THE LEGAL REGIMES GOVERNING THE NOT-FOR-PROFIT SECTOR IN PAKISTAN

In the past decade, Pakistan has witnessed substantial changes to the legal and regulatory regimes applicable to Not-for-Profit Organizations / Non-Governmental Organizations (“NPOs / NGOs”) registered and operating within the country. Most of the changes were introduced in the backdrop of national security considerations including compliance with the Financial Action Task Force (FATF) Recommendations vis-à-vis anti-money laundering (AML) and countering financing of terrorism (CFT) standards.

In this piece, we provide a high-level review of the current legal regimes applicable to NPOs / NGOs registered and operating in Pakistan. We focus on how NPOs / NGOs are defined under the relevant laws, the various types of entity structures available for establishing and operating NPOs / NGOs in Pakistan and the current federal and provincial registrations applicable to such non-profit entities.

**WHAT IS AN NPO / NGO? **

In Pakistan, the terms NPO and NGO are used interchangeably. In general, an NPO / NGO is defined as an organization which is organized for a purpose other than generating profits and in which no part of the organization’s income is distributed to its members, directors, or officers.

Under Pakistani law, NPOs / NGOs must be designated as non-profit when created and may only pursue purposes permitted by their constitutional documents. The Pakistan Centre for Philanthropy (PCP) is the first and the only certification agency authorized by the Federal Board of Revenue (FBR), Government of Pakistan to undertake performance evaluation of NPOs in Pakistan. Its NPO Directory makes public data of all PCP certified NPOs in Pakistan.

TYPES OF NPOs / NGOs

There are a number of possible legal structures available which provide for the incorporation and registration of NPOs / NGOs seeking to establish a presence in Pakistan. We briefly discuss each of these below.

SECTION 42 COMPANIES

A charitable or non-profit association can be formed as a public company, with limited liability, under Section 42 of the Companies Act, 2017 (Act XIX of 2017 – hereinafter “2017 Companies Act”) and the Associations with Charitable and Not for Profit Objects Regulations, 2018 (the “2018 Regulations”) for inter alia the objective of promotion of health, social welfare and charity (“Section 42 Company”).

A minimum of three (03) people are required to establish a Section 42 Company. The registration process is two-fold. Firstly, a license is to be obtained from the Securities and Exchange Commission of Pakistan (“SECP”). The SECP license is normally issued for a definite period of three (03) years renewable for a further term on an application to be submitted to the SECP three (03) months prior to the expiration of such license. Secondly, within sixty (60) days of the date of issuance of the license, the promoters have to apply for incorporation as a public limited company with the relevant company registration office of the SECP.

Unlike other types of NPOs / NGOs (discussed below), Section 42 Companies, are regulated and incorporated under a Federal statute (i.e., the 2017 Companies Act) and therefore such entities may carry out their operations throughout Pakistan without the need to register themselves with provincial authorities.

TRUSTS

In general, there are two types of trusts, private and public. A Private Trust is created for the benefit of a private individual, whereas a Public Trust is for the benefit of society or a specific part of society. The prerequisites for the creation of a Trust are the presence of a creator / author of the trust, a trustee, a beneficiary and the trust property, whether in cash or capital assets. The trustees constitute the management of a Trust and are required to fulfil the purposes of the trust and obey the directions of the author of the trust and keep themselves informed about the state/condition of the trust property as stipulated in the Deed of Declaration of Trust.

Trusts were historically registered under the Trust Act 1882 (Act II of 1882), a federal statute (the “1882 Trust Act”) which had been adopted by each of the provinces, as well as the capital territory of Islamabad, with minor amendments. However, in 2020, each province, as well as the capital territory of Islamabad, enacted new legislation governing the incorporation, registration and functioning of Trusts. These are the Punjab Trusts Act, 2020 (Act XXI of 2020), the Sindh Trusts Act, 2020 (Act XXIX of 2020), the Islamabad Capital Territory Trust Act, 2020 (Act XXV of 2020), the Khyber Pakhtunkhwa Trust Act, 2020 (Act XXXIII of 2020), and the Balochistan Trust Act, 2020 (Act IV of 2020) (collectively the “2020 Trusts Acts”). The 2020 Trusts Acts, while similar in substance to each other, provide slightly different registration procedures. Each statute requires that any trust that operates within the jurisdiction of a province or the capital territory, as the case may be, be registered with the provincial authorities under the applicable law.

SOCIETIES

A Society may be formed for any literary, scientific or charitable purpose. A minimum of seven (07) persons are required to be members of a Society and three (03) members must form its Governing Body.

The Governing Body is at the heart of a Society and is mandated to manage its affairs and its property as trustees. Its duties include filing all required details concerning its members and Governing Body with the Registrar on annual basis and holding annual meetings of members in compliance with the Society’s By-Laws and its Memorandum of Association.

The Societies Registration Act, 1860 (the “1860 Societies Act”) (Act XXI of 1860) is a federal law that provides for the establishment and governance of Societies. As one can tell by the year of its enactment, this law was enacted by the British in pre-partition India after the war of independence in 1857. It was created largely to regulate and rein in the elements that were critical of British rule. Except for the province of Balochistan, the 1860 Societies Act has been adopted by the remaining provinces, as well as the Capital Territory of Islamabad, without major amendments and continues to be in force, and unlike the regime applicable to Trusts, no movement has yet been made by these remaining provinces to adopt their own individual statutes. The societies established and operating within the province of Balochistan are registered and governed under the Balochistan Charities (Registration, Regulation and Facilitation) Act, 2019 (Act No. XI of 2019) (“2019 Balochistan Charities Registration Act”).

SOCIAL WELFARE AGENCIES

A Voluntary Social Welfare Agency is an organization generally established to provide social welfare services inter alia in the areas of welfare and rehabilitation of patients, and funded by public subscriptions, donations or government aid.

The control of the Social Welfare Agency vests in its Governing Body. There is no minimum required strength of the Governing Body. Its responsibilities include ultimate control and management of the Social Welfare Agency as well as ensuring that it fulfils various reporting requirements under the law.

Except for the province of Balochistan and the Capital Territory of Islamabad , agencies are registered under a federal enactment, the Voluntary Social Welfare Agencies (Registration and Control) Ordinance, 1961 (the “1961 Agencies Ordinance”) (Ordinance XLVI of 1961) which has been adopted by the remaining provinces without major amendments and the same continues to remain in force. In the province of Balochistan and the Capital Territory of Islamabad, agencies are registered under the 2019 Balochistan Charities Registration Act and Islamabad Capital Territory Charities Registration, Regulation, and Facilitation Act, 2021 (Act XXV of 2021) (hereinafter “2021 ICT Charities Registration Act”) respectively.

PROVINCIAL REGISTRATION

Charities Commissions

The Provincial Governments, as well as the Islamabad Capital Territory, have made it compulsory for charities with operations in a particular province/territory to register with their respective charities’ commissions (the “Commissions”).

The Commissions have been established under the Punjab Charities Registration Act, 2018 (Act V of 2018), the 2021 ICT Charities Registration Act, the Sindh Charities Registration and Regulation Act, 2019 (Act XVI of 2019), the Khyber Pakhtunkhwa Charities Act, 2019 (Act XXIX of 2019) and the 2019 Balochistan Charities Registration Act (collectively the “Charities Commission Acts”). Each of the said Acts contains substantially similar provisions.

The term “charities” is defined by Charity Commission Acts broadly, to include any association of persons which is established for a charitable purpose, including organisations created under the 1961 Social Welfare Agencies Ordinance, the 1860 Societies Act, the 2017 Companies Act, and the 2020 Trusts Acts.

Under the Charities Commission Acts, the respective Commissions are tasked with inter alia maintaining public trust in charities, registering and protecting charities, ensuring their regulatory compliance, and inquiring into the functioning of charities. Charities, before they undertake operations in a particular province / territory, are required to register with the respective Commission.

FEDERAL REGISTRATION

In addition to the provincial registration of an NPO / NGO, there is a legal requirement for certain NPOs / NGOs to also be registered with the Federal Government of Pakistan through the Economic Affairs Division (EAD) of the Ministry of Finance or through the Ministry of Interior (“MOI”) .

Registration with the Economic Affairs Division (EAD)

Where an NGO / NPO registered in Pakistan is interested in receiving foreign contributions (money, services and goods being sourced from outside Pakistan), before it does so, it needs to enter into a Memorandum of Understanding (MOU) with the EAD as provided by the framework laid down in the Policy for NGOs / NPOs receiving Foreign Contributions – 2021 (the “2021 Policy”).

Under the 2021 Policy, along with the execution of the MOU, an application for registration along with the requisite documents must be submitted to EAD. The EAD then undertakes scrutiny of the application and consults with necessary stakeholders on the matter. Based on this, the EAD approves or rejects the application. In case of approval, an MOU is signed with the NPO / NGO which is valid for up to three (03) years, and renewable for a further period of two (02) years.

Registration with the Ministry of Interior

The MOI regulates International NGOs (“INGOs”) through the Policy for Regulation of International Non-Governmental Organizations 2015 (the “2015 INGO Policy”). The 2015 INGO Policy regulates the registration, working, funding, monitoring and other related aspects pertaining to all types of INGOs which are functioning in Pakistan. The INGO Policy is applicable to all types of INGOs, which are even though not registered in Pakistan but are receiving foreign contributions or utilizing foreign economic assistance to engage in various development programs in Pakistan. INGOs receiving foreign contributions (funds, materials, and services) emanating from outside Pakistan or utilizing foreign economic assistance require prior registration with the MOI.

INGOs must register with the MOI within ten (10) days of commencement of their operations. Subject to approval, the INGO must sign an MOU with the Government. The MOU is valid for up to three (03) years and pursuant to its terms, an INGO is allowed to establish headquarters and field offices, open bank accounts, and hire local employees. INGOs, however, are not allowed to raise funds and/or receive donations, locally, unless specially authorized.

Permission to operate as an INGO in Pakistan is at the discretion of the MOI and any “breach of security or involvement in any activity inconsistent with Pakistan’s national interests, or contrary to Government policy” may lead to cancellation of registration and permission to operate.