It is crucial to address the topic of the legal form of conducting businesses once you’ve developed an idea, tested the business model, and decided to pursue entrepreneurship as a vocation. Needless to say, it’s an important question, and a budding entrepreneur should be familiar with the many types of business structures and carefully weigh the advantages and disadvantages of each before coming to a decision. The following are the basic characteristics of the different sorts of businesses that can be started in Bangladesh:
Sole Proprietorship
A sole proprietorship firm, as the name implies, is one that is owned and operated by a single person. It enforces the bare minimum in terms of formality and compliance requirements. Obtaining a trade license from the local City Corporation or Paurashava is all that is required to start a sole proprietorship. However, businesses with two or more proprietors will not be able to use this type of corporate entity.
Pros
- Setup is quite simple, quick, and economical
- The proprietor is the business’s owner, and as such, the proprietor owns the business’s assets
- There are almost no reporting requirements for the corporate entity (see below the obligations of the company, for a comparison).
Cons
- The business owner will be personally liable for all of the company’s duties and obligations, including taxes and debt
- While the proprietor reaps the benefits, he or she bears the weight of the loss
- Incompatible with enterprises with two or more founders; as a result, no outside investors can be brought on board.
Company
A company is a legal body that is formed by registering with the Registrar of Joint Stock Companies and Firms (RJSC). The act of forming a business is known as incorporation. A minimum of two (2) shareholders are required to form a private corporation in Bangladesh. A public business must have a minimum of seven shareholders (7). When the incorporation process is completed, the firm becomes independent of its shareholders and directors. As a result, in most situations, the company’s rights, liabilities, and duties are transferred to it and remain independent from its owners (unless personal guarantees are taken from the shareholders). This means that, regardless of the size of the company’s liabilities, the shareholders’ assets are protected from creditors. A firm is required by law to hold at least one (one) Annual General Meeting (shareholder meeting) and four (four) Board Meetings (meeting of its directors). Furthermore, it is required by law to file different Annual Returns with RJSC each year, including information on its shareholding and management (Schedule X) as well as financial accounts.
Partnership
Two or more people can form a partnership by signing a Deed of Partnership. Unlike a corporation, a partnership is not considered a separate entity from its founders; as a result, each member is jointly and severally accountable for the partnership’s acts, including debts. Such liability shall accrue to a specific partner independent of his or her role in the action attracting liabilities. Though registration of a partnership does not impact the partnership’s legitimacy, without registration, the partnership firm will be precluded from instituting a court action to enforce a contractual right against the firm, any former or current member, or any third party. As a result, the partnership should be registered with the Registrar of Joint Stock Companies and Firms (RJSC).
If a partnership is created, the partnership deed should include information about the nature of the business, each partner’s capital commitment, profit-sharing ratio, management and decision-making processes, and so on. It is strongly advised that the future of the partnership be indicated in the Deed of Partnership in the case of a partner’s death (unless so specified, the partnership will dissolve upon the death of a partner).
One Person Company
As the name implies, this type of company is founded by a single individual who desires to conduct business and has just one natural shareholder, who should also be the company’s director. The memorandum of such a corporation must include the name of the nominee, who, with the shareholder’s consent, would become the company’s shareholder following the shareholder’s death or incapacity. This structure was only recently implemented in the country. Joint Stock Companies and Firms, like One Person Companies, must be registered with the Registrar (RJSC). A business of this type is expected to hold at least four (four) board meetings; however, there is no set format for these sessions. Furthermore, within 180 (one hundred eighty) days of the end of each financial year, such a corporation must submit to RJSC a yearly balance sheet and financial statements, signed by its Director.
Although there is no legal prohibition on a foreigner forming such a corporation, the standard form of memorandum only includes a field for the shareholder’s NID information and no option for the shareholder’s passport. As a result, a foreigner would be unable to start a one-person business.
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