If you want to run a charity, foundation, trade body, school trust or welfare programme as a company, the Securities and Exchange Commission of Pakistan (SECP) route is a Section 42 company. It gives your organisation a separate legal identity, a federal registration that works across Pakistan and the credibility that donors and banks look for. It is also slower and more closely scrutinised than registering an ordinary private limited company. This guide explains how Section 42 registration works, what SECP checks and how to avoid the delays that hold most applications up.
Quick answer: A Section 42 company is an association with charitable or not-for-profit objects that is licensed by SECP under section 42 of the Companies Act, 2017 and then incorporated, usually as a public company limited by guarantee. You first apply for the licence with promoters’ details, objects, a three-year plan and budget, and draft memorandum and articles that bar distribution of profit. SECP reviews the application and obtains security clearance of the promoters. Once the licence is granted you complete incorporation. After that, the company files annual accounts and returns, and may need provincial charity registration before fundraising.
What is a Section 42 company?
Section 42 of the Companies Act, 2017 lets SECP licence an association formed to promote commerce, art, science, religion, sports, social welfare, charity, health, education or another useful object. The company must apply its income only to those objects and may not pay dividends to members. Directors normally serve without remuneration, and on winding up any surplus assets go to another non-profit with similar objects, not back to the members.
Unlike a trust or society registered with a provincial authority, a Section 42 company is regulated federally by SECP. That brings stronger governance requirements, but also a structure that institutional donors, international partners and corporate CSR programmes recognise.
Section 42 company vs trust vs society
| Point | Section 42 company | Trust | Society |
|---|---|---|---|
| Regulator | SECP (federal) | Provincial registrar of trusts | Provincial registrar of societies |
| Legal personality | Separate legal entity | Acts through its trustees | Registered body of members |
| Governance rules | Detailed SECP requirements and filings | Mainly the trust deed | Mainly the society’s rules |
| Time to set up | Months, including security clearance | Usually quicker | Usually quicker |
| Donor perception | Strong, especially for institutional funding | Varies | Varies |
Many organisations begin as a trust or society and later convert. SECP has also tightened the rules for this route, including proof that the earlier entity has been dissolved after the company is formed, so plan the conversion carefully.
Who can be a promoter or director?
Promoters can be individuals, companies or existing associations. SECP looks closely at who is behind the application, because Section 42 companies can receive donations and foreign funding. Expect to provide CNICs or passports, addresses, occupations, NTNs where available and details of other organisations each person is associated with. SECP has also required medium and large Section 42 companies to have at least one female director, and promoters connected to blacklisted or unregistered INGOs face refusal.
The registration process step by step
1. Name and objects
Choose a name that reflects the non-profit purpose and check its availability on SECP’s eServices. Draft objects that are specific. Vague objects such as “any welfare activity” invite questions and can slow the licence.
2. Prepare the licence application
The application usually includes:
- Draft memorandum and articles of association with non-profit clauses.
- Particulars of promoters and proposed directors, with identity documents and declarations.
- A statement of work already done, or proposed to be done, and a plan for the first three years.
- Projected income and expenditure, and the expected sources of funds.
- Undertakings about foreign funding, use of income and compliance with SECP requirements.
- Where the promoter is an existing trust or society, its registration documents and accounts.
SECP publishes a compliance checklist for Section 42 applications and a dedicated facilitation desk for licensing queries. Following the checklist line by line is the simplest way to avoid back-and-forth.
3. SECP review and security clearance
SECP examines the documents and refers the promoters for security clearance. This step is outside the applicant’s control and is usually the longest part of the process. Incomplete particulars, unexplained foreign links or inconsistent addresses are the most common reasons for delay.
4. Grant of licence and incorporation
Once the licence is granted, file the incorporation documents with the Company Registration Office within the period stated in the licence, and pay the fees. The company is normally incorporated as a public company limited by guarantee.
5. Post-incorporation registrations
- NTN and bank account. Register the company with FBR and open an account in its name. See our NTN registration guide.
- Provincial charity registration. Several provinces require charities that raise funds locally to register with a charity commission. Check the rules where you will operate and fundraise.
- Tax status. Non-profit organisations can seek approval from the Commissioner Inland Revenue so that donors may claim tax credit, subject to conditions.
Ongoing compliance after registration
A Section 42 licence comes with conditions, and SECP can revoke it for breaches. Typical obligations include:
- Holding board meetings and the AGM, and filing the annual return.
- Having accounts audited and filed, and keeping proper records of donations and how they were spent.
- Reporting changes in directors, registered office and other particulars on time.
- Seeking SECP approval before changing objects or the memorandum and articles.
- Following the conditions on foreign contributions and on dealings with related parties.
Many of these filings follow the same rhythm as a private company’s. Our guide to SECP annual compliance explains the annual return and AGM cycle.
Common reasons Section 42 applications are delayed
- Objects drafted too broadly or copied from another organisation.
- Missing or inconsistent particulars for promoters, especially overseas Pakistanis and foreign nationals.
- A budget that does not match the planned activities.
- No credible explanation of funding sources.
- Board composition that does not meet SECP’s current governance requirements.
If you are deciding between a non-profit and a for-profit structure for a social enterprise, compare the options first. Our SMC vs private limited comparison covers the for-profit side.
Frequently asked questions
What is a Section 42 company in Pakistan?
It is a not-for-profit association licensed by SECP under section 42 of the Companies Act, 2017 and incorporated as a company, usually limited by guarantee. Its income must be used only for its objects.
How long does Section 42 registration take?
It usually takes several months, mainly because of SECP review and security clearance of promoters. Complete, consistent documents reduce the delay.
Can a Section 42 company pay its directors?
Directors are generally expected to serve without remuneration. Any payment for services must be allowed by SECP rules and the company’s articles.
Can a trust or society convert into a Section 42 company?
Yes. The existing body can apply as promoter, and SECP requires evidence that the old entity is dissolved within the stated time after incorporation.
Does a Section 42 company need provincial registration?
It may. Some provinces require charities that raise funds locally to register with a charity commission, so check the rules where you operate.
How CEC can help
Connect Engineers & Consultants prepares Section 42 licence applications, drafts objects and articles that meet SECP’s requirements, follows up through review and incorporation, and sets up the post-registration filings. See our SECP corporate services.
Planning a foundation, trade body or welfare organisation? Share your objectives and promoters and we will tell you whether Section 42 is the right route.
SECP requirements for Section 42 companies are revised from time to time. Always check the latest regulations and checklists on SECP’s website. This guide is general information, not legal advice.
