Doing Business In Comparative Guide -

1 Legal framework

1.1 Does your jurisdiction have a civil law system, a common law system or a hybrid system?

Bangladesh has a distinctive legal system that combines elements of both civil law and common law traditions. As a former British colony, the country inherited the common law system from the British. Article 111 of the Constitution of Bangladesh states: "The law declared by the Appellate Division shall be binding on the High Court Division and the law declared by either division of the Supreme Court shall be binding on all courts subordinate to it."

While the idea of stare decisis – that is, similar cases should be decided in a similar manner – is prevalent in Bangladesh as in common law systems, Bangladesh also has an extensive legal code covering various areas, including commercial, contractual and administrative law. These laws are primarily based on statutes and regulations enacted by legislative bodies, including the Parliament. The judiciary applies and interprets these written laws to resolve legal disputes.

In a nutshell, the applicable laws in Bangladesh are as follows:

the Constitution of Bangladesh;
the laws enacted by the Parliament, Ordinances and Presidential Orders; and
the principles of common law and equity.

1.2 Which legislative and regulatory provisions primarily govern the establishment and operation of enterprises in your jurisdiction?

The establishment of businesses in Bangladesh is governed by several key laws and regulations. These laws set out the framework for both domestic and foreign business operations, covering aspects such as:

company formation;
registration;
taxation; and
compliance.

The main laws and regulations governing the establishment of businesses in Bangladesh include the following:

Companies Act, 1994: This is the primary law that governs the incorporation, operation and dissolution of companies in Bangladesh. It covers:
- the formation of various types of companies (eg, private limited companies, public limited companies);
- governance;
- shareholding structures; and
- operational compliance.
Partnership Act, 1932: This Act governs the formation and operation of partnerships in Bangladesh. It:
- outlines the rights, duties and obligations of partners in a business partnership; and
- provides for registration and the legal framework for resolving partnership disputes.
Foreign Exchange Regulation Act, 1947: This law governs the rules related to foreign investment in Bangladesh. It regulates the flow of foreign currency and foreign exchange transactions, including the establishment of foreign businesses and remittances.
Bangladesh Investment Development Authority (BIDA) Act, 2016: The BIDA plays a key role in facilitating investment and business establishment in Bangladesh, for both local and foreign investors. The Act, 2016:
- establishes a one-stop service for business registration; and
- provides incentives and guidelines for foreign investors.
Income Tax Act, 2023: This act regulates income tax for businesses in Bangladesh. It governs:
- tax rates;
- the filing process; and
- the taxation of different business entities, including the determination of taxable income, deductions and exemptions.
Value Added Tax and Supplementary Duty Act, 2012 (VAT & SD Act): This Act governs the collection of VAT on goods and services sold in Bangladesh. If their turnover exceeds a certain threshold, businesses must:
- register for VAT; and
- comply with VAT filing and payment requirements.
Trademarks Act, 2009: This law governs the registration of trademarks and IP protection for businesses in Bangladesh. It helps businesses to safeguard their brands, logos and other intellectual assets from unauthorised use.
Bangladesh Labour Act, 2006: This Act outlines the legal framework governing employment relationships in Bangladesh. It includes provisions on matters such as:
- workers' rights;
- working hours;
- wages;
- benefits;
- termination; and
- workplace safety.

In addition to the above key laws, depending on the industry in which a business operates, sector-specific statutes such as the following may be relevant:

the Bank Companies Act, 1991;
the Environment Conservation Act, 1995;
the Ship Recycling Act, 2018;
the Insurance Act, 2010; and
the Financial Institutions Act, 1993.

Furthermore, for public limited companies listed on stock exchanges in Bangladesh, the following will be relevant:

the Securities and Exchange Ordinance, 1969;
the Securities and Exchange Commission Act, 1993;
the Depository Act, 1999;
the Exchanges Demutualisation Act, 2013; and
various rules and regulations framed thereunder.

1.3 Which bodies are responsible for drafting and enforcing these provisions? What powers do they have?

Generally, all legislative power is vested with the legislature – that is, the Parliament. However, the legislature may delegate certain limited powers of legislation upon a subordinate authority under certain conditions. For instance:

laws such as the Companies Act, 1994 and the Labour Act, 2006 were enacted by the Parliament; and
the Companies Rules, 2009 and the Labour Rules, 2015 were promulgated by the Supreme Court and the government respectively, exercising specific powers vested in them under the relevant laws.

Several agencies are responsible for the enforcement of these provisions. For instance, the Registrar of Joint Stock Companies and Firms plays a crucial role in the regulation and registration of businesses and companies within the country. It operates under the Ministry of Commerce and functions as the government authority responsible for overseeing company law compliance and corporate governance.

2 Types of business structures

2.1 What are the main types of business structures in your jurisdiction and what are their key features?

There are three main types of business structures in Bangladesh, as follows.

Sole proprietorships: These are the simplest form of business entities, owned and operated by a single individual who bears full responsibility for all business aspects, including debts and liabilities. While easy to establish and maintain, these lack legal separation between the owner and the business, exposing the proprietor to personal liability.

Partnerships: A partnership is an unincorporated entity comprising two or more partners who contribute capital. It is created through a contract or partnership deed, where partners are liable for actions of the partnership and each other.

Companies:

Single-member companies comprise only one shareholder and director.
Private companies have a minimum of two shareholders and two directors, with a maximum of 50 shareholders. Private companies usually:
- restrict share transfers; and
- prohibit public invitations to subscribe to shares, debentures or redeemable capital.
Unlike sole proprietorships, they offer limited liability protection to shareholders, safeguarding personal assets from liabilities.
Public limited companies, whether listed or unlisted, must have a minimum of three shareholders, with no upper limit. They:
- offer limited liability, but without restrictions on share transfers; and
- can invite the general public to subscribe to shares, facilitating greater access to capital compared to private companies.

2.2 What capital requirements apply to these different types of business structures?

In Bangladesh, there are no specific capital requirements for sole proprietorships. Since the business is owned and managed by a single individual, the initial investment and ongoing financial responsibilities are based on:

the proprietor's available resources; and
the needs of the business.

Similarly, there are no minimum capital requirements for partnerships either.

In case of a private limited company, except for a one-person company (OPC), there are no specific minimum or maximum capital requirements prescribed in law. The paid-up capital of OPC must be:

a minimum of BDT 2.5 million; and
a maximum of BDT 50 million.

2.3 What is the process for establishing these different types of business structures? What procedural and substantive requirements apply in this regard? What is the typical timeline for their establishment?

Sole proprietorships: Establishing a sole proprietorship involves minimal formalities. It encompasses:

creating a business name;
developing a business logo or letterhead;
applying to the National Board of Revenue for a tax identification number (TIN);
obtaining a trade licence; and
setting up a dedicated bank account.

A TIN can be obtained within three working days, while it may take between seven and 10 days to obtain a trade licence.

Partnerships: Proposed partners must execute a partnership agreement. The partnership may be registered with the Registrar of Joint Stock Companies and Firms (RJSC) by submitting:

a partnership deed executed on stamp paper;
the prescribed form (Form-I);
the registration fee; and
attested copies of the accompanying documents.

Registration applications are processed within seven to 10 days of receipt of all accompanying documents and subsequently, a certificate of registration is issued.

Companies: Incorporating single-member, private and public companies involves:

reserving a company name;
- submitting associated forms such as:
- a declaration for incorporation;
- the registered address of the proposed company;
- consent to act as a director; and
- a list of intended directors and shareholders of the proposed company; and
filing the incorporation application along with the memorandum and articles of association of the company with the RJSC.

Incorporation takes approximately seven to 10 days, depending on

the RJSC's response times; and
the resolution of any objections raised by the RJSC.

2.4 What requirements and restrictions apply to foreign players that wish to establish a business directly in your jurisdiction?

Foreign investors are free to invest in Bangladesh in industrial enterprises, except in certain reserved sectors such as:

arms, aminations and other military equipment/machinery;
nuclear power;
security printing and minting; and
forestation and mechanised extraction within reserved forests.

Foreign players intending to establish a business in Bangladesh have three options:

a liaison office;
a branch office; or
a local subsidiary/joint venture/limited company.

2.5 What other opportunities, using people/entities not connected with the main person, are there to do business in your jurisdiction (eg, agency, resale); and what requirements and restrictions apply in this regard?

Bangladesh offers various business opportunities through models such as agency, resale, partnerships and other collaborative approaches involving entities not directly connected with the principal entity or individual.

Businesses can appoint local agents or representatives to market their products or services in Bangladesh. Agents typically:

handle the distribution of products;
promote sales; and
manage customer relations.

They are commonly used in sectors such as:

pharmaceuticals;
machinery and equipment;
consumer goods; and
IT services.

Companies can enter into agreements to act as resellers or distributors for international or local brands. In addition, businesses can expand in Bangladesh by granting franchise rights to local entrepreneurs. Franchisees operate under the franchisor's brand name and business model.

Collaboration with a Bangladeshi company to form a joint venture can open up avenues in industries such as:

textiles;
infrastructure development; and
e-commerce.

Local partnerships provide insights into the market and simplify regulatory navigation.

Businesses can also license their patents, trademarks and/or copyrights to local entities in Bangladesh in exchange for royalties or other compensation. In such cases, businesses must ensure adherence to:

the Contract Act, 1872;
the Trademarks Act, 2009;
the Copyright Act, 2000;
the Patents and Designs Act, 1911; and
other applicable laws of Bangladesh.

3 Directors and management

3.1 How is management typically organised in the different types of business structures in your jurisdiction?

In a sole proprietorship, the management is centralised and is typically overseen entirely by the proprietor. The proprietor is responsible for all decision-making related to the business, including:

strategic planning;
financial management; and
routine operations.

Partnerships provide flexibility in their management structure, enabling partners to arrange management based on:

their preferences; and
the business's requirements.

As a result, the management is organised in accordance with the partnership agreement.

Management in both private and public companies is usually organised in a hierarchical structure, where a board of directors is responsible for overseeing the strategic direction and key decisions. This board is elected by the shareholders and is tasked with appointing the executive management team.

Private companies may have management teams overseeing specific functions such as finance, operations and marketing. In contrast, the management structure of public companies and listed public sector companies typically includes non-executive directors, such as independent directors, on the board.

3.2 Is the establishment of specialist committees recommended or mandated for certain types of enterprises? If so, which areas should they cover?

As per the Corporate Governance Code, 2018, to ensure good governance in public listed companies, at least an audit committee and a nomination and remuneration committee must operate under the board of directors. These committees work as sub-committees of the board of directors. The key roles of an audit committee include assisting the board in:

ensuring that the financial statements reflect a true and fair view of the state of affairs of the company;
ensuring that there is a good monitoring system within the business;
monitoring the choice of accounting policies and principles;
overseeing the hiring and performance of external auditors; and
reviewing the adequacy of internal audit functions.

The nomination and remuneration committee assists the board in:

formulating the nomination criteria or policy for assessing the qualifications, attributes, experience and independence of directors and top-level executives;
devising a formal process for considering the remuneration of directors and top-level executives;
devising a policy on board diversity, taking into consideration age, gender, experience, ethnicity, educational background and nationality;
formulating criteria for the evaluation of the performance of independent directors and the board; and
developing, recommending and reviewing annually the company's human resources and training policies.

3.3 Is the appointment of corporate directors permitted in your jurisdiction?

Section 90(3) of the Companies Act, 1994 specifically provides that only a natural person may be appointed as a director. Therefore, in practice, it is common for corporations to nominate a natural person to represent the shareholder corporation on the board of directors.

3.4 What requirements and restrictions apply to the appointment of directors, in terms of factors such as number, residence, independence, diversity etc?

Section 94 of the Companies Act, 1994 sets out the criteria for the disqualification of directors, including where the relevant director:

is found to be of unsound mind by a competent court and the finding remains in force;
is an undischarged insolvent;
has applied to be adjudicated as an insolvent and the application is pending;
has not paid any call in respect of shares of the company held by them; or
is a minor.

Apart from these restrictions, the articles of association of the company may prescribe further disqualifying criteria.

As far as the number of directors is concerned, under Section 90 of the Act:

all public companies and private companies which are subsidiaries of a public company must have at least three directors; and
a private company which is not a subsidiary of a public company must have at least two directors.

3.5 How are directors selected, appointed and removed? Do any restrictions or recommendations apply to their tenure?

The selection, appointment and removal of directors are governed primarily by:

the Companies Act, 1994; and
the company's articles of association.

Selection, qualification and appointment of directors: The subscribers of the memorandum will be deemed to be the directors of the company until the first directors have been appointed (Section 91(1)(a) of the Companies Act, 1994).

A person must hold minimum qualification shares in the company in order to be a director (Section 97(1) of the Companies Act, 1994). The minimum qualification share amount is usually specified in the articles of association.

Directors are usually appointed by the shareholders of the company through a general meeting. This happens when:

the company is first incorporated and the initial directors are appointed; and
in subsequent years, directors are appointed at the annual general meeting (AGM). Shareholders may nominate candidates to the board of directors and then the shareholders will vote on them.

In some cases, if there is a vacancy on the board, the remaining directors may appoint new directors (subject to the approval of the shareholders), typically in a board meeting. However, this is usually a temporary measure and will need to be ratified by the shareholders at the AGM.

The selection process often includes nominations for directors, where candidates may be proposed by other board members or shareholders. The company's articles of association may include specific guidelines on how these nominations should occur.

To formally appoint a director, a resolution is passed by the shareholders at the AGM or an extraordinary general meeting. If a special resolution is needed (eg, for an independent director), this must be specifically stated.

Removal: The shareholders at a general meeting may remove a director from the board upon passing an extraordinary resolution (Section 106 of the Companies Act). Key grounds for disqualification include where the director:

is found to be of unsound mind by a competent court and the finding remains in force;
is an undischarged insolvent;
has applied to be adjudicated as an insolvent;
has not paid any call in respect of shares of the company held by them;
is absent from three consecutive board meetings or from all such meetings for a continuous period of three months, whichever is longer, without leave of absence from the board; or
enters into a contract for the sale, purchase or supply of goods and materials with the company without the consent of the board (Section 108 of the Companies Act).

Further disqualification criteria may be specified in the articles of association.

3.6 What are the directors' primary roles and responsibilities, and how are these exercised?

Directors in Bangladeshi companies hold significant responsibilities, primarily ensuring the company's:

strategic direction;
legal compliance; and
financial integrity.

Their fiduciary duties require them to act:

with care, skill and loyalty; and
in the best interests of the company and the shareholders.

They must:

avoid conflicts of interest; and
disclose any potential issues.

The board is responsible for:

setting the company's strategic goals;
monitoring performance; and
overseeing financial reporting.

To this end, it:

approves annual budgets and financial statements; and
ensures compliance with the relevant laws.

Directors also play a key role in:

managing risks;
appointing executives; and
ensuring effective internal controls.

Directors exercise their duties at board meetings, making decisions through passing requisite resolutions. Directors also provide oversight of senior management, delegating day-to-day operations but retaining responsibility for major decisions such as mergers and acquisitions.

Directors must ensure shareholder engagement through annual meetings, addressing concerns and ensuring transparent communication. They are held accountable for their actions and may face legal liability for breaches of duty or mismanagement.

In listed companies:

independent directors have specific term limits; and
corporate governance principles recommend board renewal and diversity for effective oversight.

Overall, directors are central to ensuring a company's ethical governance and long-term success.

3.7 Are the roles of individual directors restricted? Is this common in practice?

In Bangladesh, while the law does not explicitly restrict the roles of individual directors, they are required to uphold specific fiduciary duties and responsibilities under the Companies Act. These duties typically include:

acting in good faith;
exercising due care and diligence;
avoiding conflicts of interest; and
promoting the best interests of the company and its shareholders.

3.8 What are the legal duties of individual directors? To whom are these duties owed?

Please see questions 3.6 and 3.7. The duties are owed to the members of the company as well as to the company. However, in certain situations, the directors instead will owe their duties to creditors of the company.

3.9 To what civil and criminal liabilities are individual directors primarily potentially subject?

Under the Companies Act, 1994, there are numerous civil and criminal liabilities to which directors may be subject. For instance, if directors fail to act in good faith, exercise due care or neglect their duties, they can be held civilly liable for any losses incurred by the company as a result of their actions or inactions. Shareholders or the company itself can bring claims against them for mismanagement or negligence. Criminal liability can also be imposed on a person under Section 99 of the Companies Act, which states that if any person being an undischarged insolvent acts as director of any company, they will be liable to:

imprisonment for a term not exceeding two years;
a fine of up to BDT 500; or
both.

In addition, if a director knowingly or recklessly makes any false, deceptive or misleading statement, promise or forecast which induces another person to enter into any agreement for acquisition or subscription of shares or debentures, or an agreement for securing a profit, they may be subject to:

imprisonment for a term of up to five years;
a fine of up to BDT 15,000; or
both (Section 147 of the Companies Act).

4 Shareholders/members

4.1 What requirements and restrictions apply to shareholders/members in your jurisdiction, in terms of factors such as age, bankruptcy status etc?

In Bangladesh, there are no general restrictions on shareholders or members based on age or bankruptcy status. Both legal and natural persons are eligible to become shareholders of a company.

However, under the Contract Act, 1872, a minor is considered incapable of entering into a valid contract. As a result, while a minor can acquire shares through inheritance or as a gift, they cannot purchase shares through a formal share purchase agreement.

When a person declares bankruptcy, their interest in shares automatically transfers to the trustee in bankruptcy, which then has the right to be registered as the legal owner of those shares.

4.2 What rights do shareholders/members enjoy with regard to the company in which they have invested?

The rights of shareholders or members are governed by the company's articles of association, in accordance with the Companies Act. Key rights include the following:

Voting rights: Shareholders can vote based on the paid-up value of their shares with voting rights. No shareholder holding such shares can be prevented from casting its vote as stipulated in the articles.
Right to receive dividends: Shareholders are entitled to receive any dividends declared by the company and the directors cannot withhold or delay payment.
Right to participate in meetings: Shareholders have the right to attend and vote at annual general meetings (AGMs) and extraordinary general meetings, at which major decisions about the company are made.
Right to information: Shareholders have the right to inspect and obtain certified copies of various registers and records kept by the company.
Right to transfer shares: Shareholders may transfer their shares to other members or outsiders, subject to the restrictions outlined in the company's articles and the Companies Act.
Right to sue: Shareholders holding at least 10% of the shares can file a court petition if the company's affairs are being conducted in:
- an unlawful, fraudulent, oppressive or prejudicial manner; or
- a way that goes against the public interest.
Pre-emptive rights: Shareholders have the right to buy shares from other members or newly issued shares in proportion to their existing holdings, before such shares are offered to external parties.

4.3 How do shareholders/members exercise these rights? Do they have a right to call shareholders' meetings and, if so, in what circumstances?

Some of the rights listed in question 4.2 are inherent to shareholders and require no action on their part, such as:

proprietary rights, which include the right to receive dividends and transfer shares; and
pre-emptive rights granted by virtue of shareholding, which can only be modified by amending the company's articles of association.

Shareholders also exercise certain rights, such as voting and participating in meetings. According to Section 84 of the Companies Act, shareholders holding at least 10% of the total voting power can request the board to call an extraordinary general meeting by submitting a signed request that outlines the purpose of the meeting to the company's registered office. If the directors do not proceed within 21 days from the date of the requisition being so deposited to cause a meeting to be called, the shareholders seeking the meeting or a majority of them in value may themselves call the meeting. In either case, any meeting so called must be held within three months of the date of the deposit of the requisition.

Furthermore, the company's articles of association may outline shareholders' reserved powers, which allow shareholders to issue directions to the company's directors. Any such direction must be presented as a special resolution, which can be broad in nature but must be sufficiently clear and specific to guide the directors on the required course of action.

4.4 What influence can shareholders/members exert on the appointment and operations of the directors?

Shareholders of a company hold the ultimate authority to appoint and remove directors. Thus, if a director fails to act in a way in which the shareholders agree, they have the power to replace the director.

4.5 What are the legal duties/responsibilities and potential liabilities, if any, of shareholders/members?

Provided that there has been no fraud or unlawful conduct which calls for piercing of the corporate veil, and barring any personal guarantees or contractual obligations, the liability of shareholders in a limited company is confined to the amount that they have paid for their shares. Any additional responsibilities of shareholders are typically outlined in:

the company's articles of association; or
a shareholders' agreement.

4.6 To what civil and criminal liabilities might individual shareholders/members be subject?

The liability of shareholders for the company's debts and obligations is restricted to the amount that they have paid for their shares, provided that there has been no misfeasance.

4.7 Are there rules governing the issuance of further securities in a company? Do rights of pre-emption exist and, if so, how do they operate? Can they be circumvented? If so, how and to what extent?

As per Section 155 of the Companies Act, 1994, if the directors decide to issue additional shares within the authorised capital limit in order to increase the subscribed capital of the company, the additional shares will be offered to the members in proportion – as close as circumstances permit – to the capital paid up on the existing shares held by such members, regardless of class. The offer will be made by notice that specifies:

the number of shares offered; and
the time limit – which must not be less than 15 days from the offer date – within which the offer, if rejected, will be considered declined.

Other rights of pre-emption may be specified in the articles of association or a shareholders' agreement. The directors should also ensure they comply with any other procedures with regard to the allotment of new shares set out in the articles of association.

The procedures associated with the exercise of pre-emption rights can be circumvented by:

passing a resolution by all shareholders that do not wish to subscribe to shares being offered; or
entering into a shareholders' agreement waiving the pre-emption right in writing for all shares to be issued by the company in the future.

4.8 Are there any rules on the public disclosure of levels of shareholding and/or stake building?

The Bangladesh Securities and Exchange Commission has established regulations regarding the public disclosure of shareholding and stake building, which are primarily aimed at ensuring transparency in the securities market. These rules are designed to:

disclose significant changes in shareholdings; and
prevent manipulation or undue influence over companies listed on the stock exchange.

5 Operations

5.1 What are the main routes for obtaining working capital in your jurisdiction? What are the advantages and disadvantages of each?

Shareholders of the company may contribute working capital by subscribing to additional shares in the company.

Alternatively, the company may opt for a loan to meet its working capital needs, which could come from:

the shareholders;
another entity within the same corporate group; or
a third-party lender.

Additionally, the company may explore other financing options such as:

overdrafts;
revolving credit facilities;
debt factoring (or invoice financing);
asset refinancing; and
merchant cash advances.

5.2 What are the main routes for the return of proceeds in your jurisdiction? What are the advantages and disadvantages of each?

The different routes for the return of proceeds include:

dividends;
share buybacks;
reduction of share capital; and
repayment of loans or capital contributions.

The most common way for a company to return value to its shareholders is through a dividend. A dividend is a portion of the company's post-tax profits distributed to its shareholders. For a company to legally pay a dividend, it must have adequate distributable profits, which must be supported by the relevant financial statements. The advantage of distribution of dividends is that it offers shareholders direct profits, regular income and tangible rewards for their investments, which in turn fosters shareholder confidence and attracts new investments. On the other hand, the distribution of dividends is discretionary, meaning that they may vary from company to company depending on the financial performance and strategic priorities of the company.

A bonus issue involves a company issuing new shares (bonus shares) to its current shareholders, typically in proportion to their existing holdings. Shareholders need not make any payment, as the bonus shares are funded by the company's existing profits or reserves. This method can be used to return value to shareholders by later redeeming or repurchasing the bonus shares. While the advantage of this route is that it allows for the issuance of new shares from the profits of the company without any additional payments, some shareholders may deem it disadvantageous as it does not allow for cash dividends.

5.3 What requirements and restrictions apply to foreign direct investment in your jurisdiction?

Bangladesh is generally welcoming to foreign investment, adhering to the principle of non-discrimination, allowing 100% foreign ownership in most sectors. However, local ownership is mandated in certain cases, such as for:

freight/cargo forwarding agents;
airline/railway/general or pre-shipment service cargo agents;
shipping agents;
courier services agents;
the purchase of houses;
indenting agents;
advertising agents; and
for-profit/commercial educational institutions.

5.4 What exchange control requirements apply in your jurisdiction?

Bangladesh has restrictive foreign exchange policies and it is important for an entity to set up its business operations in compliance with:

the Foreign Exchange Regulations Act, 1947; and
subsequent guidelines issued by Bangladesh Bank.

5.5 What role do stakeholders such as employees, pensioners, creditors, customers and suppliers play in shaping business operations in your jurisdiction? What other influence can they exert on an enterprise?

Stakeholders can help to shape business operations in Bangladesh. Employees, for example, are key drivers of productivity and innovation, and directly influence business quality, efficiency and profitability. In Bangladesh, with its substantial manufacturing base, employee performance is crucial to comply with production deadlines and quality standards set by customers. Employees can influence the culture within an organisation and act as brand ambassadors. They may help to secure better wages, benefits and working conditions through unions or collective bargaining. High labour turnover or dissatisfied employees can lead to operational disruptions and destroy the reputation of the company.

Enterprises with pension plans should apportion resources for retirees, which may affect financial stability and operational strategies. Pensioners may advocate for the financial sustainability of pension funds. Otherwise, public disputes over the handling of pensions can hurt an enterprise's reputation.

In addition, creditors provide the necessary capital for business expansion, inventory management and operational continuity. Access to credit is crucial in business, especially for small and medium-sized enterprises, which are the engine of the economy. Creditors can:

enforce stricter financial discipline through loan terms and oversight; and
influence the strategic decisions of a firm relating to:
- budgeting;
- initiating growth; and
- restructuring debt.

Moreover, customers dictate demand, preferences and trends, shaping product development, pricing strategies and marketing efforts. Customer feedback influences service delivery and innovation in industries such as:

retail;
agriculture; and
information and communications technology.

The customer base can enforce changes in business policies through purchasing decisions towards more ethical and sustainable practices. Moreover, social media and consumer advocacy can magnify the voice of customers, influencing corporate reputation and policy.

Lastly, suppliers guarantee the flow of raw materials, components or services needed for production and operations, and can thus impact pricing, quality and lead times, influencing the overall cost structure. In Bangladesh's export-oriented industries (eg, textiles), reliable supplier relationships are essential for meeting global standards and deadlines. Suppliers may also demand:

equity;
timely payments; and
long-term partnerships.

5.6 What key concerns and considerations should be borne in mind with regard to general business operations in your jurisdiction?

Since independence in 1971, Bangladesh has come a long way economically. From a gross domestic product growth rate of -14% in 1971 after independence, the country had an average growth rate of 8% as at September 2019. The drivers of business in Bangladesh include the following:

Bangladesh's geographical location affords the country a strategic advantage over its peers. It has a balanced share of land and sea, meaning that it can take advantage of land transport with India, Nepal, Bhutan and Myanmar.
The Bangladesh governments has adopted a coherent long-term vision towards the economic transformation of the country.
Bangladesh has a favourable and affordable labour market compared to most jurisdictions in the world. It has also successfully adopted strategies aimed at encouraging women to participate in the economy.

That said, factors which businesses should bear in mind include:

difficulties surrounding the enforcement of contracts;
the restrictive approaches of various relevant government authorities; and
a volatile political environment.

6 Accounting reporting

6.1 What primary accounting reporting obligations apply in your jurisdiction?

In Bangladesh, businesses are primarily required to adhere to the accounting reporting requirements outlined in the Companies Act, 1994, which include the following:

Companies must prepare and present financial statements including:
- a balance sheet;
- an income statement;
- a cash-flow statement; and
- a statement of changes in equity.
Companies must prepare annual reports which typically include:
- the financial statements;
- directors' reports;
- an auditor's report; and
- other relevant disclosures.
The audit must be conducted by independent auditors.
Listed companies are subject to additional disclosure requirements imposed by regulatory bodies such as:
- the Bangladesh Securities and Exchange Commission; and
- the stock exchanges (eg, Dhaka Stock Exchange and Chittagong Stock Exchange).

6.2 What role do the directors play in this regard?

Directors are accountable for:

overseeing the financial reporting process; and
ensuring that financial statements are prepared in accordance with relevant accounting standards and regulatory requirements.

They play a crucial role in establishing and maintaining effective internal control systems to safeguard the company's assets and mitigate financial risks.

Additionally, directors are responsible for appointing external auditors to carry out independent audits of the company's financial statements. They must ensure that the auditors are qualified, independent and objective in their assessment of the company's financial position and performance.

Furthermore, the directors are responsible for presenting the financial statements, both audited and unaudited, at the company's annual general meeting (AGM). Failure to do so can lead to penalties.

6.3 What role do accountants and auditors play in this regard?

Section 213 of the Companies Act, 1994 provides for the powers and duties of auditors. The auditors of a company:

have the right to access its books, accounts and vouchers at any time, whether at the head office or elsewhere; and
can request any necessary information from the company's officers to perform their duties.

Auditors must inquire into specific matters, including whether:

loans and advances have been properly secured and the terms are not harmful to the company or its shareholders;
transactions represented only as book entries are detrimental to the company;
shares, debentures and securities have been sold for less than their purchase price;
loans and advances have been recorded as deposits;
personal expenses have been charged to the revenue account; and
cash has been received for shares allotted for cash.

The auditors must present a report at the AGM:

stating whether the financial statements:
- comply with legal requirements; and
- give a true and fair view of the company's financial condition; and
confirming that:
- proper books of account were maintained; and
- the balance sheet and profit and loss account align with the company's records.

If discrepancies are found, the auditor must explain them. The government can require auditors to report on specific matters for certain companies.

The accounts will not be considered improperly prepared merely due to non-disclosure of certain matters if such non-disclosure is allowed by law.

6.4 What key concerns and considerations should be borne in mind with regard to accounting reporting in your jurisdiction?

Businesses in Bangladesh should pay close attention to the transparency and proper disclosure of their accounts as per the Companies Act, 1994. In addition, listed companies should carefully observe various rules, regulations, office orders and circulars issued by the Bangladesh Securities and Exchange Commission with regard to accounting reporting from time to time.

7 Executive performance and compensation

7.1 How is executive compensation regulated in your jurisdiction?

Executive compensation is regulated by the Companies Act, 1994 and the articles of association of the concerned company.

7.2 How is executive compensation determined? Do any disclosure requirements apply?

Subject to Section 111 of the Companies Act, 1994, executive compensation is determined by the company or the board, in accordance with the articles of association.

7.3 How is executive performance monitored and managed?

Executive performance is monitored through various mechanisms, such as:

oversight by the board of directors;
performance evaluations; and
accountability to shareholders.

Shareholders hold executives accountable primarily through the annual general meeting (AGM), where they can voice concerns, ask questions, and vote on key matters. At the AGM, executives – including the chief executive officer – typically:

present reports on the company's performance; and
answer shareholder inquiries.

Shareholders can propose and vote on resolutions related to executive compensation, director appointments and other governance issues, signalling their approval or dissatisfaction with executive leadership.

Shareholders also have the power to review and vote on executive compensation packages, such as:

salaries;
bonuses;
stock options; and
other incentives.

If shareholders feel that compensation is excessive or misaligned with company performance, they may vote against proposed plans. Additionally, shareholders can remove directors and executives through special resolutions, ensuring that executive performance is held in check. Shareholders that cannot attend the AGM in person can appoint proxies to vote on their behalf, ensuring that their interests are represented in decisions affecting executive performance and company governance.

7.4 What key concerns and considerations should be borne in mind with regard to executive performance and compensation in your jurisdiction?

Executive compensation should be directly aligned with shareholder interests to ensure that executives are motivated to enhance shareholder value. There must be clear transparency in how executive pay is connected to the company's performance.

8 Employment

8.1 What is the applicable employment regime in your jurisdiction and what are its key features?

The laws of employment are primarily governed by:

the Labour Act, 2006; and
the Labour Rules, 2015.

These laws:

offer procedural protections against unjust:
- termination;
- dismissal;
- layoff; or
- retrenchment;
guarantee an employee's rights on:
- pay;
- benefits;
- working hours; and
- working conditions; and
provide for grievance redress mechanisms for the employees of businesses, including arbitration and litigation.

In general, the employment laws and the relevant courts are known to be employee-friendly.

8.2 Are trade unions or other types of employee representation recognised in your jurisdiction?

Section 176 of the Labour Act, 2006 provides for the right to form a trade union:

primarily for the purpose of regulating the relations between:
- workers and employers; or
- workers and workers; and
subject to the constitution of the union concerned to join a trade union of its own choice.

8.3 How are dismissals, both individual and collective, governed in your jurisdiction? What is the process for effecting dismissals?

Under the ambit of the Labour Act, 2006 there are several forms of severance of a worker by an employer:

Discharge: An employee can be discharged from service for reasons of physical or mental incapacity or continued ill-health certified by a registered medical practitioner, as per Section 22 of the Act.
Retrenchment: On the grounds of redundancy, a worker can be terminated from the workplace as stated in Section 20 of the Act.
Layoff: An employee can be dismissed due to unforeseeable circumstances, where the employer fails or is no longer able to give them employment.
Dismissal: An employee may be dismissed in the event of a criminal conviction or other misconduct as specified in Section 23 of the Act.

Otherwise, written notice must be served on the employee as per Section 26 of the Labour Act, which governs termination by an employer on grounds other than dismissal. Pursuant to Section 26, the employer must serve written notice of 120 days or pay wages for the 120 days in lieu of notice in order to terminate an employee.

8.4 How can specialist talent be attracted from overseas where necessary?

We commonly see specialist foreign talent employed in various domestic and multinational companies in Bangladesh. The prime features that attracts foreign talent to Bangladesh include:

ease of repatriation of salary;
a straightforward procedure for the issue of work permits by the Bangladesh Investment Development Authority (BIDA);
high salaries; and
worker-friendly labour laws.

8.5 What key concerns and considerations should be borne in mind with regard to employment in your jurisdiction?

Foreign talent seeking employment in Bangladesh should be mindful of:

the specific visa requirements;
the BIDA work permit requirements; and
the rules and regulations on foreign exchange.

9 Tax

9.1 What is the applicable tax regime in your jurisdiction and what are its key features?

As in other advanced economies, the tax regime in Bangladesh broadly consists of three statutes:

the Customs Act, 1969;
the Value Added Tax and Supplementary Duty Act, 2012 ('VAT & SD Act'); and
the Income Tax Act, 2023.

A foreign investor which is a legal entity and intends to do business in Bangladesh should be aware of the applicable tax rate that will be imposed for importing machinery and raw materials. The VAT & SD Act deals with indirect tax that are imposed on goods and services sold or rendered by an entity in the local market. As far as income tax is concerned, a foreign investor should be aware of:

the corporate tax rate;
various obligations for withholding taxes; and
the compliance regime that must be followed to realise the benefit of allowable expenditure.

The National Board of Revenue is responsible for enforcing this legislation. It is vested with various extensive powers to issue statutory regulatory orders (SRO) from time to time. SROs can often make a significant difference between tax exemptions and more stringent tax obligations.

An individual should primarily be aware of:

the Income Tax Act; and
the obligations involving submission of tax returns, as any failure to submit a return will have penal consequences.

9.2 What taxes apply to capital inflows and outflows?

Overall, Bangladesh provides certain tax incentives to attract foreign investment. Taxes are levied on:

income from capital investments; and
the repatriation of profits or capital.

Specific rates and exemptions depend on:

the type of transaction; and
whether there are international agreements in place.

9.3 What key exemptions and incentives are available to encourage enterprises to do business in your jurisdiction?

Projects registered with the Bangladesh Investment Development Authority can avail of several tax-related fiscal incentives, including the following:

Import duty exemption: A 1% import duty exemption applies to capital machinery and spare parts for export-oriented industries, allowing for the import of spare parts duty free up to 10% of the machinery value every two years. A 3% import duty exemption applies to capital machinery and spare parts for other industries. Additionally, VAT is not applicable to imported capital machinery and spare parts.
Accelerated depreciation: Newly established industrial undertakings can benefit from accelerated depreciation in place of tax exemptions on factory buildings and machinery/plant. The depreciation rates are:
- 50% in the first year;
- 30% in the second year; and
- 20% in the third year.
Initial depreciation allowances are also available for machinery and plant.
Other tax exemptions: Exemptions are available for:
- interest paid on foreign loans (under certain conditions);
- royalties;
- franchise fees;
- technical licence/know-how/assistance fees paid to foreign entities; and
- personal income tax for foreign technicians employed in industries specified in the Income Tax Act 2023 for up to three years.

Companies located in economic zones or export processing zones are eligible for a separate set of incentives, including tax exemptions.

9.4 What key concerns and considerations should be borne in mind with regard to tax in your jurisdiction?

The primary strategy for an individual or business in Bangladesh to optimise tax outcomes is to be aware of the tax law provisions. One way to optimise the tax outcomes for businesses is through a corporate restructuring, which may require consultation with specialised, skilled and experience legal consultants. As such, it would be prudent for individuals and businesses to retain such practitioners.

10 M&A

10.1 What provisions govern mergers and acquisitions in your jurisdiction and what are their key features?

The main laws governing M&A transactions in Bangladesh are:

the Companies Act, 1994;
the Companies Rules, 2009;
the Contract Act, 1872; and
the Competition Act, 2012.

In addition, public limited companies – including listed companies – must comply with:

the Securities and Exchange Commission (SEC) Act, 1993;
the Securities and Exchange Ordinance 1969;
the Securities and Exchange Commission (Substantial Acquisition of Shares and Takeover) Rules, 2018; and
other rules, regulations, circulars and notifications formulated and published by the SEC from time to time.

Apart from the primary laws discussed above, mergers and acquisitions involving foreign investment also require compliance with:

the Foreign Exchange Regulation Act, 1947;
the Guidelines for Foreign Exchange Transactions, 2018; and
certain other circulars and notifications formulated by the Bangladesh Bank from time to time.

Furthermore, depending on the nature of the target and the licences it holds, prior permission from the relevant regulators may be required. For instance:

if the company in question is a financial institution, prior permission from the Bangladesh Bank will be required;
if the company operates in the telecommunications sector, prior permission from the Bangladesh Telecommunication Regulatory Commission will be required; or
if the target is engaged in power generation under an implementation agreement, permission from the Ministry of Energy and Mineral Resources may be required, depending on the stake and the period after the commercial operation date.

The Bangladesh Bank plays a pivotal role in approving the price of shares in an acquisition where a local buyer purchases the shares of a Bangladeshi company from a foreign seller shareholder (ie, the purchase results in the outflow of foreign currency from Bangladesh).

10.2 How are mergers and acquisitions regulated from a competition perspective in your jurisdiction?

The Competition Act 2012 is the key statute that regulates mergers and acquisitions in Bangladesh from a competition perspective. The parties to an M&A agreement must conduct due diligence and give careful consideration to Bangladesh's competition laws. Tie-in agreements, exclusive supply agreements, exclusive distribution agreements, refusals to deal and resale price maintenance are among the anti-competitive agreements covered by the Competition Act that are crucial in M&A transactions.

The Competition Act expressly forbids mergers that have or are likely to have a negative impact on competition in the market for products or services. Therefore, after confirming that a combination transaction is unlikely to have a negative impact on competition, combination deals may need the prior consent of the appropriate regulator.

10.3 How are mergers and acquisitions regulated from an employment perspective in your jurisdiction?

Rule 32(c) of the Labour Rules, 2015 states that in case of the transfer of shares or a change in ownership of a company, upon completion of such transfer/change (ie, post-closing):

if the employees wishes to continue their employment with the company, their employment will continue accordingly; and
if any employee wishes to resign upon such change in ownership, the resigning employee will be entitled to receive the benefits mandated in Section 27(4) of the Labour Act, 2006.

From a practical perspective, certain employees may wish to sever from the employer following an M&A transaction and vice versa.

10.4 What key concerns and considerations should be borne in mind with regard to M&A activity in your jurisdiction?

An M&A deal involves several stages, including:

conducting due diligence of the target;
drafting and finalising the share purchase and/or subscription agreement;
drafting the scheme of amalgamation in case of a merger;
conducting negotiations between the parties; and
closing and/or court order in case of a merger.

It is crucial for the parties to consider the relevant provisions of law and their applicability at each step; failure to do so may significantly delay the conclusion of the M&A deal.

11 Financial crime

11.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction?

In Bangladesh, any act in relation to money laundering and terrorist financing is considered as a criminal offence. The main laws which govern money laundering and terrorist financing are:

the Money Laundering Prevention Act 2012;
the Money Laundering Prevention Rules 2013;
the Anti-Terrorism Act 2009; and
the Anti-Terrorism Rules 2013.

The above laws govern:

offences in relation to money laundering and terrorist financing;
penalties;
management; and
monitoring.

11.2 What key concerns and considerations should be borne in mind with regard to the prevention of financial crime in your jurisdiction?

Bangladesh has a strict approach towards tackling financial crime. Hence, businesses are generally advised to remain conversant with the updates in the relevant laws to ensure complete compliance.

12 Audits and auditors

12.1 When is an audit required in your jurisdiction? What exemptions from the auditing requirements apply?

The board of directors of every company is legally required to present the audited financial statements for the financial year at the company's annual general meeting (AGM) under Section 183 of the Companies Act.

12.2 What rules relate to the appointment, tenure and removal of auditors in your jurisdiction?

As per Section 210 of the Companies Act, 1994, every company must:

at each AGM, appoint an auditor to hold office from the conclusion of that meeting until the next AGM; and
within seven days of the appointment, give intimation thereof to such auditor so appointed.

For the purpose of such appointment, the written consent of the auditor is required. If a new auditor is not appointed and the existing auditor does not retire from office, the existing auditor will continue in office for the coming year.

12.3 Are there any rules or recommendations that limit the scope of services as regards the provision of non-audit services by an auditor?

Typically, auditors should refrain from providing non-audit services if:

those services could compromise the auditor's independence; and
there are no adequate safeguards in place to mitigate such risks.

Stricter limitations apply to the non-audit services that auditors can offer to public interest entities.

12.4 Are there any rules or recommendations which cap the remuneration of an auditor as regards payment for the provision of non-audit services?

The law is silent in this regard.

13 Termination of activities

13.1 What are the main routes for terminating business activities in your jurisdiction? What are the advantages and disadvantages of each?

There are three available options to wind up a company in Bangladesh:

voluntary winding up;
winding up by the court; and
winding up subject to the supervision of the court.

Voluntary winding up: Sections 286-290 and Sections 306-315 of the Companies Act, 1994 set out the general provisions which apply to the voluntary winding up of companies. In a voluntary winding up, the company and its creditors are at liberty to settle their affairs between themselves, with the option to apply to the court if needed. A company may be wound up voluntarily:

when the period, if any, fixed by the articles for the duration of the company has come to an end or an event upon the happening of which the company is to be wound up has happened and the company has passed a resolution to wind up in general meeting; or
if the company passes a special resolution to wind up voluntarily. A company may be solvent and even prosperous and still desire to wind up its affairs.

As per Section 286 of the Companies Act, 1994, a company may be wound up voluntarily without assigning any reason thereto if a special resolution is passed to that effect in a general meeting of the company. When a company is wound up voluntarily, it will cease, from commencement of the winding up, to carry on its business, except insofar as this may be required for the beneficial winding up. However, notwithstanding anything to the contrary in its articles of association, the corporate state and corporate powers of the company will continue until it is dissolved.

Winding up by the court: According to Section 241 of the act, a company may be wound up by the court if:

the court has ordered by special resolution that the company be wound up by the court;
the company has defaulted in filing a statutory report or holding a statutory meeting;
the company:
- has not commenced business within one year of its incorporation; or
- has suspended business for a whole year;
the company is unable to pay its debts; or
the court is of the opinion that it would be just and equitable that the company be wound up.

The procedure for winding up a company by the court commences with the filing of a petition at the Company Bench of the High Court Division of the Supreme Court of Bangladesh. An application for winding up can be made by:

a creditor;
the company; or
a contributory that has held the shares for at least six months in the 18 months preceding commencement of the winding up.

In the usual course, upon filing of a petition, if there is a prima facie case, the court will admit the application and direct the petitioner to:

issue notices upon the respondent; and
publish notices in two daily newspapers.

Once these directions have been complied with, pursuant to a subsequent application or a prayer, the court may appoint a provisional liquidator under Sections 255(1) and (2) of the Act read with Rule 82 of the Companies Rules, 2009. The provisional liquidator takes custody of all movable and immovable property of the company, as permitted by Section 262 of the Companies Act. Further, the company is directed to submit to the provisional liquidator a verified statement of affairs signed by the managing director of the company as required under Section 258 of the Act. Upon completion of all functions of the provisional liquidator, the court will issue an order dissolving the company effective from the date of the order. Within 15 days of the date of the order, the liquidator will notify the order to the Registrar of the Joint Stock Companies and Firms (RJSC).

Winding up subject to court supervision: Sections 316-321 provide for winding up subject to supervision of the court. Where a company has resolved to wind up voluntarily by extraordinary resolution, the court may make an order that the voluntary winding up continue:

subject to supervision of the court; and
on such terms as the court thinks fit.

The shareholders or creditors may apply for such a supervision order after passing of the resolution for winding up.

13.2 What key concerns and considerations should be borne in mind with regard to the termination of business activities in your jurisdiction?

No answer submitted for this question.

14 Trends and predictions

14.1 How would you describe the current landscape for doing business and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

When the COVID-19 pandemic hit, the government of Bangladesh launched several initiatives to help combat the health and economic crisis that was sweeping across the nation. In response to this dire situation, it announced a fund of approximately $500 million to facilitate payment of the wages of workers in export-oriented industries. It further announced a stimulus package of $3.6 billion for affected industries and service sector organisations, provided in the form of working capital through banks at low interest rates, whereby the government and the affected industries would split the payment of interest equally. Another package pertaining to small and medium-sized enterprises (SMEs), including cottage industries, provided $2.4 billion in working capital to SMEs.

A number of initiatives have also been launched by the government to attract further investment to Bangladesh by enhancing the ease of doing business through the introduction of several ground-breaking measures. These initiatives include a reduction in the time needed for businesses to obtain:

electricity;
a trade licence;
a tax identification number;
land registration;
mutation;
customs clearance; and
value-added tax registration.

All of the above can now be done virtually.

The government is also reforming the Companies Act to further facilitate doing business in Bangladesh. The reforms, which are now at an advanced stage, include the introduction of:

a single-member company;
the possibility to buy back own shares; and
a minority protection regime in line with those in advanced legal systems.

In a nutshell, the current state of the market is stable and there have been a number of notable business deals in the past couple of years despite the global economic crisis.

15 Tips and traps

15.1 What are your top tips for doing business smoothly in your jurisdiction and what potential sticking points would you highlight?

Doing business in Bangladesh can be rewarding but comes with its own set of challenges. To operate in Bangladesh effectively, one needs to adhere to the country's governing laws and practices. To this end, businesses should be aware of the current relevant legal schemes and developments thereto. The reality may differ from what is suggested by legal texts; hence, a proper understanding of the market and the way in which regulators such as the following function in practice is crucial:

the Bangladesh Investment Development Authority;
the National Board of Revenue; and
the Office of the Registrar of the Joint Stock Companies and Firms.

Expert consultation in this regard is thus encouraged.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Doing Business In Comparative Guide

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