December 12, 2008	Friday	Zilhaj 13, 1429

KARACHI, Dec 11: The Securities and Exchange Commission of Pakistan (SECP) on Thursday issued a long list of directives aimed at bringing about transparency in the working of ‘not-for-profit’ associations.

The directive noted that certain changes had been made in the conditions for grant of licence under section 42 of the Companies Ordinance, 1984 (the Ordinance).

“The most significant change in conditions was that, an association not-for-profit, would now be allowed to carry out a single object instead of multiple objects,” the SECP announced.

It stated that the Licencing of Associations not-for-profit, under the Ordinance was governed by Section 42, read with Rule 6 of the Companies (General Provisions and Forms) Rules, 1985. Those associations were formed for attainment of objects to promote commerce, art, science, religion, sports, social services, charity or any other useful object.

The associations, being companies limited by guarantee, were noted to apply their profit or other income in promoting their objects and prohibit payment of any dividend to their members or their family members.

The regulator observed that promoters of most of such associations apply for multiple objects, ignoring the fact that they lack sufficient skills, expertise and resources for the attainment of those multiple objects.

“It is noticed that this practice leads to misuse of resources in an association and raise other issues of regulation, as it becomes difficult to account for the various activities and funds spent on such pursuits may be improper,” the SECP stated and directed: “Keeping in view, an association shall be allowed for the promotion of only one object falling within the ambit of section 42 of the Ordinance.”

The apex regulator stated that various other important conditions had also been added to enhance credibility and transparency in those associations. Those included: an undertaking from the promoters that they have sufficient skills, expertise and resources in the relevant field; closing of accounts of the association on 30th June each year, barring its investment in associated companies; contribution of a reasonable amount not less than Rs500,000 as start up donation by each promoter, enhancing the limit of its minimum liability from Rs50,000 to Rs100,000.

The SECP moreover, directed: “No fund shall be received by associations otherwise than through proper banking channels, ie, through crossed cheque, pay-order, bank draft, etc.”

The regulator went on to state: “Moreover, it was noticed that the funds received by these associations from local/foreign agencies are being mis-utilised.”

Considering this, a condition shall be imposed at the time of issuance of licence that the income or any profit of the association, shall be applied solely towards the promotion of the objects of the association and no portion thereof shall be distributed, paid or transferred directly or indirectly by way of profit to the