Setting Up a Subsidiary Company in Bangladesh

An In-Depth Guide

Establishing a subsidiary company in Bangladesh is an exciting opportunity for foreign investors, with the country's dynamic economy and welcoming business environment. This comprehensive guide will walk you through the necessary steps, legal requirements, and documentation for setting up a subsidiary company in Bangladesh, ensuring that you are fully informed throughout the process.

What is a Subsidiary Company?

A subsidiary company is a type of private limited company that is primarily owned by another corporate entity, also known as the parent company. While the subsidiary operates independently, it still benefits from the ownership and control of its parent company. A foreign company can fully own a subsidiary in Bangladesh, making it an attractive option for international businesses.

Key Features of a Subsidiary Company

• Independent Operations: The subsidiary operates as a limited liability company, separate from its parent. It can carry out business activities without interference from the parent company.
• Local Entity Treatment: The subsidiary is treated as a local company in Bangladesh, enabling it to access local business regulations and benefits.
• Control and Ownership: If a parent company holds more than 50% of the subsidiary’s voting shares or controls its board of directors, the subsidiary is classified as such.
• Tax Benefits: Subsidiaries enjoy local tax breaks and exemptions similar to other domestic companies.
• Liability Protection: The parent company's liability is limited to the capital invested in the subsidiary.
• Property Ownership: The subsidiary can own real estate in its name and manage assets directly.
• Legal Capacity: The subsidiary has the legal capacity to sue or be sued under its own name.
• Naming Convention: The company name must end with “Limited,” “Private Limited,” or “Ltd.”

Statutory Requirements for a Subsidiary Company

• Directors: At least two directors are required, with a maximum of fifty.
• Shareholders: The company must have at least two shareholders but no more than fifty.
• Share Capital: The minimum capital requirement is BDT 1 per shareholder, making it an affordable option for investors.
• Foreign Ownership: 100% foreign ownership is allowed.
• Legal Competence: Directors must be at least 18 years old and of sound mind.
• Registered Address: A local address is required for legal and correspondence purposes.
• Auditor Appointment: An auditor must be appointed within 30 days of incorporation.

Pros and Cons of a Subsidiary in Bangladesh

Pros:

• Flexibility: The subsidiary can engage in a variety of business activities.
• Limited Liability: Shareholders are only liable for their capital investment.
• Brand Leverage: The subsidiary can benefit from the parent company’s established brand.
• Ownership Transfer: Shares can be easily transferred, facilitating investment opportunities.
• Perpetual Succession: The company continues to exist even after changes in shareholders or directors.

Cons:

• Regulatory Complexities: Subsidiaries face stricter regulations compared to other structures like liaison offices.
• Remittance Restrictions: Profits cannot be remitted to the parent company until the subsidiary is dissolved.
• Complex Dissolution: Closing a subsidiary company is a lengthy and expensive process.

Required Documents for Setting Up a Subsidiary Company

For Non-Operating Bank Account:

• Name Clearance Certificate: Issued by the RJSC (Register of Joint Stock Companies and Firms) to verify that the company name is unique.
• Draft MOA and AOA: The Memorandum of Association and Articles of Association outline the company’s objectives and structure.
• Promoters’ Meeting Minutes/Board Resolution: Minutes documenting the decisions of the promoters or board regarding the subsidiary's establishment.
• Photographs and ID Copies: Copies of national IDs or passports of all shareholders and directors.
• Completed Bank Account Application Form: A signed form for opening the bank account.

For Corporate Shareholders:

• Share Tree Analysis: A document outlining the ownership structure of corporate shareholders.
• Identification Documents: Passports and photographs of all corporate shareholders and nominee directors.
• Corporate Documents: Incorporation certificate, MOA, AOA, and the last year’s audit report for corporate shareholders.

For Company Registration:

• MOA and AOA: Final versions of the Memorandum and Articles of Association.
• Form IX: Consent form from the directors.
• Form VI: Declaration of the company’s registered address.
• Signed Subscriber Page: Details of the initial subscribers to the company’s shares.

Steps to Set Up a Subsidiary Company

1. Name Approval:

• Choose a suitable name for the subsidiary.
• Submit an application for name approval via the RJSC web portal.
• Pay the required fees at the bank.
• Obtain the Name Clearance Certificate from RJSC.

2. Draft Required Documentation:

• Prepare the MOA and AOA.
• Complete Form IX and Form VI.
• Record the promoters’ meeting minutes or board resolution.

3. Opening a Non-Operating Bank Account:

• Open a non-operating bank account to receive inward remittances.
• Transfer the initial paid-up capital to this account.
• Obtain an Encashment Certificate from the bank confirming the remittance purpose.

4. Inward Equity Remittance:

• Transfer the initial capital via SWIFT, marking it as “Equity Investment.”
• The bank processes the remittance and issues an Encashment Certificate.

5. Filing for Company Registration:

• Upload the necessary documents (MOA, AOA, Form IX, Form VI, Encashment Certificate) on the RJSC web portal.
• The RJSC will review and approve the registration application.

6. Obtain Company Registration Documents:

• Receive the Incorporation Certificate, certified copies of MOA and AOA, and Form-XII.

7. Other Registrations and Licenses:

• Apply for trade licenses, tax registration (E-TIN), VAT registration (BIN), and memberships from relevant chambers of commerce.
• Secure import/export registration if applicable.

8. Activating the Final Bank Account:

• Submit the required registration documents to the bank.
• Obtain the final operating bank account for the subsidiary.

Conclusion

Setting up a subsidiary company in Bangladesh is an excellent way to expand business operations in the South Asian market. By following the necessary legal procedures and ensuring compliance with local regulations, foreign investors can successfully establish and grow their subsidiary in Bangladesh. For any queries or assistance with the setup process, it is advisable to consult with local legal experts who specialize in company formation.