupees on an application being made on Form-III.
(2)        The Commission may, after making such inquiry and after obtaining such further information as it may consider necessary, renew the licence of such company, for one year as specified in Form-IV on such conditions as may be deemed necessary.
7.         Private placement.- In addition to its paid-up capital, a venture capital company may receive monies for investment in venture projects through private placement of such securities as may be notified by the Commission from time to time.
8.         Placement memorandum.- (1) A venture capital company shall, before soliciting placement of its securities, file with the Commission a placement memorandum which shall inter-alia give details of the terms subject to which monies are proposed to be raised from such placements.
(2)        The placement memorandum may be issued only after it has been approved by the Commission.

CHAPTER III
REGULATION OF THE BUSINESS OF VENTURE CAPITAL FUND

   9.         Eligibility conditions for grant of licence to a venture capital fund.- (1)     A venture capital fund shall not be granted licence unless it fulfills the following conditions namely :-
(a)     it is incorporated as a company under the Companies Ordinance, 1984;
(b)     it is not engaged in any business other than that of investment in venture projects;
(c)     it has a minimum paid-up capital of ten million rupees raised through private placement;
(d)     for the purpose of managing its entire business, it has entered into a contract, in writing with a venture capital company, the terms of which have been approved by the Commission.
(2)        The board of venture capital fund shall not have a director who is not on the board of the venture capital company, who has entered into a contract with the venture capital fund as contained in clause (d) of sub-rule (1).
10.       Condition for grant of licence.- (1)  No venture capital fund shall commence business unless a licence is granted under these rules.
(2)        For obtaining a licence a venture capital fund shall:-
(a)     make an application to the Commission on Form-V providing information as sought in Annex therein, along with all the relevant documents;
(b)     submit a bank draft payable to the Commission evidencing the payment of non-refundable application processing fee amounting to fifty thousand rupees; and
(c)     submit an undertaking that no change in the Memorandum and Articles of Association and in the directors shall be made without prior written authorization of the Commission and that all conditions for grant of licence shall be complied with.
(3)        On being satisfied that a venture capital fund is eligible for the grant of a licence and that it would be in the public interest so to do, the Commission may grant a licence in form-VI.
(4)        Without prejudice to any other conditions under these rules, the Commission may while granting licence impose any conditions, as it may deem necessary.
11.       Terms and conditions of operation.-  Unless granted a general or specific waiver by the Commission, a venture capital fund shall: -
(a)     not expose more than forty per cent of its equity to any single group of companies;
Explanation:-     For purpose of this rule group of companies shall mean companies managed by the members of one family including spouse, dependent lineal ascendants and descendants and dependent brothers and sisters ;
(b)     disclose in its accounts all investments in companies and group of companies exceeding ten per cent of paid-up capital of venture capital fund ; and
(c)     ensure that the maximum exposure of the venture capital fund to its directors, affiliated companies and companies in which any of the directors and their family members including spouse, dependent lineal ascendants and descendants and dependent brothers and sisters hold controlling interest shall not exceed ten per cent of the overall portfolio of venture capital. 12.       Renewal of Licence.- (1) The licence granted to the fund under rule 4 shall be valid for one year and shall be renewable annually on payment of a fee of twenty thousand rupees on an application being made on Form-VII.
(2)        The Commission may, after making such inquiry and after obtaining such further information as it may consider necessary, renew the licence of such fund, for one year on Form-VIII on such conditions as may be deemed necessary.
13.       Private placement.- A venture capital fund shall raise and receive monies for investment in venture projects through private placement of such securities as may be notified by the Commission from time to time.
14.       Placement memorandum.- 1) A venture capital fund shall, before soliciting placement of its securities, file with the Commission a placement memorandum which shall inter-alia give details of the terms subject to which monies are proposed to be raised from such placements.
(2)        The placement memorandum may be issued only after it has been approved by the Commission.

CHAPTER IV
OTHER MATTERS PERTAINING TO REGULATION OF VENTURE CAPITAL COMPANIES AND VENTURE CAPITAL FUNDS

15.       Enquiry.- The Commission may cause an enquiry to be made, by any person appointed in this behalf, into the affairs of any venture capital company or a venture capital fund, as the case may be, registered under these rules or any of its directors, managers and other officers of the venture capital company or the venture capital fund, as the case may be, and the provisions of section 21 and 22 of the Ordinance shall apply to such an enquiry.
16.       Cancellation of licence.- (1) Where the Commission is of the opinion that a venture capital company or venture capital fund has contravened any provision, or has failed to comply with any requirement of any rule or direction made or given thereunder, the Commission may, if it considers necessary in the public interest so to do, by order in writing, cancel the licence of the venture capital company or venture capital fund as the case may be:
Provided that no such order shall be made except after giving the company an opportunity of being heard.
(2)        Upon cancellation of the licence, the functions and carrying on the business of venture capital company or the fund shall cease and the Commission may move the Court for a winding up order in respect of the company or take such other action against the venture capital company or the fund, as the Commission may deem fit.
(3)        Notwithstanding cancellation of licence under sub-rule (1), the directors, chief executive, chairman and other responsible officer of the venture capital company or fund shall not be absolved of any civil and criminal liability under these rules, the Ordinance or any other law.
(4)        In the event of cancellation of the licence of the venture capital company licences of all the venture capital funds being managed by such venture capital companies shall stand cancelled.
(5)        Where the licence of the venture capital company has been cancelled under sub-rule (1), the Commission may, by order in writing, appoint a person, hereinafter referred to as the Administrator, to manage the affairs of the venture capital company or fund, subject to such terms and conditions as may be specified in the order.
(6)        The management of the affairs of the venture capital company or the fund, shall vest in the Administrator on and from the date of the Administrator's appointment.
17.       Filing of annual report with the Commission.- (1) A copy of the annual report together with copies of the balance sheet, profit and loss account and the auditors' report of the venture capital company and all the funds being managed by such companies shall be filed with the Commission within four months of the close of the accounting period. The annual report shall inter-alia include the results of each investment in venture projects in abridged form.
(2)        A copy of the report of the directors to the share holders in respect of the first half of the year together with copies of balance sheet, profit and loss account of the venture capital company and funds managed by the venture capital companies shall be furnished to the Commission within two months of the close of the accounting period.
18.       Appointment of auditor.- A venture capital company shall appoint an auditor who is a Chartered Accountant and such auditor shall be required to audit the accounts of the venture capital company alongwith all the funds managed by such venture capital company, provided that the auditor so appointed:-
i)     is not the auditor of any venture project in which the venture capital company or fund has made an investment; and
ii)     has been in practice for not less than ten years.
19.       Powers of the Commission to call information.- The Commission may at any time call for any information or give a direction to a venture capital company or venture capital fund with respect to any matter relating to its activity as a venture capital company or fund.

               THE SCHEDULE
FORM-I
[See rule 4(1)]
APPLICATION FORM FOR GRANT OF LICENCE AS A VENTURE CAPITAL COMPANY

Securities and Exchange Commission of Pakistan,
Government of Pakistan,
Islamabad.

Dear sir,

We hereby apply for grant of licence to*.................... under rule 4(1) of the Venture Capital Companies Rules, 2000.

2.         Two copies of the memorandum and articles of association are enclosed. Necessary information required under rule 3 and 4 of the said Rules has been annexed. We undertake to keep this information up-to-date at all times.

Yours faithfully,
Name/Signature of the Secretary or a director of the Company
________________________
* Name of the Company

Annex to Form I
Information to be enclosed at the time of application for grant of licence.

PART-I

Please provide information in respect of directors, chief executive and chairman

1)         Name, former Name (if any)
2)         Father's Name
3)         Nationality
4)         Residential address
5)         Business address
6)         Qualifications:   (Please attach copies of matriculation certificate and that of last degree obtained)

7)         Training:

8)         Experience

9)         Financial standing:

i)    Please attach credit worthiness certificate from the bank.
ii)   Please attach evidence for payment of income tax and wealth tax in individual capacity as well as in respect of the companies, firms, etc. wherein they are or have been directors during the preceding five years.

10)       Financial performance during the past three years of the companies in which the proposed directors, sponsors, chairman and chief executive have been holding office or have been or have ten per cent or more beneficial interest, on the following pattern:  (please attach copies of annual reports of the companies)

                                                                                                                        (in Rs)

11.       Feasibility report.

PART-II