Quick overview
This guide explains the legal meaning of holding and subsidiary companies under Bangladeshi law, the practical tests for control, the main entity choices for foreign and local investors, step-by-step incorporation procedures, differences between branches, liaison offices and subsidiaries, key regulatory checkpoints, and common compliance pitfalls.
What are holding and subsidiary companies?
A holding company is an entity that controls another company, typically by owning a controlling share of voting stock or by controlling the board of directors. A subsidiary is the company controlled by the holding company. Under the Companies Act, 1994, a company is a holding company of another only if that other company is its subsidiary.
Control can be shown by:
- ownership of more than 50 percent of voting shares;
- power to appoint or remove a majority of the board;
- effective ability to decide the company’s policy or management;
- indirect control through intermediate subsidiaries.
Legal tests and practical examples
A company will be treated as a subsidiary if any of the following apply:
- Board control: another company can appoint or remove a majority of directors.
- Voting control: another company directly or indirectly holds more than 50 percent of voting securities.
- Chain of control: if A controls B and B controls C, then C is an indirect subsidiary of A.
Example: If Company A owns 100 percent of Company B, and Company B owns 60 percent of Company C, then C is a subsidiary of B and an indirect subsidiary of A.
Common entity types for holding and subsidiary structures
- Private limited company (most common for subsidiaries)
- Public limited company
- Branch office of a foreign company
- Liaison or representative office
- Partnership or proprietorship (generally unsuitable for foreign-controlled groups)
For foreign parents, a private limited company usually provides the clearest separation of liability and the most practical route for commercial operations.
Step-by-step: setting up a subsidiary in Bangladesh
- Decide the legal vehicle. For most operations, a private limited company is recommended.
- Obtain name clearance from the Registrar of Joint Stock Companies and Firms.
- Draft and finalize the Memorandum and Articles of Association.
- Open a temporary bank account in the proposed company name to deposit any required capital or to obtain encashment evidence for foreign funds.
- File incorporation papers with the Registrar and obtain the Certificate of Incorporation.
- Register for TIN and VAT if applicable, obtain trade license, and complete local registrations.
- If foreign investment is involved, consider registration with the Bangladesh Investment Development Authority and secure sectoral approvals.
- Arrange foreign exchange permissions and work permit approvals if bringing expatriates.
- Hold the first board meeting, record statutory registers, and open a regular bank account in the company name.
Branch office versus liaison office versus subsidiary
- Branch office: not a separate legal entity. The foreign parent remains fully liable for branch liabilities. Commercial activity by a branch requires approval and exchange control compliance. Typical setup time is several weeks.
- Liaison office: representative office limited to non-commercial activities such as market research and coordination. It cannot earn local income and is funded from the parent company. It also requires approval and strict compliance.
- Subsidiary (private limited): separate legal personality, local liability shield, and the preferred vehicle for local commercial operations.
Choose the correct vehicle up front. Operating commercial activities through a liaison office or an improperly authorized branch exposes the group to penalties and operational disruption.
Banking, capital and foreign exchange practicalities
- Foreign shareholders typically deposit capital into a temporary bank account and obtain encashment certificates to show foreign currency conversions to Bangladeshi Taka when required.
- The banking system has been modernizing; documentation requirements vary by bank. Engage a bank early to confirm the precise documentary and remittance requirements.
- Repatriation of profits, foreign loans, and expatriate payroll require coordination with the bank and relevant authorities.
Key regulatory authorities
- Registrar of Joint Stock Companies and Firms (RJSC) for name clearance and incorporation filings.
- Bangladesh Investment Development Authority (BIDA) for investment approvals, facilitation, and sectoral guidance.
Local municipal and licensing authorities must also be engaged for trade licenses and operational permits, particularly if the company will operate in Dhaka or other major city jurisdictions.
Compliance risks and how to mitigate them
- Wrong vehicle: commercial activities run through a liaison office can lead to penalties. Use the correct structure.
- Foreign fund noncompliance: accepting foreign funds without proper approvals or documentation risks fines and freezes.
- Governance disputes: avoid deadlocks by including reserved matters and dispute resolution clauses in shareholder agreements.
- Tax and transfer pricing: maintain arm’s length intercompany pricing and document transactions carefully.
Mitigation strategies: clear constitutional documents, tailored shareholder agreements, periodic compliance reviews, and professional tax and legal advice.
Typical timeline and fees
- RJSC incorporation: often issued within 6 to 8 working days after complete submission, though actual timing varies.
- BIDA registration: commonly 7 to 10 working days for industrial projects; other approvals may take longer.
- Government fees and statutory costs depend on authorized capital and sector; the basic government incorporation fee is a modest fixed charge but total cost varies with each case.
Frequently asked questions
Q: What documents are needed to register a private limited company?
A: Memorandum and Articles of Association, name clearance, details of directors and shareholders, proof of registered office, bank encashment evidence for foreign capital, and statutory forms required by the Registrar.
Q: Is there a minimum capital requirement?
A: There is no statutory minimum authorized capital for local companies. Practical capital requirements depend on business goals and immigration needs for expatriate staff.
Q: Can a foreign company open a branch or liaison office?
A: Yes, but both require approvals and compliance with exchange control rules. A branch may conduct commercial activity only after obtaining necessary approvals.
Q: How many directors and shareholders are required?
A: A private limited company must have at least two shareholders and two directors. Public companies require more.
Documents and services we can prepare
If you need, TRW Law Firm can prepare:
- Customized Memorandum and Articles of Association
- Sample shareholder agreement with minority protections and reserved matters
- Incorporation checklist and document pack for Registrar and investment authority filings
Contact for legal assistance
For tailored advice, incorporation, or compliance support, contact TRW Law Firm:
Email: info@trfirm.com
Phone: +8801847220062 | +8801779127165
Office: House 410, Road 29, Mohakhali DOHS, Dhaka
