Establishing a subsidiary company in Bangladesh presents a promising opportunity for foreign investors due to the lack of restrictions on commercial activities and the potential for significant profit. This comprehensive guide outlines the steps and required documentation necessary for setting up a subsidiary company in Bangladesh, ensuring you have all the information needed to make informed decisions.

Understanding a Subsidiary Company

A subsidiary company is a type of private limited company primarily owned by another corporate entity. This structure allows the subsidiary to declare profits and conduct business activities independently within Bangladesh. A foreign company can wholly own a subsidiary company.

Characteristics of a Subsidiary Company

• Independent Operations: A subsidiary company operates as an independent Limited Liability Company , separate from its parent corporation. This means it can conduct its business activities without direct interference from the parent company.
• Local Entity Treatment: The subsidiary receives the same treatment as a local company in Bangladesh, benefiting from local business regulations and incentives.
• Control and Ownership: A company is considered a subsidiary if another company controls, holds, or manages more than 50% of its voting securities. Additionally, if another firm controls the composition of the board of directors, the company is classified as a subsidiary.
• Board Control: If the parent company can appoint or remove any director without the subsidiary’s members’ approval, this indicates control over the subsidiary’s board.
• Tax Benefits: Subsidiary companies are entitled to local tax breaks, exemptions, and allowances, similar to other domestic companies.
• Liability: The parent company’s liability is limited to the capital it has invested in the subsidiary.
• Business Responsibility: The subsidiary is responsible for its own debts and losses, protecting the parent company from direct financial risk.
• Property Ownership: The subsidiary can hold real estate in its own name, allowing it to invest in and manage property directly.
• Legal Capacity: It has the legal capacity to sue and be sued in its name.
• Naming Convention: The company name must end with “Limited,” “Private Limited,” or “Ltd,” reflecting its legal status as a private limited company.

Statutory Requirements for a Subsidiary Company

• Directors: The minimum number of directors required is two, and the maximum is fifty. This provides flexibility in management structure.
• Shareholders: There must be at least two shareholders, but no more than fifty, allowing for a range of ownership structures.
• Share Capital: Each shareholder must have a minimum share capital of BDT 1, making the entry barrier low for shareholders.
• Foreign Ownership: 100% foreign directors and shareholders are permitted, encouraging international investment.
• Mental and Legal Competence: All directors and members must be of sound mind and at least eighteen years old, ensuring competent management.
• Registered Address: A registered address within Bangladesh is mandatory for legal and correspondence purposes.
• Auditor Appointment: An auditor must be appointed within 30 days of incorporation to ensure financial transparency and compliance.
• Annual Compliance: The company must submit audited accounts, hold annual general meetings, file tax returns, and meet other annual compliance requirements.

Pros and Cons of a Subsidiary Company in Bangladesh

Pros

• Flexibility in Business Activities: The subsidiary can engage in any type of business, offering flexibility and opportunity for diversification.
• Limited Liability: Shareholders are only liable up to the amount of their capital investment, protecting personal assets.
• Brand Leverage: The subsidiary can benefit from the parent company’s established brand image, aiding market entry and customer trust.
• Ownership Transfer: Shares can be easily transferred, allowing for straightforward changes in ownership or new investment opportunities.
• Perpetual Succession: The company continues to exist regardless of changes in directors or shareholders, ensuring business continuity.

Cons

• Stringent Guidelines: Compared to liaison or branch offices, subsidiary companies face stricter regulations and more complex procedures.
• Remittance Restrictions: Equity investments cannot be remitted back to the parent company until the subsidiary is dissolved.
• Complex Dissolution: Winding up a subsidiary company can be a lengthy, time-consuming, and expensive process.

Required Documents for Setting Up a Subsidiary Company

For Non-Operating Bank Account:

• Name Clearance Certificate: Issued by the RJSC (Register of Joint Stock Companies and Firms) to ensure the company name is unique and approved.
• Draft MOA and AOA: Memorandum of Association and Articles of Association outlining the company’s objectives and internal governance.
• Promoters’ Meeting Minutes/Board Resolution: Documentation of decisions made by the promoters or board regarding the establishment of the subsidiary.
• Photographs and ID Copies: Three copies of photographs and national ID or passport copies of all shareholders and directors.
• Completed Bank Account Application Form: Signed and completed application form for opening the bank account.

For Corporate Shareholders:

• Share Tree Analysis: Documentation outlining the ownership structure of the corporate shareholder.
• Passports and Photographs: Identification documents of all shareholders of the parent company and nominee directors.
• Corporate Documents: Incorporation certificate, MOA, AOA, and the previous fiscal year’s audit report of corporate shareholders, all translated into English and notarized.

For Company Registration:

• MOA and AOA: Final versions of the Memorandum and Articles of Association of the subsidiary.
• Form IX: Consent of the directors to act.
• Form VI: Declaration of the registered address.
• Signed Subscriber Page: Documentation of initial subscribers to the company’s shares.

Steps to Set Up a Subsidiary Company

1. Name Approval:
   • Choose a Name: Select a suitable name for the subsidiary.
   • Apply Online: Submit the name approval application through the RJSC web portal.
   • Pay Fees: Deposit the required government fees at the bank.
   • Obtain Certificate: Receive the name clearance certificate from RJSC.
2. Drafting Required Documentation:
   • Prepare MOA and AOA: Draft the Memorandum and Articles of Association.
   • Complete Forms: Fill out Form IX (Consent of the Directors) and Form VI (Notice of Registered Address).
   • Meeting Minutes: Record the promoters’ meeting minutes or board resolution.
3. Opening a Non-Operating Bank Account:
   • Open Account: Set up a non-operating bank account to receive inward remittances.
   • Receive Remittance: Transfer the initial paid-up capital to this account.
   • Obtain Encashment Certificate: Get an Encashment Certificate from the bank to confirm the purpose of the remittance.
4. Inward Equity Remittance:
   • Transfer Funds: Shareholders must transfer the initial capital via SWIFT, specifying “Equity Investment” as the purpose.
   • Bank Processing: The bank will process the remittance and issue an Encashment Certificate.
5. Filing to RJSC Web-portal Online:
   • Upload Documents: Submit MOA, AOA, Form IX, Form VI, and the Encashment Certificate online.
   • Complete Registration: The RJSC will review and approve the registration application.
6. Company Registration Documents:
   • Receive Incorporation Certificate: Obtain the Incorporation Certificate, certified copies of MOA and AOA, and Form-XII (Particulars of Directors).
7. Other Registrations and Licences:
   • Apply for Licences: Obtain trade licences, Tax Registration (E-TIN), VAT registration (BIN), and memberships from relevant Chambers of Commerce.
   • Import/Export Registration: Secure necessary certificates for import or export activities if applicable
8. Activating the Final Bank Account:
   • Obtain TIN Certificate and Trade License: Submit all the required licensing documents with the bank along with the bank account activating board resolution
   • Import/Export Registration: Upon the bank’s acceptance of all requisite documents and completion of their Know Your Customer (KYC) procedures, the bank shall activate the temporary bank account. Consequently, the company will be fully prepared and authorized to commence operations.

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