One of your prospective clients from USA is contemplating to start their business in Bangladesh. The client requests your opinion over the legal position of opening their business in the form of Liaison Office, Branch Office and forming a subsidiary in terms of: (i) legal steps; (ii) taxation and (iii) remittances and employment.

Regulations relating to legal steps, taxation, remittances and employment of a Foreign Company:

As per section 378(a) of the Companies Act (CA) 1994, any Company incorporated outside Bangladesh which, establish a place of business within Bangladesh shall be treated as a Foreign Company. 

The following regulations are related to Foreign Companies:

Legal Steps as required by the CA 1994: Registration of foreign Companies:

As contained in Section- 379 a Foreign Company can be registered in Bangladesh. The Foreign Companies, which after the commencement of this Act establish a place of business within Bangladesh shall, within one month of the establishment of the place of business, deliver the following documents to the Registrar for registration.

1. A certified copy of the charter or statutes or memorandum and articles of the Company or other instrument constituting or defining the constitution of the Company; and if the instrument is not written in Bengali or English languages a certified Bengali or English translation thereof;

2. The full address of the registered or principal office of the Company;

3. A list of the Directors and Secretary if any, of the Company;

4. The name and address or the names and addresses of one or more persons resident in Bangladesh, authorized to accept on behalf of the Company service of process and any notice or other document required to be served on the company;

5. The full address of the office of the Company in Bangladesh, which is to be deemed to be its principal place of business in Bangladesh.

Accounts of Foreign Companies

Every Foreign Company shall, in every calendar year make out a Balance Sheet, Profit and Loss Account, Group Account (if it is a holding company) and such other documents and information as required by the Act and deliver 3 copies of the same to the Registrar (section-380).

Obligation to state name, etc. of Foreign Company

Every foreign company shall,

a) in every prospectus inviting subscription in Bangladesh for its shares or debenture, state the country in which the company is incorporated;

b) exhibit on the outside of every office or place where it carries on business, the name of the company and the country of incorporation in legible English or Bengali Character;

c) Disclose the name of the company, country of incorporation in English and Bengali in all bills, letter head, notices and other official publications (section 381).

As per section 388 the company shall submit a certified copy of the prospectus to the Registrar if the
company wants to issue prospectus offering to the public for subscription of shares/debentures.

Other related regulations

The Company shall be registered with the Board of Investments (BOI) as a foreign company or a joint venture company by paying prescribed fees to Government.

Clearance from the Office of the Environment

A clearance letter from the office of the Environment is to be obtained by paying adequate fees along with complying with other formalities to the Government.

Obtaining a trade license

A trade license is also to be obtained by paying prescribed fees from the City Corporation or Union
Porishad concerned as the case may be to run its business in any City corporation, Pouroshabha or
Union Parishad area.

TIN Number

The Company would require TIN number from the Income Tax Office concerned as per IT Ordinance
1984 & recurrent finance bill.

VAT registration
 

The Company will be registered with the Divisional Officer, VAT and collect a certificate of VAT registration, i.e., 'VAT-8' as per VAT Act 1991.

Taxation of Foreign Companies

Income Tax:
The Foreign Company may get special Tax benefit if it is located in Export Processing Zone (EPZ). In this case, the Company will get lax exemption period for 10 years. No Income Tax will be deducted at source from the income of the Company as well as from the import value of the Company. In case the company is an export oriented one it will pay no Duties, Tax, VAT, etc. on import of raw materials. After the Tax holiday period the Company will also enjoy 50% Income tax relief on its export earnings.

VAT:
The VAT rate for export of items of any company is Zero. But if the company sells its products locally it will pay VAT as per VAT Act 1991 and amendments thereto.

Remittance and Employment

After registration of the Company by the Registrar, it will take permission from the Bangladesh Bank through the Board of Investment for remittance from the overseas by way of loan, equity, etc. and for remittance from Bangladesh for payment of dividend, interest etc. For recruitment of any foreigners in the company, the company will take work permit of the employees from the Board of Investment. For Bangladeshi employees no such permission is required to work in foreign companies.

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Who can authenticate the proceeding or a document of a company? Is the authentication of document needed under company seal?

A document or proceeding requiring authentication by a company may be signed by a director, secretary or other authorized officer of the company, and need not be under its common seal.

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Are Balance Sheet and Profit & Loss A/C required to be filed with registrar - (1) If there is no AGM held? When? (2) If the shareholders do not adopt the Balance Sheet laid before the AGM? Explain why?

Where the annual general meeting of a company for any year has not been held, there shall be filed with the Registrar within thirty days from the last day on which that meeting should have been held.

If the shareholders do not adopt the Balance Sheet laid before the AGM, a statement of that fact and of the reasons therefore shall be annexed to the balance-sheet and to the copies thereof required to be file with the Registrar.

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How many copies of Balance Sheet and Profit & Loss A/C and within how many days from the date of AGM are to be filed with the registrar? Who can sign these? What are the consequences of default?

As per section 190 of the Companies Act, three copies of the balance-sheet and the profit and loss account or the income and expenditure account shall be filed with the Registrar, within thirty days after Annual General Meeting.

The balance-sheet and the profit and loss account or the income and expenditure account signed by the managing director, managing agent, a manger or secretary of the company or if there be none of these, by a director of the company.

If a company makes default in complying with the requirements of this section, it shall be liable to a fine not exceeding one hundred taka for every day during which the default continues, and every office of the company who knowingly and willfully authorizes or permits the default shall be liable to the like penalty.

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What are the conditions that a contingent or prospective creditor has to fulfill for hearing of his petition for winding up before the court?

The Court shall not give a hearing to a petition for winding up of a company by a contingent orprospective creditors until such security for costs has been given as the Court thinks reasonable and until a prima facie case for winding up has been established to the satisfaction of the Court.

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Can a contributory present a petition for winding up of a company? When?

A contributory shall not be entitled to present a petition for winding up a company, unless –

(i) either the number of members is reduced in the case of a private company, below two, or, in the case of any other company, below seven; or

(ii) the shares in respect of which he is a contributory or some of them either were originally allotted to him or have been held by him, and registered in his name for at least six months during the eighteen months before the commencement of the winding up, or have devolved on shim through the death of a former holder;

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State the circumstances in which a company may be wound up by the court.

As per section 241, a Company shall be wound up if the Company:

i. Passed a special resolution for winding up of the company by court.

ii. Fails to furnish statutory report or fails to hold statutory meeting.

iii. Suspend its business operation for one year or fails to commence business within one year of its
incorporation.

iv. Members reduced to less than 2 or 7 for Private & Public Limited Company respectively.

v. Unable to pay its debt.

vi. Court is satisfied that it is just and equitable to wind-up the Company.

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State the modes of winding up of a company as per Company Act, 1994

According to section 234, the winding up of a company, may be done in any one of the following three ways:
1. Compulsory winding up by the Court
2. Voluntary winding up b), the members or by creditors
3. Voluntary winding up under the supervision of the court.

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Statutory Meeting is a must within a specified time for a new company. State the specified time. What matters can be transacted in such meeting?

Every public company limited by shares and every company limited by guarantee and having a share capital, must within a period of not less than one month and not more than six months from the date at which the company is entitled to commence business, hold a general meeting of members which is to be called, the Statutory Meeting. In this meeting the members are discuss a report by directors, known as the Statutory Report, which contains particulars relating to the formation of the Company.

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