TR Law Firm in Bangladesh
24 Jan 2022
This article will explain in details about company shares in Bangladesh, Share capital, Share issued in discount and everything you need to know about shares of a comapny in Bangladesh.
Shares of Company in Bangladesh
Before we talk about shares of a company in Bangladesh. There are five ways of doing business in Bangladesh:
- Public Limited Company
- Private Limited company
- Branch office
- Liaison Office
- Partnership Business in Bangladesh
And except for Proprietorship, in all other ways, Shares play an instrumental role. Sections 30-76 of the Companies Act 1994 deal with shares, transfer of shares and rights
of shareholders. Sections 152-156 deal with issue of shares at a discount, redeemable preference shares and issue of further shares.
A company share in Bangladesh is a movable property transferable as per provisions of the articles. There is no exhaustive definition of a share in the Act.’ A share is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders inter se in accordance with section.
A company share in Bangladesh is a type of contractual claim against a company. It is an example of intangible property called a ‘chose in action’ or “Thing in action’. Professor R Pennington discusses the difficulty of defining shares and concludes that they are a species of intangible movable property which comprises a collection of rights and obligations relating to an interest in a company of an economic and proprietary character, but not constituting a debt.
In English law there are two kinds of chose in action; (i) legal choses in action (being claims enforceable at common law) and (ii) equitable choses in action (Being claims enforceable in equity). Because a company share in Bangladesh is a creature of statute, it is a legal rather than an equitable chose in action. In that respect it differs from a share in a partnership, which is an equitable chose in action because, historically, the interest of a partner has been enforceable in equity and not at law.
A share in a company also differs from a share in a partnership in terms of transferability of membership. In companies listed on the Stock Exchange a share can be freely sold and transferred. In unlisted companies there can be restrictions on transfer. The transferee becomes a member of the company in substitution of the transferor. A person who buys the share of a partner, however, acquires an interest but does not become a partner; the vendor becomes a trustee for him of the interest agreed to be sold.
A transfer of a share as a legal chose in action differs from transfer of a debt as a legal chose in action. A creditor can transfer the legal ownership of a debt by a two sided written assignment between a transferor and transferee with written notice to the debtor, but without needing his consent. Of course, the debtor cannot transfer the liability without the consent of the creditor.
But to transfer the legal ownership of a company share in Bangladesh, a change in the company’s share register is needed. That means there is a three-sided novation (the substitution of a new contract in place of an old one) rather than a two-sided assignment. Hence, liability attached to a partly paid-up share can be transferred although the transferor can remain liable if the company commences to wind up within one year from the transfer.
The rights making up a share are not separate pieces of property. If a company share in Bangladesh had carried only financial rights it might have been considered divisible; but a share carries rights of membership and the whole scheme of the company law does not admit of membership referable to a fraction of a share. Hence, a company cannot allot fractional shares.
Nor can a shareholder divide an allotted share so as to assign only some of the set of rights, such as the right to be paid dividends. If a member wishes to dispose of only part of the benefits of a share, that can be done behind the screen of a trust.
The member could create a trust of the share so that the trustee would be bound to account to one beneficiary for, say, dividends only and to account to another beneficiary for other benefits. A share as an item of property differs from physical subjects of ownership such as land in that its characteristics are fixed, not by nature, but by whatever is put into the contract between company and shareholder.
In a company, the rights attached to company share in Bangladesh may be so framed that the shareholder is restricted (for example, as to transfer of the shares) and those restrictions will apply to anybody who becomes owner of the shares. In other words, in a share the restrictions can go to defining the property itself instead of being something external that is imposed in respect of a pre-existing item of property.
The word “capital” used in connection with a company has several different meanings. It may mean the nominal or authorised share capital, the issued share capital, or the paid-up share capital of the company.
The nominal or authorised capital is merely the amount of share capital which the company is authorised to issue. In the case of a limited company the amount of potential share capital with which it proposes to be registered, and the division thereof into shares of a fixed amount, must be set out in the memorandum of association. This as well as the paid-up amount may be increased or reduced.
The amount of the company’s nominal capital depends on its business requirements, actual or potential. At the time of registration of the company the promoters will have to pay fees and stamp based on the amount of the nominal capital.
The issued or allotted capital is that part of the company’s nominal capital which has been issued to the shareholders. The company is not bound to issue all its capital at once.
Further issues of capital are made as they are needed (please find the details in section 155 of the Act).
The paid-up capital is that part of the issued capital which has been paid-up by the shareholders. The company may, for example, have a nominal capital of Tk 500,000 divided into 500,000 shares of Tk One each, of which Tk 400,000 is issued, i.e., 400,000 of the shares have been issued and only Tk 100,000 is paid-up, i.e., the company has so far required only 25p. to be paid-up on each share. The uncalled capital is the remainder of the issued capital and can be called up at any time by the company from the shareholders in accordance with the provisions of the articles.
The paid-up capital of the company includes the value of the shares paid-up and any premium on such shares although the share premium will be shown as share premium account in the balance sheet.
The Securities and Exchange Commission has to be satisfied before company share in Bangladesh can be issued at a premium as to the justification for it.
The issued share capital of a company is the fund to which creditors of the company can look for payment of their debts, and so, to protect the creditors, shares can be treated as paid-up only to the extent of the amount actually received by the company. Section 152 and 153 of the Company Act impose restrictions on issue of shares and debentures at a commission or discount.
A commission may be paid only if its payment and rate are approved by the articles and is mentioned in the prospectus where such a prospectus is issued and, in a statement, in lieu of prospectus where such a prospectus is not issued.
Shares may be issued at a discount if such issue is authorised by resolution of the company in general meeting and sanctioned by the Court.
The resolution must specify the maximum rate of discount not exceeding ten percent at which shares are to be issued and not less than one year has elapsed since the date on which the company was entitled to commence business and the shares to be issued at discount are done so within six months after the date on which the company was entitled to commence business.
Every prospectus and balance sheet issued after the company share discount must contain particulars of the discount allowed on the issue of shares.
Redeemable Preference Shares can be issued if so authorised by the articles. Section 154 of the Companies Act however provides that no such share shall be redeemed except out of profits of the company which would be otherwise available for dividend or out of the proceeds of a fresh issue of shares made for the purposes of the redemption or out of sale proceeds of any of the profits of the company.
No such share shall be redeemed unless they are fully paid-up and where any such shares are redeemed otherwise, than out of the proceeds of a fresh issue, there shall out of profits which would otherwise have been available for dividend, be transferred to a reserve fund to be called the capital reserve fund.
A sum equal to the amount applied in redeeming the shares, and the provisions of the Act relating to the reduction of the share capital of a company shall apply as if the capital redemption reserve fund were paid-up share capital of the company.
Where any such shares are redeemed out of the fresh issue, the premium, if any, payable on redemption must have been provided for out of the profits of the company before the shares are redeemed.
There shall be included in every balance sheet of a company which has issued redeemable preference shares a statement specifying what part of the issued capital of the company consists of such shares and the date when the shares are liable to be redeemed and where no such date is fixed the period of notice that is to be given for redemption.
If you want to open a liaison office in Bangladesh or about branch formation click here!
Essential Information for Foreign Investors
Foreign investors need to keep the following things in mind when they plan to form a private limited company in Bangladesh:
- The costs of registering a company are primarily determined by the company’s authorized capital. The average cost is between USD 1800.
- Shelf companies are not permitted and must have a physical place of business in Bangladesh.
- Bangladesh Forex Regulations allow for the full repatriation of profits and investments.
- Foreign nationals may be employed at a 20:1 (local: expat) ratio, subject to obtaining the necessary work permit.
- Except in a few restricted areas, 100 percent FDI investment is permitted.
- Directors can be either foreign or domestic nationals.
- The typical corporate income tax rate ranges from 25% to 45 percent, depending on the sector and nature of the company.
However, tax exemptions are available for selected sectors and areas for 5-7 years.
- There are also additional tax exemptions for investing in Special Economic Zones.
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What are some alternative ways to set up a company in Bangladesh?
A branch is not a separate incorporated entity, but rather an extension of its parent company. In other words, the parent company is liable for the liabilities of its branches.
With Bangladesh Investment Development Authority’s (BIDA) approval, a branch can engage in commercial activities. The Exchange Control Guidelines, on the other hand, strictly monitor its operation.
In Bangladesh, the average time to open a branch officis 45- 60 days.
A liaison, also known as a representative office, is subject to BIDA approval similarly as a branch.
It must have an overseas parent company, and its activities are limited because it only serves as a communication or coordination instrument for Bangladesh’s business resources.
Also, keep in mind that a liaison office in Bangladesh cannot earn any local income. Through remittance, the parent company bears all of its expenses and operational cost. It also adheres to the general business registration procedure in Bangladesh.
“To start a private limited company in Bangladesh, you will need to open a temporary bank account in the proposed company name with any scheduled bank in Bangladesh.
This stage is solely applicable if the proposed company has foreign shareholding.”
– Barrister Remura Mahbub
Are you planning to register a private limited company in Bangladesh?
Company formation and registration at Tahmidur Rahman TRW:
The legal team of Tahmidur Rahman, The Law Firm in Bangladesh TRW are highly experienced in providing all kinds of services related to forming and registering a Private Limited Company, Branch office Registration, Share Transfer Process in Bangladesh . For queries or legal assistance, please reach us at:
E-mail: [email protected]
Phone: +8801847220062 or +8801779127165
Address: House 410, Road 29, Mohakhali DOHS, Dhaka 1212
The procedure through which companies distribute additional shares to shareholders is known as an issue of shares. There are two types of shareholders: individuals and corporations. When issuing shares, the corporation complies with the regulations set forth under the Companies Act of 1994.
One of the components into which a company's capital is divided is a share. Therefore, if a firm has BDT 5 lakh in total capital and divides that capital into 5000 units of BDT 100 each, each unit of BDT 100 is equivalent to one share of the company.
As a result, ownership of the company is based on shares. A shareholder is a person who owns such shares and is hence a member of the business.
The fundamental information about shares and share capital, such as the kinds of shares that must be mandated, will now be found in the articles of association. According to the Companies Act of 1994, a corporation may only issue two different kinds of shares. They differ in nature and in their rights and responsibilities.
A share that has two exclusive preferential rights over the other form of shares, namely equity shares, is referred to as a preference share. These two preference share specific requirements are
a preferred position in relation to a company's declared dividends. They may get such dividends at a predetermined rate based on the nominal value of the shares they own. Preference shareholders receive the dividend before equity stockholders as a result.
preferential treatment when it comes to capital repayment in the event of a corporate liquidation. This indicates that preference shareholders receive their payouts before equity shareholders do.
Preference shares are comparable to equity shares aside from these two rights. Preference share holders have the opportunity to vote on any issues that directly affect their rights or duties.
Actually, there are numerous forms of preference shares. They may be exchangeable or not. They can either participate (share in additional income after a dividend is paid out) or not. Additionally, they could be non-cumulative or cumulative (demand arrears will accumulate).
A share that isn't a preference share is an equity share. Shares without any preferential rights are therefore considered equity shares. They are only given equity, or ownership, in the business.
Dividends paid to equity stockholders are not set in stone. Depending on the company's financial performance, the Board of Directors makes the decision. Additionally, the stockholders forfeit the dividend for that year if it cannot be declared; the dividend does not accumulate in such cases.
Additionally, equity shareholders have proportional voting rights based on the company's paid-up capital. In essence, it is a system of "one share, one vote." A business cannot publish non-voting
1] Issue of Prospectus
The prospectus is released first, then the shares. The prospectus functions as a kind of solicitation to the general public to subscribe for company shares. A prospectus includes all of the company's information, including its financial breakdown, profit and loss accounts from the prior year, and balance sheets.
Additionally, it describes how the funds raised will be used. A corporation must publish a prospectus or a document in its place when soliciting deposits from the general public.
2) Receiving Applications
Prospective investors may now submit applications for shares after the prospectus is released. The prospectus specifies the schedule bank where the required application funds must be deposited along with the completed application. The duration of the application period is 120 days at most. If the required minimum subscription amount is not met in these 120 days, the share issuance will be canceled. Within 130 days of the prospectus's release, the application funds must be returned to the investors.
3] Share Allocation
The shares may be distributed after the required minimum subscription amount has been met. Shares are typically oversubscribed, hence the allocation is made on a pro rata basis. Those whose shares have been allocated get Letters of Allotment in the mail. As a result, a legal contract is formed between the applicant and the business, who is now a shareholder.
Letters of regret are provided to the applicants in the event that their application was refused. Following the allotment, the firm is free to pay the share capital in full or in installments as it pleases.
When the shares are made available to the general public as part of the share issuance, this is the minimum amount that must be raised. The Board of Directors typically determines this minimum subscription, however it cannot be less than 90% of the issued capital. As a result, for the offer to be considered successful, at least 90% of the issued capital must be subscribed for. In this scenario, the application money that has already been received must be refunded within the established time frame.
Share allocation is not assured by applying for shares. A few applications will be turned down. In this case, we do not credit the share capital account when the application money is received. We create a new account—a sharing application account—for convenience's sake.
According to the Companies Act, the funds obtained from the application must be placed in the bank account at a Schedule Bank. This account has been set up specifically to handle the application fee. The following is the journal record for this transaction in the business's books:
We refer to shares issued at a premium as when the corporation chooses to issue shares at a price greater than the nominal value or face value. It is a fairly typical practice, particularly when the business has a solid track record, strong financial results, and a solid reputation. Let's say a share has a face value of BDT. 100 and is issued by the corporation at BDT. 110. It is said that the share was issued at a 10% premium. The premium will be shown in a separate account called the Securities Premium Account rather than becoming a part of the Share Capital account. The corporation can now call up this premium amount whenever it wants, i.e. with any call. The premium is often collected using allocation or application money, and rarely with call money. The Securities Premium Account has been credited with the premium sum that we previously specified. On the liabilities side of the balance sheet, under the heading Reserves and Surplus, is where you'll find this account.
About Barrister Remura Mahbub | One of the most innovative young lawyers in Bangladesh
Barrister Remura Mahbub is a finance partner and one of the Bangladesh's market leading international lawyers. She is head of the firm's Mergers and Acquisitions practice, which advises corporates and financial institutions on outbound and inbound investments, projects and financings.
Meheruba has a diverse finance practice , representing large banks, financial sponsors, and corporations. She specializes in acquisition and structured financings, loan portfolio purchase and financing, real estate financings, and inbound and outbound transactions. She has extensive expertise in the energy and infrastructure industries.
Meheruba has acted on many high-profile Finance and Commercial deals in Bangladesh and India. These include advising:
⦾ Standard Chartered Bank on the sale of a portfolio of loans in Bangladesh, the first in a series of similar deals in Bangladesh as part of the government’s directive to banks to focus on the robustness of their balance sheets.
⦾ the lending and underwriting banks on the refinancing of US$6.9bn worth of debt uninsured by the Summit Group
⦾ Brookfield Property Partners on the acquisition and financing of Unitech’s real estate portfolio
⦾ Enron on the US$3bn Dhabol power project (since renamed Ratnagiri Gas and Power), the first ever inward investment into the power sector
⦾ the sponsor and borrowers on the Sakhalin LNG project, the world’s largest integrated oil and gas project and the largest LNG financing in Russia
Email: [email protected]
Address: 2 Turner Street, Canning Town, E16 1FH, United Kingdom
Job Title: Barrister and Senior Associate
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