Private Limited Company Formation in Bangladesh
While there are many other ways to start a business in Bangladesh, the most common and efficient modes are registering a branch office (for foreign entities only) or incorporating a private limited company for both domestic and foreign entrepreneurs. The procedure for forming a private limited company is outlined below.
What is the definition of a Private Limited Company?
A Private Company, according to section 2(q) of the Companies Act of 1994, is a company whose Articles of Association limit the right of transfer of the share, limit the number of members to fifty, and prohibit invitation to the public to subscribe to the Company’s shares or debentures.
The following characteristics of a Private Limited Company are mentioned in the Companies Act of 1994:
It limits the right to transfer shares [section 2(q)];
The minimum number of members is 2 (two) [s. 5]; the maximum number of members, excluding those employed by the Company, is 50 (fifty) [s. 2(q)].
It must have at least two directors [s. 90 (2)]; it prohibits any public invitation to subscribe for the Company’s shares or debentures [s. 2(q)];
It is not required to hold a statutory meeting or submit a statutory report [s.83(12)].
A Private Company can begin operations as soon as it is registered with the RJSC, subject to obtaining the other licenses listed below in the post-registration section of this Report.
In Bangladesh, how do you form a private limited company?
Outline | Establishing a Private Limited Company in Bangladesh
The Companies Act of 1994 does not provide a step-by-step procedure for forming a company, but rather addresses the statutory requirements for company formation. It is handled by the RJSC, the appropriate body, which provides a detailed guideline on its official website about the procedure of forming a company, from name clearance to incorporation.
Incorporation of a Private Limited Company in Bangladesh | Procedure
The following are the steps for registering a Private Company Limited by Shares in Bangladesh:
STEP 1: GET A NAME CLEARANCE LETTER | Forming a Private Limited Company in Bangladesh
RJSC must receive an application for name clearance along with the following information:
Proposed Name; Application Form
STEP 2: DOCUMENTATION | Private Limited Company Formation in Bangladesh
Drafting of the Memorandum of Articles and Articles of Association, as well as other required documents, as well as the Directors’ resolution to establish a new company in Bangladesh;
Obtaining and filling out the following forms in order to register the company with RJSC:
Form I: Declaration on Company Registration;
Form VI: Notice of the status of the registered office;
Form IX: Acting director consent; Form X: List of persons consenting to be directors;
Form XII: Information about the directors, manager, and managing agents.
STEP 3: BANK ACCOUNT FORMALITIES | Incorporation of a Private Limited Company in Bangladesh
Directors must open a temporary bank account in the proposed Company’s name with any scheduled bank, with the understanding that the account will be regularized once the Company is duly registered with Company House; capital contribution to the bank account
Encashment certificate from the bank stating that the required capital contribution has been duly deposited in the proposed organization’s temporary bank account.
STEP 4: DOCUMENT SUBMISSION TO RJSC | Incorporation of a Private Limited Company in Bangladesh
Application to RJSC, along with the above-mentioned documents.
Particular Situation (Investment in kind, etc.)
The term “investment in kind” is not defined in the Companies Act of 1994. In practice, however, significant investment is made in a Company by a shareholder or a proposed shareholder in a Company incorporated in Bangladesh by investing in machineries and other equipment. Although CA 1994 does not govern the procedure, the following steps are taken when making such in-kind investments:
The concerned company must be duly registered with RJSC, the concerned investors must complete the relevant Form(s), the concerned investors must have a vendors’ agreement between them, and the completed Form(s) and the vendors’ agreement must be filed with RJSC.
The RJSC will then record the investment and ensure that the proper procedure was followed.
Benefits of a Limited Company
If it falls under a tax-exempt industry, it is tax-free.
Eligible to hire foreign employees
Foreign technical personnel are tax-free for the first three years, depending on the nature of the business.
Easier access to finance and banking services
Have more flexibility with a diverse range of business capacity.
Option to issue shares and offer equity to new shareholders in a variety of terms
Shareholder liability is limited to their paid-up capital contribution.
The Drawbacks of a Limited Company
For small businesses, preparing an annual audited report can be costly.
Additional Requirements sole proprietorship or partnership firm
Tax is calculated under the company’s head, and there is also dividend tax.
A corporation must pay corporate tax on its profit (Revenue-Expenses); if it does not have a profit, it is exempt from paying tax.
This is subject to the following conditions:
i. Annually file an income tax return (usually on the 15th of January of the following year following financial closing, usually) (July-June)
ii. Ensure that paid-up capital is deposited into the company’s bank account via cheques.
iii. Ensure that the debit-credit balances in the bank statements are adequately explained.
iv. A minimum tax of.06 percent of gross revenue must be paid.
Bangladesh Tax Rate:
Tax rate of Individuals
Individual taxpayers’ income tax rates and tax rates remain unchanged as in 2020-2021.
|Existing Tax Step||Existing Tax rate|
|Up to Tk. 3 Lac.||0|
|On next Tk. 1 Lac.||5%|
|On next Tk. 3 Lac||10%|
|The next Tk. 4 lac||15%|
|The next Tk. 5 lac||20%|
|The rest of the money||25%|
|32.50||25.00||40.00||25.00||1997 – 2021||percent||Yearly|
“Drafting of the Memorandum of Articles and Articles of Association, as well as other required documents, as well as the Directors’ resolution to establish a new company in Bangladesh”
The legal team of TR, The Legal Source are highly experienced in providing all kinds of services related to forming and registering a Private Limited Company in Bangladesh . For queries or legal assistance, please reach us at:
Address: House 410, Road 29, Mohakhali DOHS
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