The Startup Legal Hub
Investment Readiness
How to make a Pakistani startup diligence-proof before the term sheet — reconciling the cap table to the statutory record, owning the IP on paper, curing tax and filing gaps, and proving every rupee of past investment moved through the bank.
This guide reflects the position as of July 2026 and is general information; thresholds and filing periods change, and the flagged items need confirmation on current text before they are relied on.
Rounds in Pakistan are rarely lost on valuation. They are lost in the six weeks after the term sheet, when the investor's lawyers compare what the founders said with what the record shows. Investment readiness is the discipline of closing that gap before anyone is looking — making the company checkable, so that diligence confirms the story instead of renegotiating it. It is unglamorous work, and it is worth more per hour than almost anything else a founder does in the year before a raise.
Diligence tests the record, not the pitch
An investor's counsel does not evaluate the product. They evaluate whether the company legally owns what it claims, owes what it admits, and has the shareholders it says it has. Their raw material is the record: the SECP filing history, the register of members, the minute book, the contracts, the tax filings, the bank statements. Readiness therefore has a precise meaning — every claim in the deck should trace to a document, and every document should sit where it can be produced in a day.
The sections below follow the order in which diligence usually finds problems.
The cap table and the statutory record
Start where they will. Under the Companies Act, 2017, a share exists when it is allotted and entered in the register of members, with the return of allotment filed at the SECP — not when it is promised in an email or listed in a spreadsheet. Reconcile all three layers: the cap table, the register, and the filings. Then reconcile the shadow layer: every SAFE, convertible note, advisor handshake, and option grant, restated as a fully diluted table. Each past issue also needs its authority — the resolutions and, where the issue went to non-members, the approvals section 83 of the Act required at the time. A missing resolution from two years ago can usually be cured with candour and paper; discovered by the other side, it becomes a warranty carve-out and a price conversation.
While in the registers, complete the housekeeping the Act now expects: the statutory registers themselves, and the declarations of ultimate beneficial ownership [CURRENT UBO REQUIREMENTS AND FORMS — TO BE VERIFIED BY REVIEWING LAWYER]. Late filings at the SECP can generally be regularised on payment of additional fees [CURRENT REGIME — TO BE VERIFIED BY REVIEWING LAWYER]; the point is to do it on your own calendar.
Owning the IP on paper
For a technology company, the second question is always ownership of the product. Pakistani law does not hand the company its IP in the cases that matter most. Work done before incorporation cannot have vested in a company that did not exist — it needs an assignment deed from each founder and early contributor, executed after incorporation, for consideration. Contractors, agencies, and freelancers own what they made unless they assigned it in writing; the developer who built version one is the classic gap. Employees are safer ground under the Copyright Ordinance, 1962 for works made in the course of employment [PRECISE POSITION AND EXCEPTIONS — TO BE VERIFIED BY REVIEWING LAWYER], but the boundary is litigable, so every employment contract should carry an express present-tense assignment anyway.
Registrations are the visible layer: the trademark filed with the Trade Marks Registry under the Trade Marks Ordinance, 2001, in the right classes, early — registration is slow and the application date matters. Confidential information has no dedicated statute in Pakistan; the NDAs and confidentiality clauses are the protection, so check they exist with everyone who has seen the inside of the business.
Contracts, stamping, and the clauses that bite
Diligence reads the material contracts for two things founders rarely check. Formation: is the document actually signed by both parties, and stamped under the applicable provincial stamp law? Pakistani startups run surprisingly often on final drafts nobody executed, and an unstamped agreement invites an admissibility objection precisely when enforcement matters. Content: do any customer, lender, or partner contracts contain change-of-control, assignment, or exclusivity clauses that a funding round or restructuring would trigger? Finding a consent requirement before the term sheet makes it a task; finding it after makes it a condition precedent someone else controls.
Tax and the FBR record
The tax layer of readiness has two halves. Compliance: income tax returns under the Income Tax Ordinance, 2001, monthly withholding statements, and sales tax registrations and returns — federal for goods, provincial (PRA, SRB, and counterparts) for services — all current, with the notices file organised. Explanation: section 111 of the Ordinance lets the authorities treat unexplained book credits as income, so every significant credit — each investment, each large receipt — should match to a source document before a diligence team or a tax officer asks. IT and IT-enabled services companies should hold their Pakistan Software Export Board registration and the paper trail for the concessional export regime, and check the status of the Ordinance's defined startup regime tied to PSEB certification [CURRENT RATES, SUNSETS, AND STARTUP REGIME STATUS — TO BE VERIFIED BY REVIEWING LAWYER]. Founder loans and related-party flows deserve their own file: documented, on stated terms, and reflected consistently in the accounts.
People
Employment findings are small individually and corrosive in aggregate. The readiness pass: written contracts for everyone, with the IP and confidentiality clauses above; contractor arrangements tested honestly against reality, because a full-time "consultant" is an employment-law and withholding exposure wearing a different title; EOBI and provincial social security registrations and contributions where headcount requires them — EOBI arrears surface in diligence more than anywhere else; and the ESOP complete as a legal object, meaning authorising resolutions, a plan document, and an individual grant letter for every optionholder, not a promise in an offer letter.
The money trail
The finding that kills cross-border rounds is historical: earlier investment that did not move through banking channels. Readiness means proving the trail — each prior investor's remittance into the company's own account, the bank credit advices retained, and, for every non-resident shareholder, the reporting of their share issue to the State Bank of Pakistan through the authorised dealer under the Foreign Exchange Regulation Act, 1947 framework. That documentation is what makes their investment, and by extension the next investor's, repatriable. Where the history is imperfect, take advice early: some defects can be regularised, some can be disclosed and priced, and none improves with concealment.
Running the audit
Treat readiness as a project with an owner, not a mood. A workable ninety-day shape: two weeks assembling the record against the checklist above; a red-list meeting sorting findings into fix now, disclose, and monitor; six to eight weeks of cures — deeds signed, filings made, stamps paid, registers written up; then the data room built to a numbered index and kept current quarterly. The test of success is concrete: a diligence questionnaire answered in days, from documents, with no surprises the founders did not already know about. Companies in that condition do not just close faster. They negotiate from the position the record earns them.
The Checklist
Investment readiness audit
A founder-run audit of the records an investor's lawyers will test, to complete before any term sheet is signed.
- Reconcile the cap table line by line to the register of members and to every allotment and transfer filed with the SECP.
- Pull the company's complete filing history from the SECP record and list every missing or late return.
- Locate the board and members' resolutions authorising every past share issue, and minute any that were skipped.
- Gather every SAFE, note, advisor promise, and option grant, and restate the fully diluted table with all of them converted.
- Execute assignment deeds for all pre-incorporation IP from each founder and early contributor to the company.
- Collect written IP assignments from every past contractor, agency, and freelancer who built anything the company uses.
- Confirm every employment contract contains present-tense IP assignment and confidentiality clauses, and remediate the ones that do not.
- File or verify trademark applications for the name and logo with the Trade Marks Registry in the classes that matter.
- Stamp the material contracts under the applicable provincial stamp law and replace signature-less drafts with executed copies.
- Read every material contract for change-of-control and assignment clauses that a funding round could trigger.
- Bring income tax returns, withholding statements, and sales tax filings current with the FBR and the provincial authority.
- Match every credit in the company's books to a source document — instrument, invoice, or bank advice — before someone else tries.
- Obtain each prior investor's bank credit advice and, for foreign investors, confirm the State Bank reporting of their shares.
- Regularise misclassified contractors and register for EOBI and provincial social security where headcount requires it.
- Document the ESOP completely: authorising resolutions, the plan, and an individual grant letter for every optionholder.
- Complete the beneficial-ownership declarations and statutory registers the Companies Act, 2017 requires.
- List all litigation, notices, and regulatory correspondence in one register, with status and exposure noted.
- Assemble the data room to a numbered index, assign an owner to keep it current, and refresh it quarterly.
Questions, Answered
What clients ask most.
Six months before the term sheet, and ideally from incorporation as a running discipline. Most readiness defects are cheap to fix with time — a missing resolution, an unstamped contract, an unfiled return — and expensive to fix under exclusivity, when every discovery costs negotiating position. The worst defects, like investment that arrived outside banking channels, can take longer than a round allows.
The cap table against the statutory record. The spreadsheet is a claim; the register of members and the SECP filings are the law. Diligence begins by reconciling the two, and the gaps found there — allotments never filed, transfers never registered, options with no authority behind them — are the most common cause of delayed or repriced Pakistani rounds as of mid-2026.
Three stand out. Foreign investment that arrived outside banking channels, because repatriable status is hard or impossible to reconstruct. Unassigned IP from a departed contractor or estranged co-founder, because the fix needs a signature from someone with leverage. And a shareholder on the register who no longer answers calls, because section 83 pre-emption gives them a role in every future issue. All three are trivial to prevent early.
The Companies Act, 2017 requires audited accounts above modest thresholds, so most funded startups need them as a matter of law [CURRENT AUDIT THRESHOLDS — TO BE VERIFIED BY REVIEWING LAWYER]. Institutional investors will expect them regardless, and a first-time audit takes longer than founders budget. If the company has never appointed an auditor, do it as part of readiness, not as a condition precedent.
Sometimes, and the honest answer depends on the facts. Domestic money can often be regularised by documenting it properly now and dealing with the tax questions the paper trail raises. Foreign money that bypassed banking channels is harder: repatriable status under the State Bank's framework attaches to remittances made and reported through the system, and retrofitting it ranges from slow to unavailable [REGULARISATION OPTIONS — TO BE VERIFIED BY REVIEWING LAWYER]. Disclose it to your own counsel first, and never let an investor's diligence find it undeclared.
Prepared by The First Counsel · As of 2026-07-12 · Pending professional review — statements flagged in the text are being verified
This publication is provided for general information only. It is not legal advice, and neither reading it nor corresponding with the firm about it creates a lawyer–client relationship. The position stated must be verified against current law before it is relied upon.