Section 42 Not-for-Profit Licence

Section 42 licence: what it does and does not do

Section 42 of the Companies Act, 2017 enables SECP to license an association formed for charitable or other permitted public-benefit objects. The association must devote its income to its objects, prohibit dividends and distributions to members, and satisfy SECP that its activities are lawful. The licence is regulatory permission granted before incorporation. It is not itself a certificate of incorporation, a tax exemption, permission to receive foreign donations or a licence to carry on a regulated business.

After licensing, the association applies for incorporation as a public limited company without the usual “Limited” suffix. Chapter VII of the Companies Regulations, 2024, especially regulations 97–106, governs the licence. Ordinary company incorporation, charity registration, FBR treatment and sector-specific licences remain distinct. A proposed school, hospital or microfinance foundation must assess the separate permissions for its actual activities. SECP's Section 42 licensing portal provides the regulator's current forms and checklist.

Eligibility: objects, promoters and fit-and-proper checks

Regulation 97(6), inserted in April 2025, requires at least three promoters, at least three of whom are graduates; all promoters and/or directors must be active taxpayers. Regulation 101 requires a chief executive with relevant experience and at least three promoters or directors, including the chief executive, with management experience. For multiple objects, the collective expertise must cover the proposed fields. Promoters and management are also assessed for integrity, tax and credit history, regulatory misconduct and other fit-and-proper matters.

Section 42 covers objects such as education, health, research, art, science, commerce, religion, sports, environmental protection, social welfare and charity. A single or multiple objects may be licensed. Annexure U supplies model object clauses, which applicants may adapt to describe their actual programmes, beneficiaries, geography and sources of funds. A broad charitable object does not authorise financial services or other restricted activities.

Regulation 100 requires each member's limit of liability to be at least PKR 200,000 and each promoter generally to undertake a start-up donation of at least PKR 200,000. These are two separate obligations. A promoter nominated by an entity, government, institution or designated statutory body is subject to the specified contribution arrangement through that body. Older PKR 100,000 figures were superseded by the enacted 2025 amendments.

An international NGO is expressly ineligible for this registration route under regulation 97(5). An existing Pakistani society or trust may seek conversion under regulation 97(7), provided its own governing law permits the proposed dissolution or takeover. Foreign sponsors, directors, chief executives or funding, public-sector bodies, government servants, religious or sports organisations and microfinance proposals can require further evidence or NOCs. Review the SECP checklist before determining eligibility.

App-3 dossier and applicant-specific supporting evidence

The prescribed App-3 and SECP's May 2026 checklist require a coherent application file. Prepare:

• Identity and filing authority: proposed name availability, signed App-3, CNICs of promoters and witnesses or applicable foreign identity documents, verified signatures, notarised authority letter and a corporate promoter's board resolution where applicable.
• Objects and governance: draft memorandum and required concurrence, proposed director and CEO particulars, promoters' CVs, education documents, relevant experience certificates and fit-and-proper evidence.
• Financial evidence: intended donors' names, contacts and proposed donations; promoters' affidavit about their donor role, notification of changes and the donor register contemplated by regulation 104; proposed start-up contributions and source-of-funds information. Include audited accounts of donor companies where applicable.
• Existing trust or society: certified registration certificate and constitution, audited accounts and annual report, certified membership list, members' resolution for the proposed change and attested affidavit disclosing pending disputes or confirming none.
• Special cases: relevant MOI/EAD, government-servant, public-sector, religious, sports or microfinance clearances according to the proposed activity and persons involved. A foreign-linked case must be reviewed under the latest applicable policy rather than assumed to be exempt.

The SECP checklist PDF specifies a PKR 150,000 non-refundable licence application fee. Name reservation, incorporation and other permits are separate charges. Verify the current official challan before payment. Use SECP App-3 and the updated Section 42 guidebook; SECP may require further clarification under regulation 98 even where all listed documents are attached.

How to obtain a Section 42 licence from SECP

1. 01
   Choose the correct applicant route

   Identify whether the association is newly proposed, an existing domestic trust or society seeking conversion, or a public-sector or foreign-linked proposal. An INGO is not eligible for the ordinary Section 42 registration route. List every activity requiring a separate licence, including regulated finance, health, education and foreign fundraising, before finalising objects.

2. 02
   Verify promoters, graduates and experience

   Confirm at least three promoters and three graduate promoters, active-taxpayer status, relevant management experience, CEO qualifications and the fit-and-proper criteria. Collect supporting certificates, identity documents, credit/tax information and governance declarations. Decide who will contribute the start-up donations and document any corporate or government-nominated promoter arrangement.

3. 03
   Reserve the name and settle the constitution

   Apply through the SECP name-reservation procedure. Regulation 3 ordinarily provides a 60-day reservation, so monitor validity while the licence is processed. Prepare the proposed memorandum and articles in the Section 42 form, including the non-distribution restriction, member liability, objects and governance. The ordinary combined name-and-incorporation process is not a substitute for the advance Section 42 licence.

4. 04
   Assemble App-3 and all conditional documents

   Use the current checklist and App-3 form. Reconcile names, signatures, donor details, authority letters and proposed objects across attachments. For an existing trust or society, assess property titles, liabilities and the legal method of dissolution before offering a takeover. For foreign donations or officers, verify the actual MOI/EAD and other applicable requirements.

5. 05
   Pay and lodge the licence application

   SECP's published checklist states a PKR 150,000 non-refundable application fee. Confirm the official payment channel and retain evidence. SECP's dedicated facilitation desk announced section42.licensing@secp.gov.pk for licensing correspondence; verify the current filing channel with the Licensing Department. Keep the full submitted bundle, acknowledgement and an indexed response log. No fixed processing period is promised.

6. 06
   Address regulatory questions and conditions

   Under regulation 98, SECP may investigate, request information and assess promoters, directors and the chief executive against regulation 101. Respond with documentary evidence, especially on objects, donor sources, experience and credit or tax history. The Commission may grant a conditional licence or refuse by order after affording an opportunity of hearing.

7. 07
   Apply for incorporation after licence grant

   Regulation 99 requires the association to apply for incorporation as a public limited company within 90 days after licence issuance. SECP may extend the period on application for up to a further 90 days, after which the licence is deemed cancelled under the amended text. This is a deadline for the incorporation application, not an advertised processing time.

8. 08
   Activate compliance before programmes begin

   After incorporation, establish banking, donor and beneficiary registers, internal controls, statutory filings and audited accounts. Obtain any separate tax, provincial charity or sector permissions. Do not solicit or receive foreign donations unless the relevant approvals are in place. Review the actual licence conditions before making public representations about authorised activities.

2026 change control: S.R.O.915(I)/2026, dated 1 June, is expressly a draft regulation 106 security-clearance amendment, not operative merely because it was published. SECP Circular No. 10 of 2026 removed a blanket prior-security-clearance clause from an earlier circular for specified licensing applications but does not abolish all foreign-donation permissions. The enacted S.R.O.1974(I)/2026, dated 26 October, concerns the definition of “registrar concerned”, not the substantive Section 42 licence requirements. Check any subsequent final security-clearance notification for foreign-linked applicants.

After licensing: continuing restrictions and reporting

Regulation 100 requires all money, property and donations to be applied to licensed objects, prohibits dividends and indirect benefits to members or close relatives, and restricts member remuneration. Genuine board meeting fees and expenses are treated separately under the prescribed conditions. An amendment to the memorandum's objects needs prior SECP approval; a change of chief executive generally needs prior permission under the amended regulation. New directors and management must satisfy fit-and-proper checks and the relevant declarations and filings.

The company must close its financial year on 30 June, maintain audited accounts, statutory returns, donor and beneficiary registers, sanctions screening and internal controls. Donations ordinarily move through banking channels, subject to a limited cash exception and strict recordkeeping. Foreign donations require the relevant prior approvals. Company communications must disclose its Section 42 status; Annexure V specifies information for its website.

The 2025 rules classify companies by annual revenue: small up to PKR 50 million; medium above PKR 50 million and up to PKR 200 million; large above PKR 200 million. Medium and large companies have a female-director requirement from the next applicable election, size-dependent auditor standards, and large companies face additional CEO and charity-registration evidence requirements. An existing trust or society converted to a Section 42 company generally must be dissolved within 90 days of incorporation, with dissolution evidence and an auditor's takeover certificate submitted within 30 days after dissolution, subject to the specified exception.

Section 42 and regulation 102 permit licence revocation for serious non-compliance. Do not rely on obsolete blanket five-year renewal claims: inspect the actual licence and regulation 100(2), which displaces inconsistent older conditions. The licence does not itself establish tax exemption or replace sector-specific licences.

Primary-source documents and official regulator instructions

• Companies Regulations, 2024 — SECP consolidated text updated through July 2025 (regulations 3, 8, 97–106, App-3, Annexures U and V).
• SECP Section 42 licensing page, licensing guidebook and current checklist PDF.
• App-3 prescribed application and S.R.O.601(I)/2025 enacted amendment.
• S.R.O.915(I)/2026 draft security-clearance amendment and S.R.O.1974(I)/2026 enacted registrar amendment.
• Circular No. 10 of 2026 and SECP licensing facilitation desk announcement.

These are national SECP sources; provincial charity law, tax status and local or sector permits require separate verification. No licence approval or processing time is guaranteed.

How Chambers can assist

Chambers can review the legal route, identify regulatory constraints, prepare or review the supporting corporate and legal documents, manage the prescribed submission and correspond with the competent authority where instructed. The scope of the engagement will be determined by the applicant’s particular circumstances.

For an initial enquiry, identify the proposed activity, applicant entity and current stage, and provide the available documents indicated above. Please avoid sending confidential or identity-sensitive records through an unencrypted first contact.