Formation of a Privately Owned Limited Company and Overcoming Information Challenges: RJSC&F and The Companies Act, 1994 in Bangladesh

Introduction: The Legal Imperative

Every business entity must adopt a legal form sanctioned by the laws of the land. In Bangladesh, entrepreneurs seeking to transform their "brain child" into a formal, operational business must navigate a regulatory framework primarily governed by The Companies Act, 1994 and administered by the Registrar of Joint Stock Companies and Firms (RJSC&F). For those seeking limited liability, enhanced credibility, and opportunities for growth, the privately owned limited company (Private Limited Company) is a preferred legal structure among other forms like Partnership Firm, Proprietorship, Co-Operative Society, etc.

This process, while structured, is often fraught with information challenges that can hinder even the most promising ventures.

The Regulatory Pillars: The Companies Act, 1994 and RJSC&F

1. The Companies Act, 1994: This is the principal legislation governing the incorporation, regulation, and winding up of companies in Bangladesh. It outlines the complete lifecycle of a company, including:

• Incorporation Procedures: The steps, documents, and requirements for forming a company.
• Memorandum and Articles of Association (MoA & AoA): The company's constitution, defining its objectives, powers, and internal rules.
• Roles and Responsibilities: The legal duties of directors, managers, and shareholders.
• Compliance Requirements: Ongoing obligations like holding annual general meetings, filing annual returns, and maintaining statutory registers.

1. The Registrar of Joint Stock Companies and Firms (RJSC&F): This is the sole government authority responsible for implementing The Companies Act. Its key functions include:

• Incorporation of new companies and registration of firms.
• Approval of company names.
• Maintaining a public registry of all registered entities.
• Ensuring compliance and receiving various statutory filings.
• Dissolving companies.

The Formation Process: A Step-by-Step Journey

The journey to incorporate a private limited company involves a series of interconnected steps under the watchful eye of the RJSC&F and subject to shareholder residency status: Foreign Investor or Bangladeshi Investor.

Step 1: Name Clearance

• Action: Applicants being foreign investors must submit their proposed company name (with a suffix like " Limited/Ltd.") to the RJSC online portal for clearance. For name clearance application, a general USER ID must be opened in RJSC&F portal using the link “https://app.roc.gov.bd/”. This step is not applicable for Bangladeshi Investor.
• Challenge: The name must be unique, not undesirable, or deceptively similar to an existing one. This initial step often requires multiple attempts due to name clashes. Search name before application for name clearance which does not require any USER ID through the link “ https://app.roc.gov.bd/psp/nc_search?p_user_id=132721”

Step 2: Open Bank for Foreign Investment

• Action: Applicants being foreign investors must open bank accounts in a schedule bank in the name of company approved by RJSC&F against name clearance application. The whole purpose is to remit capital amount in USD to Bangladesh. To open bank account, key documents like Memorandum, Article, Board Resolution for a foreign incorporated body must be submitted. Individual investors are required to submit personal details and documents for opening bank account. This step is not applicable for Bangladeshi Investor.
• Challenge: Selecting schedule bank, contacting with right team/person, following up and obtaining bank accounts must be done within a very short possible time with right bank. This becomes difficult for the foreign investment to do in person/online.

Step 3: Send remittance and obtain encashment certificate

• Action: Foreign investors have to transfer required capital for subscription of issued shares and other charges. After remittance, an application need to be filed to the bank for encashment certificate to be presented to RJSC&F as a proof of share capital deposited by foreign investors. This step is not applicable for Bangladeshi Investor.        
• Challenge: Application for obtaining encashment certificate and presenting to the RJSC&F as a proof require physical interaction which is difficult for many foreign investors.

Step 4: Drafting the Constitutional Documents

• Memorandum of Association (MoA): This defines the company's relationship with the outside world. It states the company's name, registered office address, objectives (the "objects clause"), and details of its authorized share capital.
• Articles of Association (AoA): This is the internal rulebook, governing the management of the company, rights of shareholders, procedures for meetings, and appointments of directors.
• Challenge: Drafting these documents requires legal precision. An unclear "objects clause" can limit the company's activities, and poorly drafted articles can lead to future internal disputes.

Step 5: Preparation of Other Statutory Documents

This includes:

• Form I: Declaration of Compliance.
• Form VI: Details of the company's registered office.
• Form IX & X: Consent and particulars of the first directors.
• Form XII: Undertaking to commence business.

Step 6: Apply for Registration

Applicant has to login RJSC&F portal using the link “https://app.roc.gov.bd/ using general login credentials. All required information and documents must be filled up and submitted for segments A to G including text/clauses of MoA and AoA in prescribed format.

Step 7: Documents submission and follow up with RJSC&F

All documents, along with the prescribed fees, are submitted to the RJSC. Upon satisfactory scrutiny and verification, the RJSC issues the Certificate of Incorporation. This birth certificate of the company grants it a separate legal identity from its owners. A certified copy of MoA, AoA and Form-XII is sent to the email address of applicant.

Overcoming Information Challenges

The procedural path is clear, yet entrepreneurs frequently face significant "information challenges" that can delay or derail the process.

1. Complexity of the Law:

• The Challenge: The Companies Act, 1994 is a complex legal document. Laypersons find it difficult to interpret requirements for documents like the MoA and AoA, or to understand nuanced compliance rules.
• Overcoming the Challenge:
• Seeking Professional Help: Engaging a practicing-chartered accountant or CA firm or local consultant specializing in corporate law is the most effective solution. They translate legal requirements into actionable steps.
• Leveraging RJSC Resources: The RJSC website provides guidelines, forms, and fee schedules. While not a substitute for advice, it is a crucial primary source of official information.

2. Navigating the RJSC Interface:

• The Challenge: Despite digitization, the RJSC portal and its procedures can be intimidating. Unclear error messages, technical glitches, and a lack of immediate guidance can cause frustration.
• Overcoming the Challenge:
• Using Registered Agents: Professionals like practicing-chartered accountant or CA firm who regularly use the RJSC system are adept at navigating its intricacies and can expedite the process.
• Direct Inquiry: For specific issues, visiting the RJSC help desk or contacting them via official channels can provide clarity.

3. Ensuring Ongoing Compliance:

• The Challenge: Incorporation is just the beginning. Many new business owners are unaware of their ongoing duties (e.g., first board meeting, annual returns, financial statements filing, renewal of trade license). This "information gap" post-incorporation can lead to penalties or even strike-off from the register.
• Overcoming the Challenge:
• Creating a Compliance Calendar: Maintaining a master calendar of all statutory deadlines.
• Staying Informed: Subscribing to updates from the RJSC or following legal and financial news portals that cover regulatory changes.

4. Accessing Precise and Updated Information:

• The Challenge: Laws and fees are amended. Relying on outdated information from informal sources or old blogs can lead to incorrect filings.
• Overcoming the Challenge: Always cross-reference information with the official RJSC website (www.roc.gov.bd) and consult the latest version of The Companies Act, 1994.

Conclusion

The formation of a private limited company in Bangladesh is a structured yet demanding process, firmly anchored in The Companies Act, 1994 and facilitated (and regulated) by the RJSC&F. While the path is well-defined, the key to a smooth and successful incorporation lies in overcoming the inherent information challenges. By recognizing the complexity of the legal framework, leveraging professional expertise, and proactively managing compliance, entrepreneurs can effectively navigate the system. This allows them to securely establish their venture's legal foundation, transforming their innovative "brain child" into a credible, limited-liability enterprise poised for growth in the competitive market of Bangladesh.