Pakistan’s corporate sector is moving towards transparency and digitization. As part of this transition, the Securities and Exchange Commission of Pakistan (SECP) has made it mandatory for unlisted companies to convert their physical share certificates into book-entry (digital) form before carrying out certain share transactions.

This requirement has been formally introduced through:

• S.R.O. 328(I)/2026 dated 19 February 2026
• Read with S.R.O. 246(I)/2025
• Issued under Section 72 of the Companies Act, 2017 and relevant regulations

What Are Physical vs Digital Shares?

Physical Shares (Old System)

Physical shares are paper certificates issued to shareholders as proof of ownership.

Example:
A shareholder holds a printed certificate showing ownership of 1,000 shares in a private company.

Digital / Book-Entry Shares (New System)

Digital shares exist in electronic form and are maintained in the Central Depository System (CDS).

Example:
The same 1,000 shares are now recorded electronically in the shareholder’s CDC account—no paper involved.

What Does the Law Require?

Under S.R.O. 328(I)/2026, all unlisted companies must:

Convert physical shares into digital (book-entry) form
Before undertaking any share-related transaction, including:

• Transfer of shares
• Allotment of new shares
• Bonus shares
• Right shares
• Buy-back of shares

❗ Without conversion, these transactions cannot legally proceed.

Important Clarification

• If your company is not currently planning any share transaction, immediate conversion is not required
• However, conversion becomes mandatory before any future transaction

Step-by-Step Conversion Process

Step 1: Apply to CDC

The company applies to make its shares eligible in the Central Depository System (CDS)

Step 2: Open CDC Accounts

Each shareholder must open a CDC account

Step 3: Deposit Physical Shares

Existing paper share certificates are submitted for conversion

Step 4: Digital Credit

Shares are electronically credited to the shareholders’ CDC accounts

Practical Examples

Example 1: Share Transfer

A company wants to transfer shares from one shareholder to another

If shares are in paper form → conversion is required first
After conversion → transfer is processed digitally

Example 2: Bonus Shares

A company plans to issue bonus shares

If shares are already digital → proceed directly
If shares are physical → convert first, then issue bonus

Example 3: New Investor Entry

A new investor is being allotted shares

Company must ensure all shares are in digital form before allotment

Documentation Requirements

After conversion, companies must maintain:

• Share allotment / transfer records
• CDC account activity reports
• Updated list of shareholders (digital record)

Record Retention Requirement

Physical share certificates (after cancellation) must be retained for at least 10 years for legal and audit purposes.

Penalties for Non-Compliance

Failure to comply with the law may result in:

• Significant financial penalties under the Companies Act
• Additional daily penalties for continued non-compliance

Benefits of Digital Shareholding

✔ Improved transparency
✔ Reduced fraud risk
✔ Faster transactions
✔ Better record management
✔ Fully paperless system

Legal Background (For Reference & Compliance)

This requirement is based on:

• S.R.O. 328(I)/2026 (19 February 2026)
• S.R.O. 246(I)/2025
• Section 72 of the Companies Act, 2017
• Relevant provisions of Companies Regulations

These regulations aim to modernize Pakistan’s corporate structure and ensure secure shareholding records.

Contact us for more information. 

Frequently Asked Questions (FAQs)

Q1: Is this requirement applicable to all companies?

No. It applies specifically to unlisted companies with share capital.

Q2: Can we still use physical share certificates?

No, not for transactions. Before any share transaction, shares must be converted into digital form.

Q3: What happens if we do not comply?

The company may face heavy penalties and legal consequences.

Q4: When should we start the conversion?

Ideally, before planning any share transaction to avoid delays and compliance issues.

Key Takeaway

“Physical share certificates are being phased out. For any share transaction, digital (book-entry) conversion is now mandatory under Pakistani law.”