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Seed Rounds in Pakistan
How a seed round actually closes under Pakistani law — choosing the instrument, running the Companies Act machinery, moving money through the banking channel, and finishing with shares that exist on the statutory record.
This article states the position as of July 2026. It is general information, not legal advice, and items that change frequently are flagged for verification.
A seed round is usually the first time outside money enters a Pakistani startup, and it sets the pattern for everything after it. The document stack is short — often a single instrument and a handful of resolutions — but those few pages decide three things that matter enormously later: whether the investor's shares will actually exist, whether the money can ever leave Pakistan again, and whether the Series A diligence eighteen months from now takes days or months.
A seed round has no legal definition
Pakistani law does not know the phrase "seed round." What the market calls a seed round is, in law, one of two things. Either it is a private placement of shares by a private company under the Companies Act, 2017 — a priced round, however small — or it is a contract, a SAFE or convertible note, in which the company promises to issue shares on a future trigger.
The distinction carries real consequences. In a priced round, the investor becomes a member of the company when shares are allotted and entered in the register of members. Under a SAFE or note, the investor holds a contractual claim under the Contract Act, 1872 and remains, until conversion, an unsecured creditor. And in either case the raise must stay on the private side of the line drawn by the Securities Act, 2015 and the Private Placement of Securities Rules, 2017: an offer marketed too widely stops being a private placement, with consequences no seed round wants [CURRENT PRIVATE PLACEMENT LIMITS — TO BE VERIFIED BY REVIEWING LAWYER]. Keep a written record of everyone the round was offered to. It is a one-page discipline that answers a question every later investor asks.
Choosing the instrument
Three instruments dominate Pakistani seed rounds, and the choice is a legal decision as much as a commercial one.
A priced seed issues shares now. It needs the fullest document set — subscription agreement, shareholders' agreement, amended articles, resolutions — but nothing is deferred: the investor is on the register, the price is set, and there is no conversion event to manage later. For rounds with one or two substantial investors who want governance rights immediately, it is often cheaper over the company's life than it looks at signing.
A SAFE is fast to sign and slow to perform. It has no statutory recognition in Pakistan; it works purely as a contract, and the shares it promises can only ever arrive through the further-issue machinery of the Companies Act, 2017. The practical rule: obtain the corporate approvals — the members' resolution for an issue to non-members, the pre-emption waivers, the authorised-capital headroom — at signing, not at the trigger. A SAFE whose conversion the shareholders have not yet authorised is a promise the company may be unable to keep. How SAFE advances sit against the Act's restrictions on companies accepting deposits should also be confirmed on current text [CHARACTERISATION UNDER COMPANIES ACT DEPOSIT PROVISIONS — TO BE VERIFIED BY REVIEWING LAWYER].
A convertible note is a loan with a conversion right, and the lender's location changes its law. From a Pakistani lender, it is a domestic debt with withholding tax on any interest. From a foreign lender, it must fit the State Bank of Pakistan's framework for private-sector foreign-currency borrowing — eligible lenders, pricing limits, registration through the authorised dealer — and the later conversion into shares is itself an exchange-control event [CURRENT SBP BORROWING FRAMEWORK — TO BE VERIFIED BY REVIEWING LAWYER]. An unregistered foreign note is close to worthless for repatriation.
The machinery under every close
Whatever the instrument, the same Companies Act, 2017 machinery sits underneath, and it is worth naming plainly because every failed seed closing we see failed here.
Section 83 gives existing members pre-emptive rights over further issues: new shares go first to current shareholders in proportion to their holdings. Issuing to an outside investor therefore requires the approvals the Act and the Companies (Further Issue of Shares) Regulations, 2020 prescribe, including the members' resolution, together with sufficient authorised capital to cover the issue. Then the mechanical steps: the board allots, the register of members is written up, the return of allotment is filed with the SECP, and share certificates are issued — each within its statutory period [CURRENT FILING PERIODS — TO BE VERIFIED BY REVIEWING LAWYER].
Two alignment points are routinely missed. The shareholders' agreement and the articles must say the same thing — where they conflict, litigation about which prevails is the likely outcome, so amend the articles to match. And the documents must be stamped under the applicable provincial stamp law; an unstamped agreement meets an admissibility objection at exactly the moment it is needed.
Foreign money at seed
Foreign participation in seed rounds is common — an overseas angel, an accelerator, a regional fund — and the inward regime is more open than most founders expect. In most sectors a foreign investor may subscribe without prior approval of the investment itself, with the Foreign Private Investment (Promotion and Protection) Act, 1976 guaranteeing repatriation for covered investment.
The discipline is the channel, not the permission. The subscription must arrive as a foreign-currency remittance into the company's own bank account; the authorised dealer converts and confirms it; and the issue of shares to the non-resident is reported to the State Bank under the Foreign Exchange Regulation Act, 1947 and the Foreign Exchange Manual's securities chapter [CHAPTER 20 IN THE CURRENT EDITION — TO BE VERIFIED BY REVIEWING LAWYER]. That paper trail is what later carries dividends and sale proceeds out. Seed money that arrived in a founder's personal account, or through an informal transfer, creates a repatriation and diligence problem that is expensive to fix and sometimes cannot be fixed. Add bank compliance to the timeline: for a foreign-connected company, the account and remittance steps move at the pace of the bank, and any foreign director appointment triggers Ministry of Interior security clearance.
Tax at the seed stage
Share subscription money is capital, not income — but the Income Tax Ordinance, 2001 still watches it. Every credit in the company's books must have an explainable nature and source, because section 111 lets the tax authorities treat unexplained credits as income; keep each investor's instrument, KYC, and bank advice together. Separately, amounts received other than through banking channels — including advances against share issues — risk being deemed income of the recipient [SECTION 39(3) SCOPE — TO BE VERIFIED BY REVIEWING LAWYER]. The banking-channel rule is therefore a tax rule twice over, not just an exchange-control one. Equity subscription itself does not attract withholding, but interest on a note does, and stamp duty applies to the instruments.
What founders give at seed — and what they should keep
Seed terms harden into Series A precedents, so give deliberately. Information rights, pro-rata rights in the next round, and most-favoured-nation protection on a SAFE are standard and cheap. Board seats and long reserved-matters lists are not: at seed, founders should generally keep the board and offer observer or consultation rights instead, because every veto granted now will be inherited and extended by the next investor. Anti-dilution protection has no place in a SAFE — the cap and discount already do that work. If an investor asks for a personal guarantee from founders, or a promised return, decline and take advice; a guaranteed return pushes the instrument toward debt and deposit-taking territory [POSITION — TO BE VERIFIED BY REVIEWING LAWYER].
The wire is not the close
A Pakistani seed round is finished when the statutory record matches the deal, not when the money lands. That means: register of members written up, return of allotment filed, certificates issued, resolutions and waivers in the minute book, stamped instruments in the file, bank credit advices retained, and — for foreign investors — the State Bank reporting confirmed by the bank. Assemble it all into one closing bible while the round is fresh. The next round's diligence starts from this folder, and a company that can hand it over intact has already answered half the questions.
The Checklist
Seed round closing checklist
The steps that take a Pakistani seed round from signed term sheet to a clean statutory record.
- Reconcile the cap table to the register of members before sending it to any investor.
- List every earlier promise of equity — advisors, early hires, old cheques — and resolve each one in writing before signing.
- Confirm authorised capital headroom covers the whole round, the option pool, and every convertible instrument on foot.
- Choose the instrument deliberately — SAFE, convertible note, or priced equity — with conversion mechanics mapped to the Companies Act, 2017.
- Pass the board resolution and the members' resolution for an issue to non-members before closing, not at conversion.
- Collect signed pre-emption waivers from every existing shareholder, including the inactive ones.
- Record everyone the round was offered to, and keep the offer inside private placement limits.
- Collect KYC and a written source-of-funds confirmation from each investor before countersigning.
- Route every remittance into the company's own bank account — no founder accounts, no cash, no exceptions.
- Brief the authorised dealer bank in advance for each foreign investor and confirm the State Bank reporting it will file.
- Stamp the subscription and shareholder documents under the applicable provincial stamp law.
- Amend the articles wherever the shareholders' agreement changes how the company is governed.
- Update the register of members on allotment, and diarise the return of allotment and share certificates within the statutory periods.
- File the resolutions and altered articles with the SECP within their statutory windows.
- Assemble a single closing bible: resolutions, waivers, instruments, bank credit advices, filings, certificates.
- Send each investor a written shareholding or conversion confirmation and agree the post-round cap table in writing.
Questions, Answered
What clients ask most.
With a clean company record and local investors, an adapted SAFE round can sign within a few weeks; a priced seed usually takes six to ten weeks from term sheet. Foreign investors add the bank's compliance review and State Bank reporting to the critical path, and a foreign director appointment adds Ministry of Interior clearance, whose timeline is outside your control. As of mid-2026 the slowest item is almost never the drafting — it is repairing old records mid-round.
It depends on who is investing and how much structure they want. A SAFE adapted for Pakistani law suits speed with local angels; a convertible note adds debt mechanics and, from a foreign lender, State Bank borrowing rules; a priced seed costs more in documents but leaves nothing deferred. What matters more than the label is that the conversion or allotment mechanics work under the Companies Act, 2017.
Legally the money is the company's once received under a signed instrument, but spending ahead of the corporate approvals is how companies end up owing shares they cannot lawfully issue. Complete the resolutions and waivers before or at signing. If the company failed before conversion, a SAFE holder would rank as an unsecured creditor — investors know this, and clean paper is what keeps their confidence.
Commercially, the parties set the price or the cap. Legally, certain share issues attract valuation and disclosure requirements under the SECP's further-issue regulations, and shares generally cannot be issued below face value without meeting statutory conditions [APPLICATION OF THE COMPANIES (FURTHER ISSUE OF SHARES) REGULATIONS 2020 TO PRIVATE COMPANIES — TO BE VERIFIED BY REVIEWING LAWYER]. Check the conversion math against those floors at signing.
The subscription money must arrive as a foreign-currency remittance into the company's Pakistani bank account, and the share issue to the non-resident is reported to the State Bank of Pakistan through the authorised dealer under the Foreign Exchange Manual. That record is what makes the investor's dividends and exit proceeds repatriable later. Build the bank into the timeline from day one — its compliance questions are part of the round.
For a priced seed: the members' resolution, any altered articles, and the return of allotment after issuance. For a SAFE round: ideally the same authorising resolutions filed at signing, with the return of allotment following at conversion. A private placement needs no prior SECP approval as of mid-2026, but the filings after the fact are statutory, and a missing return of allotment is one of the first gaps a Series A lawyer finds.
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.