Saturday, May 10, 2008

I Have a Company!
(Company Formation - Part I)
May 8, 2008

(For an index of all of my Company Formation in Bangladesh blogs, click here: Forming a Company in Bangladesh)

Six months and four attorneys later I FINALLY have my company registration documents!! Now I will be able to register with the Board of Investment, open bank accounts, and apply for my work permit and investor visa. I was originally told that this process should take one month, and perhaps it would have if I had originally hired a competent attorney and knew in advance all of the documents that were required.

Just in case any of you out there want to set up your own Bangladeshi company, I have written the steps and my lessons learned below which will hopefully save you the time and trouble that I had to go through!

How to Set Up a Company in Bangladesh (as a Foreigner):

Find a good attorney. This was actually harder than it sounds. My first attorney tried to charge me ten times the average legal rate. (I knew I was in trouble when the rate sheet he brought out was in dollars, not Taka.) My second attorney was always late and never returned my calls. Finally, I found Fatema and Nawshad at Jamiruddin & Jurists (http://www.jamiruddin.com). I would highly recommend them. They are fluent in English, extremely intelligent, and pleasant to work with (plus they return my calls!) The only problem I had with them is that they outsourced the company creation to another firm. They still reviewed all of the documents, but the other firm prepared them and handled the actual filing. This was actually a problem because the firm they outsourced to was not very competent and the agent made many mistakes in the documents which I had to correct. I think that Fatema and Nawshad are planning to develop a corporate formation part of their practice, though, and may be doing this kind of work in-house shortly…

Decide on the structure of your company. There are only two types of company structures in Bangladesh:
  • company - which is like a U.S. corporation. It has shares, a board of directors, and shareholders, and can be either public or private. Profits are paid through dividends. Each company must have at least two owners and two board members. The owners can be either individuals or other companies.
  • proprietorship - which is like a U.S. sole proprietorship. It has only one owner and is private.
Unfortunately, Bangladesh does not have the equivalent of a U.S. limited partnership or a limited liability corporation.

I was also initially very confused by the use of the word “company” here. Bangladeshis use it to mean something specific – as we would when we say “corporation” in the U.S. As far as I could tell, there is no generic English word for “company” that is used in Bangladesh. When people talk about “companies” here (they use the English word) they mean the corporate version of a company.

This level of confusion was akin to my “chocolate” crisis. In Bangladesh the English word “chocolate” is used to mean “candy”. When you go into a store in Bangladesh and say, “Apnar chocolate achay?” (do you have chocolate?) you could receive lemon drops, strawberry hard candy, or licorice, but probably will not actually receive chocolate (a la Hershey’s) because it is not really eaten here. As you can imagine, the day I learned this was VERY frustrating! The store owner brought me every type of candy in the store except for what I was looking for – actual chocolate! Anyway, I digress…

Get a cost estimate up front. It is better to do everything on a fixed rate (most firms set it up this way). Also make sure that they include the VAT (value added tax) registration and the trade license setup in the estimate, because you can’t do business in Bangladesh without these. In addition to the legal fees, there will be fees for the stamp cost and registration fee (which vary by the size of the company – a larger company pays more fees). Also, don’t pay all of the money up front; pay enough to cover the government fees up front and then the rest when the work is complete.

Select a name. Before you can register your company, you have to register the name. You need to give your attorney three name options just in case your first choice is not available. Be sure that you clearly indicate what your first name choice is, because my attorneys have told me that sometimes registrars will just pick whatever name they like the best!

Decide on what the authorized share capital will be. Like in the U.S., each company has to have an amount of authorized capital. This is the maximum value of the company. Your name, stamp, and registration fees will be based off of the amount that you select (and the fees are not insignificant), so it is best to be as accurate as you can with the number without going under. You can increase the authorized capital amount later on, but will have to get court approval (which means more legal fees) to do it.

I actually had an issue with the authorized capital on my company. I had discussed several numbers with my attorneys and they accidentally sent the wrong amount to the agent they hired to do the setup. Fortunately the fees had been calculated based on the amount that I really wanted, but the name authorization went through with the wrong amount and we had to go back to the registrar to get it fixed.

Prepare the minutes of your first board meeting. You need to have a meeting with all of your board members (the initial investors) in order to decide to form a company. The meeting has to be in person and not over the phone or internet, which means that if you are a foreigner the passports of all of the board members must indicate that you were in the country at the same time! This was actually a problem for me. Because I have to have two investors to set up the company, I was going to have my mother be the other investor until I could get my equity investors. Unfortunately, because I had not left Bangladesh and she had never come here, we never could have had a “meeting”. Fortunately my sister came to Bangladesh in October last year, so we were able to meet in person (and her passport stamps would reflect that).

The minutes have to state that you decided that: you will form a company, the name will be (the three choices), the authorized capital will be X Tk, the board members and shareholders will be (each person’s name, title and number of shares), and that you authorize your attorney (or other agent) to form the company on your behalf. (Your attorney should be able to give you a template for what the minutes should look like…)

Get encashment certificates. Every owner/ board member of the company has to invest some money in the company. You don’t need to have all of the money up front, just a reasonable amount (I think it was $200 per person for my company) to start with. As a foreigner, you have to prove that you brought the money in legally to the country. This means that you have to get encashment certificates. There are a few ways to get these:
  • Take dollars (or other foreign currency) to a reputable bank (I used HSBC) and have them change it into Taka (Bangladesh’s currency). When you do this, you need to ask them to create an encashment certificate for you. They will have you fill out a form (and will charge you a fee) for this. On the form you must enter that the purpose of encashment is for the formation of (the name of your company).
  • When you come into the country, bring the cash that you need with you and exchange it into Taka in the airport. When you exchange the money, ask for the encashment certificate. (Again, you need to enter the purpose and pay a fee.)
  • Wire money in to a local bank account. This is actually the trickiest option because you can’t form a company bank account here until you get your company registered and you can’t register your company until you turn in encashment certificates. This was a huge problem for me because I didn’t find out that all investors need encashment certificates until Heather was back in the U.S., so the wire transfer was the only option. I went in to set up a personal Taka bank account (which was a real nightmare and took several weeks), but they wouldn’t let me transfer money for my company into that account. Finally after several phone calls back and forth with my attorneys, they agreed to give me special permission to let Heather do a one-time wire transfer into my personal account for company purposes.
On the purpose for the wire transfer she had to say that she was wiring the money for the purpose of forming (the name of my company.) Then once I received the money, I had to go to the bank and request that they create encashment certificates for me. Whew!

Assemble the required paperwork. To form a company you have to give your attorneys the following:
  • Names (including maiden names), addresses, parents’ names (including your mother’s maiden name), birthdays, and passport information (number, issue date, expiry date, etc.) for each of the owners.
  • Photocopies of the passports of each of the investors. (The entire passport must be copied, not just the first page.)
  • 10-20 passport photos for each investor. Bangladesh still doesn’t have a national ID system, so photos are required for proof of identity, unlike in the U.S. where we use social security numbers. Consequently, every document that you submit must be accompanied by a photo.
  • Three name choices.
  • Minutes of the first board meeting (which includes who will own how many shares; typically 1 share = 100 Tk so work backwards from your authorized capital)
  • Encashment certificates for ALL investors/owners/board members
  • Initial fee
Review all of the documents carefully. With this information, your attorneys or agents will create all of the company documents that you need. Be sure that you carefully read all of the documents; I found several mistakes in mine. I also recommend that you get a soft copy of the documents from your attorney and then make the changes online using MSWord’s “Track Changes” functionality. At first I wrote all of the changes on a hard copy document, but my attorneys’ agents did not correct all of the mistakes. I had to send it back several times and ultimately just retyped it myself. (Don’t worry, I don’t think that Fatema and Nawshad would let this happen again; they were VERY upset with their agent about this!)

After I got all of the paperwork in and figured out all of the issues (encashment certificates, minutes of first meeting, authorized capital, etc.), the company registration process did actually go pretty fast. When I form my next company I think it will go much smoother because I now know what to expect (and so do you!)

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