Guide to incorporating company in Bangladesh

Published by The Daily Observer 27 July, 2019 (Link Here)

Guide to incorporating company in Bangladesh

According to the Asian Development Bank (ADB), Bangladesh registered the fastest growth rate in the Asia-Pacific economies. Bangladesh is classified among the Next Eleven emerging market middle income economies and a Frontier market. As the economy grows and expands, purchasing power enhances, increasing demand for products and services.

The rise of entrepreneurship is essential for this transforming economy. Entrepreneurs who seek to exploit these new market opportunities are starting new businesses. However, new entrepreneurs face a plethora of issues when they make the mistake of starting as a sole proprietorship.

A sole proprietorship may project an unprofessional image or highlight inexperience, deterring potential customers or partners from doing business. The lack of separation of the business from the founder or entrepreneur poses huge liability risks to the owners. This model of business becomes unsustainable as business and the operations to grow.

Incorporating a business can help entrepreneurs overcome these impediments. When a company has a separate legal entity distinct from its owners, liability is managed better and partners are more willing to come on board. Incorporation gives entrepreneurs the option and ability to take on investors by issuing shares.
At the end of the day, the business and entrepreneur benefit from more access to finance and grow into a sustainable growing business. Taking these advantages into consideration, there are some key elements and processes to bear in mind by anyone looking into incorporating a company in Bangladesh.

Finalizing the charter documents
The charter documents are the core of a company. In Bangladesh, the charter documents are divided into two parts-namely the Memorandum of Association (MoA) and the Articles of Association (AoA).
The Memorandum of Association or MoA spells out the objectives for which the company is being formed. The MoA has to be filed with the Registrar of Joint Stock Companies and Firms (RJSC), at the time of incorporation of the company. The importance of formulating this document appropriately cannot be stressed enough; because once the document is prepared, the company cannot perform functions beyond the limit as mentioned in the MoA. It is possible to amend the MoA, but best be avoided because the process is tedious and requires the involvement of the company court.
The Articles of Association or AoA forms the second part of the constitutional documents of the company. The AoA formulates the mechanism of the internal management of the company and aims at carrying out the objectives as mentioned in the MoA. The AoA is the contracts between the shareholders and the company and among the shareholders themselves. The AoA covers information related to the board of directors, general meetings, voting rights, board proceedings, shares issue/transfer, dividend to be paid and so forth. The AoA can be considered as the user manual for the company that sets out the rules and regulations to be followed in the day to day operations of the company. This document is binding on the shareholders and the organization and has nothing to do with the outsiders.

Deciding the authorized capital
Authorized Capital is the maximum amount of the capital for which shares can be issued by the Company to shareholders. The Authorized capital is mentioned in the Memorandum of Association. It is decided before the incorporation of the Company. In the broadest term, Authorized Capital may be defined as all the shares that a company could issue to its shareholders if it needed or wanted to.
The government fees for incorporation of a company is determined based on the decided Authorized capital of the company; this can be changed with shareholders’ approval at a later stage should the company need to do so.

Proposing the Paid-up capital The part of the Authorized capital which has been issued to shareholders is referred to as Paid Up capital of the company. Paid-up capital is the amount of money, either in cash or kind, a company has received from shareholders in exchange for shares issued to them. The basic difference between the Authorized capital and Paid up capital is that the Authorized capital is the maximum value of shares that a company can allot to its shareholders. Whereas, a Paid-up Capital is the part of authorized capital for which the shares were issued to the shareholder.
Applying for a Name Clearance Certificate Once the constitutional documents of the company are finalized and authorized and Paid-up capital of the proposed company is decided, the promoters of the company need to apply for what is called a Name Clearance Certificate. The Name Clearance Certificate is a search for the proposed name of the company.
Filing with the RJSC
The next step is filing with the RJSC along with the requisite paperwork and paying the fees, the fillings are done electronically and the MoA/AoA are uploaded in RJSC’s server. It typically takes about 3-7 days for processing the paperwork. Once the process is completed, the shareholders receive a certificate of incorporation, which states the unique company number specific to the company. The issuance of the certificate of incorporation marks the birth of the company.
Incorporating a company is not as daunting or cumbersome a task as conceived by many. Having said that, it by no means an easy task, but the effort required to be put in far outweighs the benefits. In any event, should entrepreneurs face any difficulties or unusual hurdles in incorporating a company, they can always reach out to professionals who can help with them with the process.