ESOP in Bangladesh:
A Legal Guide for Startups & SMEs
As the startup ecosystem in Bangladesh matures, founders are increasingly turning to Employee Stock Option Plans (ESOPs) to retain top talent. In a market where cash flow is often tight, offering equity financing is a strategic way to align employee interests with company growth.
However, implementing an ESOP in Bangladesh involves navigating complex regulations under the Companies Act, 1994. Unlike jurisdictions like Singapore or India, Bangladesh lacks a dedicated regulatory framework for ESOPs. This guide, prepared by LegalSeba LLP, demystifies the legal barriers (specifically Section 58) and outlines actionable structures for Private Limited Companies to legally issue stock options.
1. Legal Barriers & Companies Act 1994
The Core Challenge: Section 58
Impact: Companies cannot easily buy back shares from departing employees.
EXCEPTION: This restriction does NOT apply to Private Companies.
The Private Company Exemption
The most critical takeaway for Bangladeshi founders is the exemption in Section 58(2). Private Limited Companies are legally permitted to provide financial assistance for share purchases. This loophole allows Private Companies to fund an Employee Welfare Trust or structure loan-based share acquisitions, a flexibility denied to Public Companies.
Subscription vs. Purchase
To avoid the "Buyback Ban" of Section 58(1), legal experts in Bangladesh often structure ESOPs as a fresh issuance (subscription) of shares rather than a transfer of existing shares. By increasing the paid-up capital, the company avoids the legal complexities of share transfers.
2. Structuring Your ESOP
Choosing the right legal vehicle is critical. In Bangladesh, where statutory ESOP frameworks are absent, companies must use existing provisions in the Companies Act, 1994 and the Trust Act, 1882.
Model A: Direct Subscription (Fresh Issue)
In this model, the company increases its Authorized Capital and issues new shares directly to employees. This is a primary market transaction.
Legal Logic in Bangladesh
Since Section 58(1) bans companies from buying back their own shares, companies cannot easily recycle existing shares from departing employees. Therefore, issuing new shares (Subscription) is the legally safer route to avoid the buyback prohibition.
Bangladeshi Implementation Workflow
- Board Resolution: Allocate a percentage of Authorized Capital for the ESOP Pool.
- EGM & Sec 155 Waiver: Existing shareholders must pass a Special Resolution to waive their Pre-emption Rights (Section 155), allowing the company to offer shares to employees instead of them.
- Vesting: Grant Option Letters with a standard 4-year vesting schedule.
- Execution: Upon exercise, file Form XV (Return of Allotment) with RJSC.
3. Drafting the Deeds
Articles of Association (AoA)
To legalize the ESOP, you must amend your AoA via Special Resolution.
Clause: Waiver of Pre-emption
"The rights of pre-emption conferred by Section 155 of the Companies Act shall NOT apply to the allotment of shares under the ESOP Scheme..."
The Grant Letter
The contract between Company and Employee.
Tax Consideration
Offering shares at Face Value (e.g., BDT 10) when Market Value is higher creates a taxable benefit. Consult on Fair Market Value (FMV) to manage tax liabilities. See our Company Tax Guide.
Essential Resources & Government Links
Government Authorities
- Registrar of Joint Stock Companies (RJSC) - For Form XV & 117
- National Board of Revenue (NBR) - For Income Tax Regulations
- Bangladesh Securities and Exchange Commission (BSEC)
- Bangladesh Investment Development Authority (BIDA)
LegalSeba Guides & Tools
- Personal Tax Calculator - Calculate tax on ESOP gains
- Bangladesh Company Tax Guide
- Equity Investment Mechanics
- Exit Policy for Foreign Investors
Simplify Your ESOP Journey
LegalSeba LLP specializes in corporate structuring for the Bangladeshi ecosystem. We handle the entire lifecycle: from drafting the Trust Deed and amending Articles of Association to filing returns with the RJSC.
© 2025 LegalSeba LLP. All Rights Reserved.
Disclaimer: This guide is for informational purposes only and does not constitute legal advice.
