Published by LC News Bulletin Issue 5 | September 30, 2020 (Link Here)
Company Formation in Bangladesh – COMPANIES ACT, 1994: Bill to introduce One Person Companies,
Amongst many of the endeavours of Government to strengthen and facilitate investments and businesses in Bangladesh, the recent proposal to amend the Companies Act, 1994 to include a third category of companies, namely, One Person Companies (OPCs)is a remarkable one. A bill was presented in the National Parliament of Bangladesh on 07th September 2020 containing proposed amendments to the Companies Act, 1994 (‘Bill’). If passed, Bangladesh will, for the first time, see introduction of OPCs, defined in the Bill as a company that only has one natural person as its shareholder.
The Bill also requires that such one-person company include the words ‘One Person Company’ or ‘OPC’ at the end of its name. The Bill proposes addition of a distinct Chapter 10A to the Act containing provisions on the formation, registration and management of OPCs. The chapter mentions, inter alia, that an OPC can be incorporated for any lawful object; one natural person can only register one OPC; the sole shareholder shall mention one natural person’s name as a nominee in the Memorandum or Association, who, upon the death or incapacity of the shareholder, shall be deemed to be the shareholder of that OPC. The chapter also underscores that share transfers can only be done to another natural person.
The Bill proposes that the OPC must have a minimum paid-up capital of BDT 5 Million, and maximum BDT 100 Million, and shall maintain an annual turnover of at least BDT 20 Million, and up to BDT 1000 Million. Where the OPC exceeds these upper limits, they can be registered as private or public limited companies. The sole shareholder of the OPC shall be its director and s/he may appoint the manager, secretary and other employees as necessary. Most other regulatory, operational and auditing rules and regulations are same as that of private limited companies. Despite having the definite advantage of having an OPC model over sole proprietorship model, some vagueness as to its broader purpose have been identified.
Private limited companies do not have any minimum paid-up capital requirement, something that OPC has been attached with. If the broader purpose was to support small businesses and bring them under regulations, then the minimum paid-up capital set for OPCs of BDT 5 Million seems exaggerated. Even OPCs in India has minimum paid-up capital threshold of INR0 1Million. Moreover, if introducing OPC was aimed at promoting and easing foreign investments, the requirement of a ‘natural person’ to be the shareholder may mean that foreign investors, who mostly invest through a parent company by incorporating a subsidiary company, shall not benefit from the proposed Bill after all. These points need to be assessed before the Bill is passed to bring these amendments to life.
It has been forecasted by numerous authoritative bodies and reputed organizations that coronavirus will not derail Bangladesh’s raising potential economic growth. One of the leading global banks, namely, Standard Chartered PLC foresees faster recovery for Bangladesh than many other countries from the economic downfall caused due to the pandemic based on analysis of key indicators. The factors which gives Bangladesh a room for boosting includes balance of payment surplus, a healthy foreign exchange reserve, very low public debt-GDP ratio etc. Chief Economist of Standard Chartered for ASEAN and South Asia said that Bangladesh might
be one of the two economies in the ASEAN and South Asian regions to mark a positive growth in the year 2020 despite the global recession. IMF has also projected that the GDP growth likely to be dropped to 2% in the fiscal year ending in June 2020 from 8.2% in the fiscal year 2019 is poised to rebound to 9.5% in the current fiscal year. They stated that they do not foresee any long-term scarring on the economy from the virus blow. According to Bloomberg Economics’ projections, the pace of expansion in Bangladesh should accelerate in tandem with potential growth to 7.5 % by 2026. The Times of India in a recent publication made a comparison based on fourteen World Development Indicators (WDIs) and it was found that Bangladesh has outshone India and Pakistan in seven WDIs while India did it in six and Pakistan in one. All economic and social indicators show that Bangladesh is to pose a strong challenge to other rising economies in the world.
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