This week Your Advocate is Barrister Omar Khan Joy, Advocate, Supreme Court of Bangladesh. He is the head of the chambers of a renowned law firm, namely, ‘Legal Counsel’, which has expertise in commercial law, family law, employment law, land law, banking law, constitutional law, criminal law, and IPR.

Query

I am a small businessman carrying out business as a sole proprietor with a trade license. I am considering forming a limited company. Recently I have come across that a law has been passed in Bangladesh that allows one person companies. I would like to know more about one person companies and how they may be beneficial in comparison with sole proprietorship so that I can take an informed decision.

Joynul Abedin

Dhaka

Response

Thank you for your valuable query. Previously, the ideal vehicle to take for a sole businessman in Bangladesh was to carry out business as a sole proprietor. However, recently an amendment to the existing Companies Act 1994 has been enacted, that now makes it possible for one person to form a company.

A one person company is defined in the Amendment as a company that has only one natural person as its shareholder. Such a company must include the words ‘One Person Company’ or ‘OPC’ at the end of its name. The Amendment further provides provisions regarding the registration and formation of this type of company. A natural person may form a one person company by subscribing into the memorandum of the company as the shareholder for any lawful objective. A natural person may form only a single one person company. The Amendment also provides that the memorandum of the one person company shall also contain the name and consent of a nominee who shall replace the shareholder of the company upon the shareholder’s death or if the shareholder is unable to manage the company for any reason or if the shareholder becomes unnatural. The nominee may provide his or her consent by prescribed means. As such, the Amendment also empowers the nominee to withdraw his/her consent to be a nominee of the one person company. The nominee may also be replaced by the shareholder upon the nominee’s death or incapacity.

The minimum paid up capital of such a company is BDT 2,500,000.00 (Twenty Five Lac) only while the maximum is BDT 5,00,00,000.00 (Five Crore) only. Such a company must show an annual turnover of minimum BDT 1,00,00,000.00 (One Crore) only and maximum BDT 50,00,00,000.00 (Fifty Crore) only for the immediate previous fiscal year. Should the amounts of paid up capital and turnover exceed these brackets, the company shall have to be registered as a private or public limited company. With regards to registration of the company, the provisions regarding registration of private limited companies are to be followed. The shareholder of the one person company shall be its director and the shareholder may appoint the company’s manager, secretary and other employees. The shareholder of the company shall carry out a Director’s meeting at least once every half of a calendar year. Such a company’s memorandum may be changed by passing a special resolution and by following the existing provisions of the Companies Act 1994 regarding the same. The shares of a one person company may be transferred to another natural person only. The balance sheet and the financial records, signed by the Director of the company, are to be submitted to the Registrar within 180 (One Hundred Eighty) days of the end of a financial year. The one person company may be winded up following the existing provisions of winding up in the Companies Act 1994.

A sole proprietorship, while has its advantages, also has its share of drawbacks in comparison with a limited company. Perhaps the most notable drawback is that a sole proprietor has unlimited liability, which essentially means if the business is in debt, the sole proprietor may be personally liable. The introduction of a one person company has made carrying out business in more favorable terms for entrepreneurs. Now a person may solely incorporate a company and ensure that the company and the entrepreneur are separate legal entities. That way the entrepreneur’s liability is limited to his shares of the company. In addition, switching to a one person company from a sole proprietorship may aid with expanding your business as banks may be keener in according credit facilities to companies than sole proprietors. Further, establishing and protecting your brand may be easier with a company as registering as a company ensures no other company shall be able to use the same name as your company. Furthermore, forming a company may strengthen business relationships, as having a legal presence may provide a sense of security to the stakeholders of a business. Additionally, with a low statutory paid up capital requirement, a one person company seems ideal for small businesses seeking the best legal protection.

I believe the decision as to whether or not you may shift from a sole proprietorship to a one person company depends on the extent to which you wish for your business to expand.

I hope that in light of the aforesaid discussion, you shall now have a better understanding of a one person company, the law regarding it and how it compares to a sole proprietorship and the same shall aid in your decision regarding forming a one person company.