Company Formation in Bangladesh
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Although there are many other options to start a business in Bangladesh, out of which the most common and useful modes are either registering a branch office (for foreign entities only) or incorporating a private limited company for the domestic entrepreneurs as well as for the foreign entities. The procedure of registering a private limited company has been mentioned down below.
What is a Private Limited Company?
As per section 2(q) of Companies Act 1994, A Private Company is a Company which by its Articles of Association restricts the right of transfer of the share, limits the number of members to fifty and prohibits invitation to the public to subscribe to the shares or debentures of the Company.
The Companies Act 1994 has mentioned the following characteristics of a Private Limited Company:
- It restricts the rights to transfer the shares [s. 2(q)];
- The minimum number of members is 2 (two) [s. 5];
- The maximum number of the members is 50 (fifty) excluding the persons employed in the Company [s. 2(q)];
- It must have at least two directors [s. 90 (2)];
- It prohibits any invitation to the public to subscribe for the shares or debentures of the Company [s. 2(q)];
- It does not have to fulfill the requirement of statutory meeting or statutory report [s.83(12)].
- Subject to obtaining other licenses mentioned below in the post-registration section of this Report, a Private Company can commence business as soon as it is registered with the RJSC.
How to Incorporate a private limited company in Bangladesh?
Outline | Incorporation of a Private Limited Company in Bangladesh
The Companies Act 1994 does not provide the step by step procedure on how to set up a Company rather deals with the statutory requirements of Company incorporation. It is dealt with by the RJSC, the appropriate body; which provides the detailed guideline on its official website regarding the procedure of setting up a Company from name clearance to incorporation.
Procedure | Incorporation of a Private Limited Company in Bangladesh
The steps for the registration of a Private Company limited by shares in Bangladesh are detailed below:-
STEP 1: OBTAIN NAME CLEARANCE LETTER | Incorporation of a Private Limited Company in Bangladesh
Application for name clearance to RJSC along with the following information:
- Application Form;
- Proposed Name.
STEP 2: DOCUMENTATION | Incorporation of a Private Limited Company in Bangladesh
- Drafting of Memorandum of Articles and Articles of Association and other required documents,
- Directors’ resolution to open a new Company in Bangladesh;
- Obtaining and filling up the following forms for registration of the Company to RJSC:
- Form I: Declaration on registration of Company;
- Form VI: Notice of situation of registered office;
- Form IX: Consent of director to act;
- Form X: List of persons consenting to be directors;
- Form XII: Particulars of the directors, manager and managing agents.
STEP 3: FORMALITIES RELATED WITH BANK ACCOUNT | Incorporation of a Private Limited Company in Bangladesh
- Directors shall open a temporary bank account in the name of the proposed Company with any scheduled bank with the condition that the account shall be regularized once the Company is duly registered with Company House;
- Capital contribution to the bank account.
- Encashment certificate from the bank which expresses that the sum required for capital contribution has been duly dispatched in the temporary bank account of the proposed organization.
STEP 4: SUBMISSION OF DOCUMENTS TO RJSC | Incorporation of a Private Limited Company in Bangladesh
Application to RJSC along with the documents executed as listed above.
Special Case (Investment in kind, etc.)
The concept of ‘investment in kind’ is not detailed under Companies Act 1994. However, in practice, significant investment is made by investing in machineries and other equipment in a Company by a shareholder or a proposed shareholder in a Company incorporated in Bangladesh. Although CA 1994 does not govern the procedure, the following steps are followed while carrying out such investment in kind:
- The concerned company has to be duly registered with RJSC,
- The concerned investors have to fill up the relevant Form(s),
- The concerned investors are required to have a vendors’ agreement between them,
- The filled up Form(s) and the vendors’ agreement have to be filed with RJSC.
- The RJSC will then record the investment and monitor whether the proper procedure has been duly followed.
Advantages of Limited Compay
- Tax-free if falls under tax-exempted industry
- Eligible to hire foreign staffs
- Foreign technical staffs are tax-free for the first 3 years depending on the business nature
- Easier access to finance & banking facilities
- Have the greater flexibility with a wide range of business capacity
- Option to issue shares & offer equity to the new shareholder in several terms
- Liability of the Shareholder limited to their paid-up capital contribution
Disadvantages of Limited Company
- Preparing Annual Audited Report sometimes becomes expensive for small companies
- Additional Compliance Requirement unline proprietorship or partnership firm
- Tax is calculated under the head of the company and there is dividend tax as well
Taxation for Companies
A company needs to pay corporate tax on its profit (Revenue-Expenses); if it doesn’t have the profit, it doesn’t need to pay tax. This is subjected to the followings:
i. File income tax return annually (usually on 15th January of next year following financial closing, usually (July-June)
ii. Make sure to inject paid-up capital to the company’s bank account by cheques.
iii. Make sure the debit-credit in the bank statements are adequately explained
iv. Minimum tax usually @.06% of gross revenue to be paid.
Corporate Tax Rate in Bangladesh:
|Publicly traded companies (listed companies on stock market)
|Non-publicly traded companies (private companies limited by shares)
|Publicly traded banks, insurance, and financial institutions other than merchant banks
|Non-publicly traded bank, insurance, and financial institutions
|Publicly Traded mobile network operators
|Non-publicly Traded mobile network operators
|Publicly Traded cigarette manufacturers
|Non-publicly Traded cigarette manufacturers
One Person Company. 25%
One person company registration in Bangladesh has been officially launched in Bangladesh.
Besides, there are several tax exemption facilities for companies based on the nature of business & location.
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