Bangladesh – An investment destination in South Asia
Prepared by:
The Lawyers and Jurists
M.L.Hotel Tower Ltd,208, Shahid Syed Nazrul Islam Sarani,
Bijoy Nagar, Dhaka-1000. Email-admin@lawyersnjurists.com
www.lawyersnjurists.com
TABLE OF CONTENTS
1. Abstract
2. The Legal Structure
3. Governing Commercial/Business Laws
4. Entrepreneurship in Bangladesh
A. Limited Companies:
a. Company Limited by Shares
i. Public Limited Company and ii. Private Limited Company
b. Company Limited by Guarantees.
B. Unlimited Companies
4.1 Formation of a company
4.2 Memorandum of Association
4.3 Articles of Association
4.4 Returns to the Registrar
4.5 Shareholders’ Meeting
4.6 Board of Directors
4.7 Mergers & Acquisition
4.8 Winding Up
5. Foreign Investment
5.1 Investment options for foreign entrepreneurs in Bangladesh
A. Joint venture/100% foreign investment proposals in the private sector
B. Self financed local investment proposals including industries sanctioned/
financed by financial institutions or commercial banks.
C. joint venture industrial units with the public sector corporations
5.2 Infrastructural Facilities and Utility Services in Bangladesh
5.2.1. General
5.2.2. Utility Services
5.2.3. Infrastructural Facilities
5.2.4. Other Facilities
5.2.5. Incentive Details:
5.2.5.1. Tax Holiday Facility (THF)
5.2.5.2. Depreciation Allowance.
5.2.5.3. Duty Exemption and Concessions on Machinery
5.2.5.4 Avoidance of Double Taxation
5.2.5.5. Remittance
5.2.5.6 Customs Duty:
5.2.5.7. Repatriation
5.2.5.8. Exit
5.2.5.9. Ownership
5.2.5.10. Investing in the stock market
5.2.5.11. Incentives to Non Resident Bangladeshi (NRBs)
5.2.5.12. Additional Incentives for EPZ Industries:
5.2.5.13. Other Incentives
5.3. Investment Protections / International Agreements:
5.4. Required Permits & Procedures
5.4.1. Registration with the Labour Code:
5.4.2. Obtaining Utility Connections:
5.4.3. Obtaining Work Permit:
5.4.4. Registration/Approval for Foreign Loan, Suppliers’ Credit, PAYE Scheme etc.:
5.4.5. Procedure for import of raw & packing materials and spare parts by industrial units:
5.4.6. Obtaining Industrial Plot:
5.4.7. Environmental Legislation:
5.4.8. Currency Regulations
5.4.8.1. Relaxation / Liberalisation of Exchange Control Regulations:
5.4.8.2. Investment Facilitating Measures:
5.4.8.3. Export Encouragement Measures
6. Customs Regulations
7. Taxation
8. Labor Regulations
8.1. Appointment and Conditions for Employment:
8.2. Settlement of Labor Disputes & Labour Court:
8.3. Wages and Fringe Benefits:
8.4. Working Hours, Holiday and Leave
8.5. Social Security:
8.6. Labor Union:
9. Intellectual Property
9.1 Patents and Designs:
9.2 Design:
9.3 Trademarks:
9.4 Copyright:
10. Purchasing immovable property
11. Epilogue
1. Abstract
Bangladesh, officially the People’s Republic of Bangladesh is a country in South Asia. It is bordered by India on all sides except for a small border with Myanmar to the far southeast and by the Bay of Bengal to the south. Bangladesh is a unitary state and parliamentary democracy. Direct elections in which all citizens, aged 18 or over, can vote are held every five years for the unicameral parliament known as Jatiya Sangsad or House of Nation. Currently the parliament has 345 members including 45 reserved seats for women, elected from single-member constituencies. The Prime Minister, as the head of government, forms the cabinet and runs the day-to-day affairs of state. The President is the head of state but mainly a ceremonial post elected by the parliament. The highest judicial body is the Supreme Court. Justices are appointed by the President. Bangladesh has a three-tier local government system. The whole country is divided into seven administration divisions headed by commissioners. Divisions are subdivided into sixty-four districts.
Bangladesh pursues a moderate foreign policy that places heavy reliance on multinational diplomacy, especially at the United Nations. In 1974 Bangladesh joined both the Commonwealth of Nations and the United Nations and has since been elected to serve two terms on the Security Council in 1978–1979 and 2000–2001. In the 1980s, Bangladesh played a lead role in founding the South Asian Association for Regional Cooperation (SAARC) in order to expand relations with other South Asian states. Bangladesh’s most important and complex foreign relationships are with India. These relationships are informed by historical and cultural ties and form an important part of the domestic political discourse. Bangladesh also enjoys relatively warm ties with the People’s Republic of China.
Although two-thirds of Bangladeshis are farmers, Bangladesh is in the process of a transition from a predominantly agrarian economy to an industrial and service economy. The private sector is playing an increasingly active role in the economic life of the country, while the public sector concentrates more on the physical and social infrastructure.
Bangladesh has seen a dramatic increase in foreign direct investment. A number of multinational corporations and local big business houses such as Beximco, Square, Akij Group, Ispahani, Navana Group, Transcom Group, Habib Group, KDS Group, Dragon Group and multinationals such as Unocal Corporation and Chevron, have made major investments, with the natural gas sector being a priority. In December 2005, the Central Bank of Bangladesh projected GDP growth around 6.5%. In order to enhance economic growth, the government set up several export processing zones to attract foreign investment. These are managed by the Bangladesh Export Processing Zone Authority. The country’s main exports are readymade garments & knitwear, jute, tea, seafood and leather products. Recently it has received interest from international energy companies attracted by the existence of significant onshore and offshore gas reserves. A large part of foreign currency earnings also comes from the remittances sent by expatriates living in other countries.
More than three quarters of Bangladesh’s export earnings come from the garment industry, which began attracting foreign investors in the 1980s due to cheap labour and low conversion cost. In 2009-10 fiscal year the industry exported US$ 12.6 billion worth of products where in 2002 the exported amount was US$ 5 billion. Recently Bangladesh has been ranked as the 4th largest clothing exporter by the WTO (The World Trade Organization). The industry now employs more than 3 million workers, 90% of whom are women.
According to the World Bank, “among Bangladesh’s most significant obstacles to growth are poor governance and weak public institutions.” Despite these hurdles, the country has achieved an average annual growth rate of 5% since 1990, according to the World Bank. Bangladesh has seen expansion of its middle class (world’s Fifty Forth largest, just below of Singapore & Vietnam), and its consumer industry has also grown. In December 2005, four years after its report on the emerging “BRIC” economies (Brazil, Russia, India, and China), Goldman Sachs named Bangladesh one of the “Next Eleven“, along with Egypt, Indonesia, Vietnam and seven other countries.
Bangladesh – An investment destination in South Asia
2. The Legal Structure
In Bangladesh laws are loosely based on English common law, but family laws such as marriage and inheritance are based on religious scripts, and therefore differ between religious communities. Since 1971 Bangladesh’s legal system has been updated in areas of company, banking, bankruptcy and Money Loan Court laws.
The Supreme Court of Bangladesh comprises the Appellate Division and the High Court Division. It is the apex Court of the country and other Courts and Tribunals are subordinate to it. There are a wide variety of subordinate courts and tribunals. The civil courts are created under the Civil Courts Act of 1887. The Act provides for five tiers of civil courts in a district, which bottom-up are (i) Court of Assistant Judge, (ii) Court of Senior Assistant Judge, (iii) Court of Joint District Judge, (iv) Court of Additional District Judge and (v) Court of District Judge. The Code of Crimanal Procedure, 1898 provides for different Criminal Courts: (i) Courts of Sessions (ii) Courts of Metropolitan Sessions (iii) Special courts/tribunals (Criminal) (iv) Courts of Metropolitan Magistrate and (v) Courts of Magistrate.
Company matters in Bangladesh are dealt by the Company Bench of The High Court Division.
3. Governing Commercial/Business Laws
§ The Societies Registration Act 1860
§ The Trade Organization Ordinance, 1961
§ The Contract Act, 1872
§ The Bank Companies Act, 1991
§ The Bankruptcy Act, 1997
§ The Islamic Development Bank Act, 1975
§ The Money Loan Courts Act, 2003
§ The Financial Institutions Act, 1993
§ The Negotiable Instruments Act, 1881
§ The Securities and Exchange Ordinance, 1969
§ The Investment Board Act, 1989
§ The Foreign Private Investment (Promotion & Protection) Act, 1980
§ The Labour Code, 2006
§ The Patents and Designs Act, 1911
§ Trade Marks Act, 2009
§ The Consumer Rights Protection Act, 2009
§ The Imports and Exports (Control) Act, 1950
§ The Patents And Designs Act, 1911
§ The insurance Development & Control Authority Act, 2010
§ The Insurance Corporations Act, 1973
§ Income Tax Ordinance 1984
4. Entrepreneurship in Bangladesh
Entrepreneurship in Bangladesh may be of two sorts:
• a company formed and incorporated locally
• a company incorporated abroad but registered in Bangladesh.
The incorporation or registration is done by the Registrar of Joint Stock Companies and Firms (RJSC & F) under the provisions of the Company’s Act 1994. There are basically two types of enterprise that can be registered under the Companies Act of Bangladesh. The limited liability company (SRL) is commonly known as private limited company. The other type, the stock corporation (SA) is commonly referred to as public limited company. The Act applies to all classes of enterprises i.e. companies, both public and private, including associations not trading for profit but registered under the Act, whether limited by shares or by guarantee or with or without share capital or unlimited.
The classification of establishments as provided by the Act is as follows.
A. Limited Companies:
a. Company Limited by Shares
i. Public Limited Company
Characteristics-
(i) Issues invitation to the members of the public to subscribe the shares and debentures of the company through a prospectus which complies with the requirements of the Companies’ Act 1994 and the Securities and Exchange Commission Act 1993 as amended from time to time.
(ii) In case of non issuance of a prospectus, the public company cannot commence business or exercise borrowing powers unless a statement in lieu of a prospectus is filed with the Registrar and the directors have paid application and allotment money on shares taken or contracted to be taken by them.
(iii) Has minimum 7 members, but there is no maximum limit.
(iv) Has at least 3 Directors.
(v) Has the option of registering or not registering its articles. In the event of not having its own Articles of Association registered, the model regulations given in Schedule I, appended to the Act, will automatically apply.
(vi) No allotment of share capital offered to the public can be made unless the minimum amount necessary to provide for certain specified matters has been subscribed and the sum payable in application for such shares has been received by the company.
ii. Private Limited Company
Characteristics-
(i) Restricts the rights to transfer the shares.
(ii) Limits the number of its members to minimum 2 and maximum 50 excluding the persons employed in the company.
(iii) Prohibits any invitation to the public to subscribe for the shares or debentures of the company.
(iv) must register its Articles of Association with the Registrar of Companies.
(v) entitles to commence business from the date of its incorporation.
b. Company Limited by Guarantees.
B. Unlimited Companies
Unlimited companies and companies limited by guarantees may or may not have share capital.
4.1 Formation of a Company
To register a company with the Registrar of Joint Stock Companies and Firms (RJSC&F), promote have to undertake activities in following steps:
- When the Promoters will desire to form a company, at first they will have to select its name and will apply to the Registrar for the same in a plane paper with a fee of BD Tk. 10/- for each name along with the properly executed deed of settlement or the minutes of their first meeting.
- The Promoters may primarily select the name of their proposed company through searching the list of companies.
- The deed of settlement/minutes of the first meeting of the promoters may be prepared in plane paper and to be signed by all of them and amongst others it must contain the name, address and occupation of the authorized person with his connection with the proposed company who will apply for the clearance of name.
- After obtaining the name clearance the Promoters shall prepare and print the Memorandum and Articles of Association which shall be signed by them before at least two witnesses.
- The promoters shall collect the necessary special adhesive stamp on the basis of authorized share capital of the proposed company from treasury by depositing the money through treasury challan in the Bangladesh Bank and will affix the same on the printed Memorandum and Article of Association of the company.
- For the purpose of registration of a company the special adhesive stamp worth Tk. 500/- to be affixed on the Memorandum of Association irrespective of authorized capital and stamp worth Tk. 1500/-, 4,000/- and 10,000/- to be affixed on the Article of Association for the authorized capital of Tk. 10,00,000/-, Tk. 3,00,00,000/- and above Tk. 3,00,00,000/- upto any amount respectively.
- Three copies of Memorandum and Articles of Association including the original one on which the special adhesive stamp is affixed along with duly filled in form I, VI, IX, X and XII, the clearance of name and the copy of treasury challan relating to the collection of adhesive stamp to be filed in the case of a private company and in the case of a public company a statement in lieu of prospectus (Schedule-4), the declaration for commencement of business (Form-XIV) and (Form XI) as and when necessary to be filed by the promoters in addition to the Memorandum and Articles of Association, papers and documents as mentioned above.
- At the time of filing of Memorandum and Articles of Association papers and documents, the promoters will pay fees based on authorized capital of the company as prescribed for the time being in schedule- 2 of the Companies Act, 1994.
4.2 Memorandum of Association:
Memorandum of Association of the company state the name of the company, whether it is public limited or private limited and the location of the registered office at the company. The memorandum should clearly spell out the main objectives, the authorized capital-division of this capital into shares of fixed amount and liability of its members. In brief it may be defined structurally to contain details as follows:
- The company’s name, with the words ‘Limited’ or ‘Private Limited’ (in the case of a private company), at the end;
- The address where the registered office will be situated;
- The objects for which the company is formed;
- The nature of liability of members;
- The amount of authorized share capital divided into shares of a fixed amount; and
- The names of subscribers and the number of shares taken by each of them. The memorandum of the company is the charter or the constitution and no company can carry on any objectives not authorized by its Memorandum of Association.
4.3 Articles of Association:
The Articles of Association are the regulations governing the internal management of the affairs of the company and the conduct of its business. Articles usually contain the regulations on the following subjects:
- Share Capital
- Share Certificate
- Transfer And Transmission Of Shares
- Increase, Reduction And Alteration Of Capital
- Borrowing Powers
- Statutory And General Meeting
- Proceedings At General Meeting
- Quorum
- Votes Of Members
- Form Of Proxy
- Directors
- Disqualification Of Directors
- Power Of Directors
- Delegation Of Directors’ Power
- Chairman
- Managing Director
- Operation Of Bank Account
- Notice
- The Common Seal
- Reserves And Dividend
- Accounts
- Audit
- Winding Up
- Secrecy Clause
- Arbitration
- Indemnity And Responsibility etc.
4.4 Returns to the Registrar
The companies having share capital and incorporated under the Companies Act, 1994 shall have to file the following statutory returns to the Registrar every year:-
(a) The annual list of members and summary [Schedule- 10]: To be filed within 21 days after the date of holding the annual general meeting. The transfer of shares if any shall be entered or reflected in this return.
(b) Balance sheet and Profit & Loss accounts: To be filed within 30 days from the date of annual general meeting (section 190). The profit and loss accounts to be filed separately in the case of a private company.
(c) Consent of auditor (AC) [Section 210]: The Company shall inform the auditor or auditors in respect of his/their appointment within 7 days from the date of annual general meeting and the auditors shall inform the Registrar whether the appointment has been accepted or refused by him or them within 30 days from the date of receipt of such information [Section 210].
(d) Statutory Report (SR): Applicable in the case of public limited companies [Section 83].
(e) Particulars of Directors (Form XII): The information in respect of appointment of Directors or any change thereof and in the case of retirement of Directors by rotation and re-election in public company to be filed with the Registrar within 14 days form the date of such appointment or change [Section 115].
(f) The consent of the Directors to act (CD) [Form IX] [Section 92].
Returns to be filed in respect of any change in the company:-
(a) Returns of Allotment (RA) [Form- XV]: To be filed within 60 days after the date of allotment [Section 151]. The capital allotted to be added and entered in the next annual list of members and summary.
(b) Particulars of Mortgage (PM) : To be filed within 21 days after the date of execution of the mortgage deed [Section 159].
(c) Particulars of Modification of Mortgages (PMM): To be filed within 21 days after the date of execution of modification deed [Section 167(3)].
(d) Particulars of Satisfaction of Mortgages (PSM): To be filed within 21 days from the date of satisfaction of the loans or debts [Section 172]
(e) Notice of Situation of Registration of Office: To be filed within 28 days after establishment or change of the registered office [Section 77] [Form VI].
(f) Proceeding of Special or Extra-ordinary General Meeting: To be filed within 15 days from the date of meeting [Section 88].
(g) Prospectus: On or before the date of issue of the prospectus [Section 138].
(h) Change of Name of the Company: To be filed within 15 days from the date of special resolution relating to change of name [Section 11 (6) and 88].
(i) Change of Memorandum of Association: To be filed within 90 days from the date of order of the court or within the extended period sanctioned by the court [Section 12 and 15].
(j) Notice relating to consolidation or sub-division of shares or the conversion of shares into stock: To be filed within 15 days from the date of change or conversion [Section 54].
(k) Conversion of private company into public company: To be filed within 30 days after the date of taking decision of conversion [Section 231].
(l) Conversion of public company into private company: To be filed within 15 days from the date of taking decision of conversion [Section 232].
(m) Notice of increase of share capital or the number of members: To be filed within 15 days from the date of taking decision of such increase [Section 56].
(n) Filing fees: The yearly statutory returns or returns relating to any change in the company to be filed with the fees prescribed in schedule- 2 of the companies Act, 1994. If any company fails to file the returns within the prescribed time limit, it may be filed on payment of late fee @ Tk. 1 (one) for every day subject to the maximum late fees of Tk. 500/-. Any liability relating to filing of return shall not be condoned by the payment of late fees.
(o) Late fees: There is no provision for filing of particulars of Mortgage or charge and return of allotment with late fees.
4.5 Shareholders’ Meeting
Sections 81 to 89 of the Companies Act 1994 deal with meetings and proceedings of the Company.
General Meetings
Section 81 of the Company Act 1994 provides that every company must hold general meeting called annual general meeting every year but so that not more than fifteen months elapse between the meetings. A Company must hold annual general meeting within 18 months of its incorporation. The Register has power to call general meeting. The power of court to call or direct the calling of a general meeting should be read with the power of the court given under section 85(3) of the Act. The annual Balance sheet and Profit & Loss accounts of the company to be placed in the annual general meeting for approval which required to be ended on a date which is within nine months preceding the date of the meeting.
Before 60 days, from the date of the annual general meeting, a return containing prescribed particulars regarding:
• The states of the company’s affair;
• Proposed amount for reserve in balance sheet;
• Recommended dividend;
• Material changes on commitment;
• Nature of business;
• Reservation qualification and adverse remarks contained in the auditors report;
• Its directors, managing directors, managers, and secretaries, past and present.
Statutory Meeting
Section 83 of the Company Act 1994 provides that Every company limited by shares and every company limited by guarantee and having a share capital shall, 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 the members of the company; in this Act such meeting is referred to as “the statuary meeting”. The Board of Directors shall, in accordance with the other provision of this Act, prepare a report, in this Act referred to as ‘statutory report” and shall at least 21 days before the day on which the statutory meeting is not be held, forward the report to very member of the company.
Extraordinary general meeting
Section 83 of the Company Act 1994 provides that ,the directors of a company which has a share capital, shall on the requisition of the holders of not less than one tenth on the issued share capital of the company upon which all calls or other sums then due have been paid, forthwith proceed to call an extraordinary general meeting of the company, and in the case of a company not having a share capital the directors thereof shall call such meeting on the requisition of such members as have, on the date of submitting the requisition, not less than one tenth of the total voting power in relation to the issues on which the meeting is called.
A meeting of its board of directors shall be held at least once in every three and at least four such meetings shall be held in every year. There are certain powers of the company that can be exercised by the directors only at board meetings. Also, there are certain powers exercisable by the board of directors only with the consent of the company in a general meeting. The other powers of the company can be exercised by the board of directors, either at board meetings or by resolution passed by circulation. Such powers will, however, be subject to the restrictions, if any, laid down by the memorandum and Articles of Association.
4.6 Board of Directors
The Directors of a Company are selected according to the Articles of Association of the Company and provisions of the Companies Act 1994.They are in charge of the management of the affairs of the company. The Directors are collectively called the Board of Directors. The Board is the Company’s executive authority. The Company Act 1994 contains detailed rules regarding the appointment, remuneration, powers, duties and liabilities and various other matters concerning directors.
A director is an officer of the company within the meaning of section 2(f) as states that director includes “any person occupying the position of the director by whatever name called”. The powers of a company are exercised by its board of directors. The Act provides that the board will be entitled to exercise all such powers and to do all such acts and things as the company is authorized to do, except those which are specifically required by the Act or the Memorandum or the Articles of Association, to be done by the company in general meeting. The powers exercisable by the board relate to those exercisable in pursuant to resolutions taken at Board meetings. The important powers of the board can be exercised only at Board meetings regularly convened with due notice of the subject.
Section 90 of the Act provides that every public company and a private company which is a subsidiary of a public company shall have at least three directors and every private company other than a private company shall have at least two directors.
Section 98 of the Company Act provides that, the acts of a director shall be valid notwithstanding any defect that may afterwards be discovered in his appointment of qualification. Provided that nothing in this section shall be deemed to give validity to act done by a director after the appointments of such director has been shown to be invalid.
As per Company Act usual duties of boards of directors includes:
- governing the organization by establishing broad policies and objectives;
- selecting, appointing, supporting and reviewing the performance of the chief executive;
- ensuring the availability of adequate financial resources;
- approving annual budgets;
- accounting to the stakeholders for the organization’s performance.
- setting their own salaries and compensation
The directors of a company exercise control and management over the organization, but organizations are (in theory) run for the benefit of the shareholders, the law imposes strict duties on directors in relation to the exercise of their duties. The duties imposed on directors are fiduciary duties, similar to those that the law imposes on those in similar positions of trust: agents and trustees.
The duties apply to each director separately, while the powers apply to the board jointly. Also, the duties are owed to the company itself, and not to any other entity. This does not mean that directors can never stand in a fiduciary relationship to the individual shareholders; they may well have such a duty in certain circumstances.
The exercise by the board of directors of its powers usually occurs in board meetings. Most legal systems require sufficient notice to be given to all directors of these meetings, and that a quorum must be present before any business may be conducted. Usually, a meeting which is held without notice having been given is still valid if all of the directors attend, but it has been held that a failure to give notice may negate resolutions passed at a meeting, because the persuasive oratory of a minority of directors might have persuaded the majority to change their minds and vote otherwise.
A meeting of its board of directors shall be held at least once in every three and at least four such meetings shall be held in every year. There are certain powers of the company that can be exercised by the directors only at board meetings. Also, there are certain powers exercisable by the board of directors only with the consent of the company in a general meeting. The other powers of the company can be exercised by the board of directors, either at board meetings or by resolution passed by circulation. Such powers will, however, be subject to the restrictions, if any, laid down by the memorandum and Articles of Association.
Section 107 provides following restrictions on exercise of power of directors as the directors of a company or of a subsidiary company of a public company. The director shall not, except with the consent of the company concerned in general meeting-
(a) sell or dispose of the undertaking of the company; and
(b) remit any debt due by a director.
The Companies Act 1994 section 106 provides rules regarding removal of directors—
(1) The company may by extraordinary resolution remove any share-holder director before the expiration of his period of office and may by ordinary resolution appoint another person in his stead and the person so appointed shall be subject to retirement at the same time as if he had become a director on the day on which the director in whose place he is appointed was last elected director.
(2) A director so removed shall not be re-appointed a director by the Board of Directors.
The welfare of the shareholders and of the company depends upon who the directors are and how they carry out their duties carry out their duties and responsibilities. To protect the interest of the Company and of the Shareholders, the directors of a company play vital role.
4.7 Mergers & Acquisition
The phrase mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity. An acquisition is the purchase of one company by another company. Consolidation is when two companies combine together to form a new company altogether. An acquisition may be private or public, depending on whether the acquisition or merging company is or isn’t listed in public markets.
There are many different reasons to merge with or acquire another company. Many companies turn to mergers or acquisitions as a way to answer the constant pressure from stockholders and stakeholders to show marked, continuous growth. Mergers for the sake of growth will ultimately hurt your company in the long run unless the transaction also helps achieve one or more strategic business goals and builds on or complements the company’s own core competencies. Such goals might include any of the following:
? Product extension: Identifying a target company that offers a slightly different – but related – product so you can extend your market presence.
? Geographic extension: Identifying a target company in the same industry that serves a geographic area that your company does not currently reach
? Increased customer base: Finding a target company that could increase or broaden your customer base.
? Acquiring key management or other personnel. Identifying a target company with strong management talent to help your team succeed.
? New distribution channels. Finding a target company with sophisticated marketing or supply chain operations in place so you can better or more economically distribute your goods or services.
Sections 12-14 of the Companies Act, 1994 contain the main section that deals with the reconstruction and amalgamation (acquisition & merger) of the companies. However, this section requires companies to make application to the court under Section 12, which empowers the court to sanction the compromise or arrangement as proposed by the companies. Section 12(1) (g) of the Companies Act 1994 provides that if any company wants to merge with another company it needs alteration of memorandum by special resolution. But Section 12(2) of this Act provides that the alteration shall not take effect until and except in so far it is confirmed by the Court on petition. Section12 (3) Provides that (3) before confirming the alteration, the Court must be satisfied that sufficient notice has been given to every holder of debentures of the company, and to any person or class of person whose interest will, in the option of the Court, be affected by the alteration; and that, with respect to every creditor who in the opinion of the Court is entitled to object, and who signifies his objections in manner directed by the Court, either his consent to the alteration has been obtained or his debt or claim has been discharged or has been determined, or has been secured to the satisfaction of the Court.
Procedure of Merger
§ Observing Memorandum of Association of Transferee Company.
§ It has to be ensured that the objects of the MOA of the transferee company cover the objects of the Transferor Company or companies. If not then it will be necessary to follow the procedure for amendment of objects by passing a special resolution at an EGM convened for this purpose. It has been held by various decisions of the courts that there is no necessity to have special power in the object clause of the MOA of a company for its amalgamation with another company. It has been laid down that to amalgamate with another company is power of the company and not an object of the company.
§ Convening a Board Meeting
§ Board Meeting is to be convened and held to consider and approve in principle amalgamation and appoint an expert for valuation of shares to determine the share exchange ratio. Consequent upon finalization of scheme of amalgamation anther Board Meeting is to be held to approve the scheme.
§ Preparation of Valuation Report
§ Chartered Accountants are requested to prepare a Valuation Report & the swap ratio for consideration by the Boards of both the companies and if necessary it may be prudent to obtain confirmation from merchant bankers on the valuation to be made by the Chartered Accountants.
§ Preparation of scheme of amalgamation or merger Auditors, legal advisors and Practicing Company Secretary of both the companies must interact with each other and should report the result of their interaction to their respective BOD. The Boards of the involved Companies should discuss and determine details of the proposed scheme of amalgamation and merger. The draft of the scheme finally prepared by the Boards of both the companies should be exchanged and discussed in their respective Board meetings. After such meetings a final draft scheme will emerge.
The acquisition procedure is quite straightforward in Bangladesh. At first, the directors, the creditors, or the liquidator in case of enterprises being wound up or the majority share holder of the enterprise do the preliminary work and draw out in outline the proposed arrangement. Also, if possible, they enter into some kind arrangement as a basis of further steps. A detailed petition is then to be filed before the court accompanied with all evidences. In exercising its discretion as per the Act, the court:
(a). Shall have regard to the rights and interests of the members of the company as well as to the rights and interests of the creditors; and
(b). May if it thinks fit may adjourn the proceedings in order that an arrangement may be made to the satisfaction of the court for the purchase of the interest of dissenting members; and May give such directions and make such orders as it may think expedient for facilitating or carrying into effect any such arrangements.
If the court allows for the proposed acquisition, a confirmation of alteration is to be certified by the Registrar of the Joint Stock Companies and Firms of Bangladesh. The proposed Memorandum of Association may be drafted afresh or the previous one being altered and the certified copy of the order are to be filed confirming the alteration within ninety days from the date of the order or within such time as may be extended by the court in the Office of the Registrar of Joint Stock Companies and Firms in Bangladesh. The Memorandum of Association is then registered by the Registrar who shall certify the registration and provide a certificate. The certificate shall be the conclusive evidence that all the requirement of the Act, with respect to the alteration and confirmation have been complied with. The new or altered Memorandum of Association then represents the memorandum of the acquired enterprise.
If the court allows for the proposed acquisition, a confirmation of alteration is to be certified by the Registrar of the Joint Stock Companies and Firms of Bangladesh. The proposed Memorandum of Association may be drafted afresh or the previous one being altered and the certified copy of the order are to be filed confirming the alteration within ninety days from the date of the order or within such time as may be extended by the court in the Office of the Registrar of Joint Stock Companies and Firms in Bangladesh. The Memorandum of Association is then registered by the Registrar who shall certify the registration and provide a certificate. The certificate shall be the conclusive evidence that all the requirement of the Act, with respect to the alteration and confirmation have been complied with. The new or altered Memorandum of Association then represents the memorandum of the acquired enterprise
4.8 Winding Up
Liquidation (or “winding up”) is a process by which a company’s existence is brought to an end. First, a liquidator is appointed, either by the shareholders or the court. The liquidator represents the interests of all creditors. The liquidator supervises the liquidation, which involves collecting and realizing the company’s assets (turning them into cash), discharging the company’s liabilities, and distributing any funds left over among the shareholders in accordance with the company’s constitution or the Company Act 1994 if there is no constitution. After these steps have been carried out, the company is formally dissolved.
The law classifies liquidations into two types:
(i) voluntary (which is by a shareholders resolution) and
(ii) compulsory (by a court order).
Liquidations are also classified according to whether the company is solvent or insolvent. If the company is insolvent, this means it is unable to pay its debts as they fall due. In this situation there is potential conflict between creditors (those to whom money is owed), as there will be insufficient assets for all creditors to be paid in full. The law attempts to maintain equality between creditors, so the assets are distributed proportionately according to the size of each creditor’s claim. However, the law gives priority to secured creditors (those with a charge over some of the company’s property as security for the debt). In addition, a number of rules exist to prevent one or more creditors from gaining an unfair advantage.
Voluntary liquidation refers to the process whereby the shareholders appoint a liquidator, who is then answerable to the creditors or shareholders. It is not necessary to make any application to the court for this; however, the liquidator may apply to the court for directions and the court has power to remove a liquidator. A voluntary liquidation may also by commenced by the board of directors if an event specified in the company’s constitution has occurred.
Voluntary liquidation may be in one of two forms, depending on whether or not the company is solvent. If the company is solvent the shareholders can supervise the liquidation. However, if the company is insolvent, the creditors may take control of the liquidation process by applying to the court. The court will require proof of solvency or insolvency to determine this matter.
Compulsory liquidation of a company requires obtaining a court order. This process starts with an application to the court alleging that one or more of the required grounds exist. The application may be brought by the company or a majority of its directors, or by the Registrar of Companies, or by a creditor. Applications by creditors are by far the most important and c