How Foreign Investors Can Obtain an Encashment Certificate During Company Formation/Share Issuance in Bangladesh

 

In Bangladesh, foreign investors looking to establish a business entity must adhere to specific guidelines regarding the deposit of their paid-up capital. The Bangladesh Bank, through various circulars, has laid out the procedure for opening temporary bank accounts in the name of proposed companies for this purpose. According to Bangladesh Bank Circular, banks are allowed to facilitate the opening of such accounts through online applications as well provided the designated bank offers this services.

 

Key Steps for Opening Temporary Accounts for Foreign Investors

 

1. Online Application Process

Scheduled banks can open temporary accounts through an online application system. This is done via the banks’ websites, web portals, or mobile apps. Additionally, various governmental service providers, such as the Bangladesh Investment Development Authority (BIDA), Bangladesh Economic Zones Authority (BEZA), and Bangladesh Hi-Tech Park Authority, assist with this process under their one-stop service facility.

2. Temporary Non-Resident Taka and Foreign Currency Accounts

Under this arrangement, banks can open both Temporary Non-Resident Taka Accounts and Temporary Foreign Currency Accounts in the name of proposed companies once the promotor of the proposed company submit all the required documents. These accounts are specifically designed for enterprises with foreign investors who plan to invest in Bangladesh. The foreign investment must comply with the Guidelines for Foreign Exchange Transactions (GFET) 2018 and related foreign exchange circulars.

3. Due Diligence Requirements

Banks are required to perform Simplified Due Diligence (SDD) when opening these temporary accounts. Additionally, regular Customer Due Diligence (CDD) procedures must be followed before transferring the funds from these temporary accounts to regular corporate accounts once the company has been fully incorporated.

4. Submission of Encashment Certificate

Once the paid-up capital is deposited into the temporary bank account, the bank will issue an encashment certificate. This certificate is a mandatory document to be submitted to the Registrar of Joint Stock Companies and Firms (RJSC) for the issuance of shares to the foreign investor.

5. Post-Incorporation Procedure

Upon the completion of the company’s incorporation process, all funds held in the temporary accounts are to be transferred to the company’s permanent accounts. Banks are required to ensure that the transition complies with all relevant legal requirements and regulatory instructions.

 

Conclusion

Opening a temporary bank account is an essential step for foreign investors seeking to establish their presence in Bangladesh. The process ensures compliance with Bangladesh Bank’s regulations and safeguards the proper flow of foreign investment into the country. By following these procedures, foreign investors can seamlessly deposit their paid-up capital, obtain the necessary encashment certificate, and proceed with the issuance of shares for their Bangladesh-based company.

Law firms and corporate advisors can assist clients through each step of this process, ensuring that they meet all regulatory requirements and facilitating smooth interaction with banks and regulatory authorities.

Overview: Managing Share Money Deposit and ensuring compliance with the regulations set forth by the Bangladesh Bank can be a daunting task. LegalSeba.com offers comprehensive services to assist companies in adhering to these regulations, ensuring a smooth process from receipt of investment to the issuance of shares.

 

Our Services

 

1. Compliance with Reporting Requirements

Under Paragraph 2(A), Section-I, Chapter-9 of the Guidelines for Foreign Exchange Transactions (GFET) 2018, companies in Bangladesh are required to report the issuance of shares to non-resident investors within 14 days of the issuance. Failure to meet this deadline can result in penalties or regulatory issues with the Bangladesh Bank.

How LegalSeba Can Help:

•Timely Reporting: Our firm ensures that all required reports concerning share issuance are prepared accurately and submitted to the Bangladesh Bank within the stipulated 14-day timeframe, as per GFET regulations.

•Coordinating with Authorized Dealers (AD): We work closely with your bank (Authorized Dealer) to gather and submit the necessary forms and documentation to ensure smooth compliance with foreign exchange regulations.

•Regulatory Updates: Staying abreast of regulatory changes, we help ensure that your company remains compliant with evolving reporting requirements, protecting your business from potential legal complications.

 

2. Formalities of Share Issuance

The legal framework in Bangladesh requires companies to complete the formalities of share issuance within 360 days of receiving foreign investment. Failure to comply can lead to regulatory actions and affect the legal status of the investment.

How LegalSeba Can Help:

•Process Management: We manage the entire share issuance process, from coordinating with your company’s Authorized Dealer bank to working with the Registrar of Joint Stock Companies and Firms (RJSC) to complete the issuance process within the 360-day window.

•Documentation Preparation: Our team ensures that all documents, including share certificates, statutory declarations, and board resolutions, are prepared, signed, and submitted to the relevant authorities as per the Companies Act and Bangladesh Bank regulations.

•Compliance Monitoring: Throughout the process, we monitor your company’s progress to ensure that share issuance is completed within the deadline, avoiding penalties or restrictions on further foreign investment.

 

3. Appropriate Use of Share Money Deposit

The Share Money Deposit, which refers to the capital deposited by foreign shareholders for share issuance, must be used strictly for the company’s main business activities. Misuse of these funds can lead to compliance issues with both the Bangladesh Bank and other regulatory authorities.

How LegalSeba Can Help:

•Fund Allocation: We assist in ensuring that Share Money Deposits are allocated correctly to business activities as intended by the company and as required by Bangladesh law.

•Compliance Monitoring: We help your company monitor the use of Share Money Deposits, advising on the appropriate financial strategies to stay compliant with Bangladesh Bank regulations.

•Accounting Treatment: We ensure that Share Money Deposits are recorded correctly in the company’s accounts according to International Accounting Standards (IAS) and Bangladesh Accounting Standards (BAS), ensuring regulatory compliance and accurate financial reporting.

 

4. Debt-Equity Ratio Calculation

When determining the Debt-Equity Ratio for foreign or local currency loans, Share Money Deposits that are not converted into shares within 360 days will not be considered as equity. This can impact the company’s ability to secure foreign or domestic loans.

How LegalSeba Can Help:

•Accurate Calculation of Debt-Equity Ratio: Our team assists in calculating the Debt-Equity Ratio, ensuring that the Share Money Deposit is correctly included or excluded depending on whether it has been converted into shares within the stipulated period.

•Loan Permissions and Approvals: We guide companies through the process of obtaining approval for foreign or local currency loans, ensuring compliance with Paragraph 4(C), Section-1, Chapter-16 of GFET, 2018.

•Regulatory Compliance: We work with your financial and legal teams to ensure that all loan agreements and financial reporting comply with the requirements set by the Bangladesh Bank and relevant authorities.

 

5. Regulatory Compliance for Share Capital

If the total share capital of a company exceeds the threshold set by the Bangladesh Securities and Exchange Commission (BSEC), the company must obtain consent from BSEC to continue operations and accept foreign investments.

How LegalSeba Can Help:

•Consent Procurement: Our firm handles the process of obtaining necessary approvals from the BSEC, ensuring your company can legally increase its share capital and continue to accept foreign investment without interruption.

•Liaison with Regulators: We liaise directly with BSEC and other relevant authorities to ensure timely submission of documents and approval of applications related to the issuance of shares beyond the exemption limits.

•Strategic Advice: We provide strategic legal advice on share capital structuring, including the implications of exceeding the exemption limit and the legal requirements for BSEC consent.

 

6. Handling Existing Share Money Deposits

For companies that received foreign investments before the issuance of the relevant circular, they must complete the formalities of share issuance within 360 days from the date the circular was issued. Failing to comply can lead to regulatory consequences, including the freezing of funds.

How LegalSeba Can Help:

•Compliance Review: We conduct a thorough review of your company’s existing Share Money Deposits and ensure that the necessary formalities for share issuance are completed within the required timeframe.

•Documentation and Reporting: Our services include preparing and submitting the necessary documentation to regulatory authorities, including the Bangladesh Bank and RJSC, to ensure your company complies with the 360-day requirement.

•Risk Mitigation: We assist companies in mitigating the risk of regulatory penalties by ensuring compliance with the relevant provisions of the circular concerning existing Share Money Deposits.

 

 

Navigating the complex regulatory landscape for foreign investment in Bangladesh requires expert legal guidance. LegalSeba.com offers comprehensive support in ensuring compliance with share issuance requirements, regulatory reporting, and the proper allocation of foreign investments. By partnering with us, your company can focus on business growth while we handle the legal and regulatory complexities of doing business in Bangladesh.

 

Why Choose LegalSeba.com?

  • Expert Regulatory Knowledge: Our team possesses deep knowledge of the regulatory framework governing Share Money Deposits and share issuance in Bangladesh.
  • Comprehensive Services: From reporting and documentation to compliance and fund management, we offer end-to-end services.
  • Efficiency and Accuracy: We streamline processes to reduce administrative burdens and ensure timely and accurate compliance.
  • Customized Solutions: We provide tailored solutions to meet the specific needs of each client, ensuring compliance and maximizing efficiency.

Contact Us

For more information on how LegalSeba.com can assist you with Share Money Deposit compliance and share issuance in Bangladesh, please contact us at:

Let LegalSeba.com be your trusted partner in navigating the complexities of Share Money Deposit management and regulatory compliance in Bangladesh.