Tuesday, May 27, 2008

Hamida Gets a National ID Card
May 27, 2008

Today Hamida showed me a copy of her national ID card. In order to prepare for the upcoming election, the Caretaker government is rolling out a national ID card program to prevent voting fraud. The ID card will eventually be able to make life easier for Bangladeshis applying for loans, opening bank accounts, and buying mobile phones too. Right now in order to do these things you need to submit passport photographs along with the names of your parents for recognition purposes. Because so many names here are similar - I have probably met a dozen Nazrul Islams since I have been here - it is really difficult to accurately identify people.

I am glad that Hamida has applied for her ID card because it means that she will be able to vote in the upcoming election. While I commend the Caretaker Government for setting an election schedule and keeping to it, I am still worried that Bangladesh isn't ready yet. It seems like the two main political parties are up to their old tricks again; I read in the paper today that the Awami League is refusing to talk to the Caretaker Government unless Sheikh Hasina is released from prison and they are threatening to demonstrate in the street. I fear that the peace of the past 18 months is dangerously close to reverting back to hartals (strikes and blockades) and riots...

I don't think that this will significantly impact my resort - my primary target market is the expats who are already living in Dhaka and this population will not change much in size even if there is political turmoil - but it will make life here more oppressive again... Personally I support the "Minus Two" plan for Bangladesh (exiling the two previous prime ministers); I think this country needs fresh new leaders who are not so emotionally embroiled in the past.

Monday, May 26, 2008

Company Formation - Part II
May 26, 2008

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

The monsoon has arrived and with it a new set of challenges (not the least of which is figuring out how to get to my meetings without looking like a drowned rat!) I met with the Board of Investment (BOI) yesterday and have learned more about the requirements for foreigners setting up companies in Bangladesh.

I have been trying to set up a company bank account here in preparation for the equity infusion and subsequent property purchase for Panigram Resort. Sadly, we are back to the chicken-and-egg scenario again, however, because I need a work permit to set up a corporate bank account, but I can't get my work permit until I get my investor visa, which I can't get until I can deposit $50,000 USD, which I can't do until I have a bank account. You see the dilemma...

The Director of Research and Investment at BOI told me, however, that I am allowed to set up a bank account now that I have my company formation documents, but that I won't be able to operate the account until I have my work permit. Apparently this means that I will be able to deposit money in, but that I will not be able to take the money out again until I get the work permit.

Additionally, I learned more about the investor visa and work permit process. I need to first apply for my investor visa. To do this I need to hand over a large checklist of items, including an encashment certificate for $50,000 (though the Director said that I could just transfer $5,000 to start and could transfer the balance when I applied for my work permit), to the Board of Investment. They will then prepare a letter which they will send to the Bangladesh Embassy in either Washington or New York. I then have to go there to apply for my investor visa. Thankfully the timing actually works out well since I am going back to the U.S. on June 23rd anyway for a month to see my family and friends and will be in New York for a week during that trip.

So for those foreigners out there who may be thinking about starting a company in Bangladesh, here are the steps (in order) that you need to take (that I have discovered so far!)

Note: There are slight variations depending on whether you are a "commercial" investor or an "industrial" investor. For information on the differences, see my blog posting: How to Set Up a Company in Bangladesh Part III.

Steps that Foreigners Need to Take to Set Up a Company in Bangladesh (in order):
  1. Find a good attorney!
  2. Decide on the structure of your company
  3. Decide what the authorized capital of your company will be
  4. Get a cost estimate for the legal work and registration fees
  5. Select a name
  6. Prepare the minutes of your first board meeting
  7. Get encashment certificates (can be a small amount - a few hundred dollars)
  8. Assemble the required company formation paperwork
  9. Review all of the documents carefully
  10. Submit the name registration (have your attorney do this)
  11. Submit the company registration documents (have your attorney do this)
  12. Pick up your registration documents and make several copies of them (you will need them for bank accounts, VAT, etc.)
  13. Set up a meeting with the Board of Investment (BOI) and pick up the BOI Registration form, the investor visa checklist, and the work permit checklist
  14. Get a corporate seal. (This is just a rubber stamp that you order from a stationary store with your company name and address on it.)
  15. Take your company formation documents, passport copy, etc. to the bank and set up a bank account. Be sure to tell them that you know you can't have an operating account until you get a work permit, but that you need a non-operating bank account so that you can transfer the initial money into the country if you need to get encashment certificates. (Important: your company bank account must be a Taka account, not a foreign currency account.)
  16. Transfer at least $50,000 into your company bank account and ask for encashment certificates. (You can get permission from the BOI to only transfer in $5,000 to start if you want, but you must transfer in the remaining $45,000 before you are allowed to get your work permit.) This is only necessary if you are setting up a "commerical" enterprise. See my blog post: Setting Up a Company in Bangladesh Part III. For "industrial" enterprises, like my business, talk to the Director (Mamdood Alamgir) to see how much money, if any, you need to transfer in.
  17. Purchase the land or sign the lease for the property where your business will be located. (You need this in order to complete the Board of Investment Registration which you have to have to apply for many of the other steps.)
  18. Apply for your tax ID number (TIN) in the division where your business will be operated. As a foreigner, you may also be able to apply for your TIN in Dhaka.
  19. Apply for your trade license in the upazila where your business will be operated.
  20. Submit the BOI Registration form to the BOI. With this you will have to submit copies of your Memorandum and Articles of Association, deed or lease agreement, project profile (if your project is 50 million Taka or more; this is just a business plan), check for registration, TIN, trade license, completed form, and business plan or summary (which has your company financials on it.) See my blog post: Setting Up a Company in Bangladesh Part IV for more information on BOI Registration.
  21. Submit the documents on the investor visa checklist (the investor visa checklist is different depending on whether you are a "commercial" or "industrial" investor; see my blog entry: Setting Up a Company in Bangladesh Part III) to BOI and have them prepare a letter to send to the Bangladesh embassy in your home country. You can not change your visa category while in Bangladesh, but you can extend an existing visa in Bangladesh. You need a business visa or an investor visa to get a work permit (which you need to open your bank account and run your company). (See Setting Up a Company in Bangladesh Part V: Investor Visas and Work Permits for more information.)
  22. In your country, take the required visa documents and the BOI letter to the Bangladesh embassy/ consulate and apply for your Investor Visa. (Again, see Setting Up a Company in Bangladesh Part V: Investor Visas and Work Permits for more information.)
  23. Apply for your work permit. (If you didn't transfer in the full $50,000 when you applied for your investor visa, you will need to transfer in the rest of the money and get encashment certificates before you can apply for your work permit if you are a "commercial" investor.)
  24. Go back to your bank with your work permit and have them make your bank account an operating account
  25. Apply for your VAT tax ID
  26. Apply for a tax holiday at the Tax Department at the National Board of Revenue (if your business is applicable for such a holiday. All resorts and tourist operations are applicable.)
(Steps 1-11 are discussed in more detail in my first blog on Bangladeshi company formation: http://kboekhoff.blogspot.com/2008/05/i-have-company-may-8-2008-six-months_3955.html)

If you change ownership or sell shares of your company you will need to amend your BOI Registration. (See Company Formation in Bangladesh - Part VI: Amending Your BOI Registration for more information.)

I will let you know more as I continue to go through this process!

TOAB Update
May 25, 2008

Well my meeting with TOAB went even better than I originally thought! I have meetings set up with four different tour operators this week who are interested in Panigram Resort. The people who have expressed interest so far are:

Bengal Tours: www.bengaltours.com
Delta Outdoors: www.delta-outdoors.com
Discovery Tours and Logistic: www.discoverbangla.com
Galaxy Holidays: www.galaxybd.com

Everyone at TOAB has been so supportive of my project. I am looking forward to working with them!

Thursday, May 22, 2008

Meeting with the Tour Operators Association of Bangladesh (TOAB)
May 22, 2008

My friend, Mikey Leung, set up a meeting with the Tour Operators Association of Bangladesh (TOAB) today. He is writing the new Bradt Guide to Bangladesh and wanted to get TOAB's input. He kindly invited me along and I was able to give a small presentation to the TOAB members on Panigram Resort. Everyone seemed extremely interested in it and several tour operators said that they would like to include my resort as part of their tours. Great news for Panigram Resort!

I also took a membership form, so hopefully soon I will be a TOAB member as well!

I Have a Website!
May 22, 2008

After a few issues, I finally figured out how to create and upload my first web page! The Panigram Resort web page is now up and running so please go check it out! It is just a basic page - my graphic design team will create the "real" site in a few months - but I wanted to have a place where people could find Panigram Resort online and sign up to receive updates. So if you want to be notified when my resort is open for business, please go to www.panigram.com and sign up for the notifications!

Wednesday, May 21, 2008

Village Feud
May 21, 2008

The title search is progressing, albeit at a Bangladeshi pace... There were a couple of delays last week because the surveyor got heat stroke and Koli, my agent, got into a motorcycle accident. (Thankfully everyone is OK.) This week Koli tells me that the villagers are in a land feud. The feud is not over my land (thank goodness!) but is over another property in the village. Koli and the surveyor are staying away from the site for a few days, however, because they don't want to become involved in the conflict.

I am really grateful that Koli is so competent. He has already met with the District Commissioner and the Upazila Chairman and has asked them to step in and help resolve the dispute (so that we can continue with our acquisition). Local politics are extremely important here and Koli has done a good job of connecting with the right people.

I am hoping that the survey will be done in a few days. I will keep you posted!

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!)

Saturday, May 03, 2008

Land Scavenger Hunt
May 3, 2008

As the land acquisition process moves forward I continue to learn more about real estate in Bangladesh. For instance, I have recently learned that the mauza (plot) maps for many places are hopelessly out of date. The mauza map that I have for my property was made in 1919. (Yes, this is actually the most recent published version!) Consequently, I have to hire a licensed surveyor, called an "amin", to do a current survey of the land to determine where the new plot boundaries are.

Because the land has most likely been subdivided several times in the past 90 years, there are probably many more owners of the property than we originally thought. The good news is that Koli (my agent in Jessore) has spoken with all of the people in the area and they are all eager to sell. The trick now is to a) establish where the boundaries of everyone's land are and b) obtain all of the documents necessary to prove ownership.

The amin will take care of the first step, but the second step might be a bit trickier. The type of paperwork that we need depends on when the land was transferred and how it was transferred (i.e. sold, inherited, etc.) The good news is that we only have to prove title for the past 25 years to establish legal ownership of the land. This is great because Bangladesh has had three different governments over the past 50 or so years (India/Britain, Pakistan, and Bangladesh) and if we had to have a clear chain of title going back through all of those different governments the task would be much more difficult - almost impossible, perhaps.

Not to say that finding the paperwork is a cake walk! Quite the contrary! If the land was inherited we need one type of document; if the land was sold we need another type of document. We need more documents if the land transferred within the past 25 years and less documents if it was last transferred more than 25 years ago. We also need documents that prove that there could not be any other heirs that could come to claim a portion of the property.

So basically Koli is conducting a massive scavenger hunt right now to find all of the paperwork that we need. We are creating a chart that will tie to the new survey. The chart will tell us who owns each plot of land on the survey, how they acquired the land, and what documents we will need to prove ownership. Like most things in Bangladesh, this process is taking more time than I originally anticipated. I am trying to stay optimistic though; I still think that we will be on schedule to start construction after the rainy season in September...