Difference between Branch Office and a Private Limited Company in Bangladesh
When it comes to setting up a business entity in Bangladesh, two common options for foreign investors are a branch office and a private limited company.
Understanding the differences between these two entities is crucial in making an informed decision that aligns with your business objectives. In this article, we will explore the disparities between a branch office and a private limited company in Bangladesh, including the registration process, legal requirements, operational scope, and more.
Registration Process:
- Branch Office:
Registering a branch office in Bangladesh involves several steps and legal procedures. The process begins with obtaining approval from the Bangladesh Investment Development Authority (BIDA). The required documents, such as the application form, Memorandum and Articles of Association of the parent company, audited accounts, and board resolution, need to be submitted to BIDA. After thorough inspection, if the committee is satisfied, they will provide the approval. The average time for submission and approval is around one month.
Once the BIDA approval is obtained, the next step is to open a bank account in Bangladesh. Although no minimum paid-up capital is required for a branch office, a remittance of at least US$ 50,000 must be injected within two months from the date of issuance of the BIDA permission letter.
Afterward, Bangladesh Bank approval and registration with the Registrar of Joint Stock Companies and Firms (RJSC) are necessary. Finally, obtaining a trade license from the local city corporation and registering for income tax and VAT are essential for the branch office to carry out its business activities legally.
- Private Limited Company:
The process of registering a private limited company in Bangladesh is slightly different. It begins with obtaining name clearance from the RJSC by submitting an application and paying the required fees. Once the proposed name is approved, the company needs to open a bank account and bring in the paid-up capital, which is a minimum of Taka 1 for a local company and USD 50,000 for a foreign-owned company.
Afterward, the company registration application is submitted to the RJSC, along with the required documents such as the Memorandum and Articles of Association, shareholders’ particulars, directors’ information, and the registered address.
Upon completion of the registration process and payment of the registration fees, the RJSC issues a Certificate of Incorporation, Form XII listing the directors, and certified copies of the Memorandum and Articles of Association. The company then needs to apply for a trade license, tax identification number, VAT registration, and other licenses based on its business activities.
Legal Requirements:
- Branch Office:
A branch office does not have a separate legal entity from its parent company. It operates as an extension of the parent company and is fully responsible for its activities, debts, and obligations.
The parent company’s Memorandum and Articles of Association, audited accounts, and board resolution are required for the registration process. The branch office can engage in commercial activities after obtaining approval from BIDA. - Private Limited Company:
A private limited company in Bangladesh is a separate legal entity from its shareholders. Shareholders are not personally liable for the company’s debts beyond the amount of share capital they have contributed.
The company must have a minimum of two directors, who can be either local or foreign nationals. The shareholders can also be individuals or other legal entities. The Memorandum and Articles of Association, along with other required documents, outline the company’s objectives, structure, and regulations.
Operational Scope:
- Branch Office:
A branch office primarily functions as a representative office of its parent company. It can engage in commercial activities with prior approval from BIDA. The branch office can collect payments on behalf of the parent company, generate local income, and make outward payments from Bangladesh with BIDA’s approval.
- Private Limited Company:
A private limited company has a broader operational scope compared to a branch office. It can engage in a wide range of business activities as stated in its Memorandum and Articles of Association.
The company has the flexibility to conduct local and international business transactions, enter into contracts, own assets, hire employees, and undertake various commercial operations. Additionally, a private limited company can enjoy certain tax incentives and benefits provided by the government to promote investment and business growth.
Ownership and Control:
- Branch Office: A branch office in Bangladesh is entirely owned and controlled by its parent company.
The parent company exercises full control over the branch office’s operations, decision-making process, and strategic direction. Any profits or losses generated by the branch office are typically reflected in the parent company’s financial statements. - Private Limited Company: A private limited company in Bangladesh can have multiple shareholders, both local and foreign. The shareholders have ownership rights based on the number of shares they hold in the company.
The company’s management and decision-making authority are vested in its board of directors, who are appointed by the shareholders. The profits and losses of the company are distributed among the shareholders in proportion to their shareholdings.
Liability:
- Branch Office: A branch office does not have limited liability. The parent company assumes full liability for the branch office’s debts, obligations, and legal responsibilities. In the event of financial difficulties or legal issues faced by the branch office, the parent company’s assets can be at risk.
- Private Limited Company: One of the significant advantages of a private limited company is that it offers limited liability protection to its shareholders. The personal assets of shareholders are safeguarded, and they are not personally liable for the company’s debts beyond their capital contribution. This limited liability feature provides a level of financial security for the shareholders.
Taxation:
- Branch Office: A branch office in Bangladesh is subject to the same tax regulations as any other local company. It is liable to pay corporate income tax on its profits generated within Bangladesh. The tax rate for branch offices is generally higher compared to private limited companies.
- Private Limited Company: A private limited company is also liable to pay corporate income tax on its profits. However, the tax rate for private limited companies is often lower than that for branch offices. The government may offer certain tax incentives and exemptions to promote investment and business growth, which can further reduce the tax liability of private limited companies.
Closure and Dissolution:
- Branch Office: The closure or dissolution of a branch office in Bangladesh requires proper legal procedures. The parent company must notify BIDA and follow the necessary steps to wind up the branch office’s operations. Debts, liabilities, and legal obligations must be settled before the closure is finalized.
- Private Limited Company: Dissolving a private limited company in Bangladesh also involves legal procedures. The shareholders must pass a resolution for dissolution, settle any outstanding liabilities, and initiate the liquidation process. The assets of the company are liquidated, debts are paid off, and the remaining funds, if any, are distributed among the shareholders according to their shareholdings.
In summary, choosing between a branch office and a private limited company in Bangladesh depends on various factors such as the nature of business activities, operational scope, ownership preferences, liability concerns, and taxation considerations. While a branch office offers a direct extension of the parent company, a private limited company provides a separate legal entity with limited liability protection.
Consulting with legal and financial experts is crucial to make an informed decision and ensure compliance with the regulatory requirements of Bangladesh.
Here’s a comparison table between a branch office and a private limited company for foreign companies in Bangladesh:
| Aspect | Branch Office | Private Limited Company |
|---|---|---|
| Operational Scope | Limited to the activities defined by the parent company | Broad range of business activities as stated in the Memorandum and Articles of Association |
| Ownership | Fully owned and controlled by the parent company | Multiple shareholders, both local and foreign, with ownership rights based on shareholdings |
| Liability | Parent company assumes full liability for the branch office’s debts and obligations | Shareholders enjoy limited liability protection, personal assets are safeguarded |
| Taxation | Subject to corporate income tax on profits generated within Bangladesh | Subject to corporate income tax, potential for lower tax rates and incentives for private companies |
| Decision-making | Decisions made by the parent company | Decisions made by the board of directors appointed by the shareholders |
| Financial Reporting | Financial statements consolidated with parent company’s reports | Separate financial statements, profits/losses distributed among shareholders |
| Operational Flexibility | Limited flexibility due to alignment with parent company’s policies and procedures | Flexibility to conduct local and international business transactions, enter contracts, hire employees |
| Closure and Dissolution | Legal procedures to notify BIDA and follow necessary steps for closure | Shareholders pass resolution for dissolution, settle liabilities, initiate liquidation process |
| Brand Identity | Operates under the parent company’s brand identity | Establishes a separate brand identity |
| Employment | Hires employees under the parent company’s terms and conditions | Hires employees under the company’s terms and conditions |
Company Law practices in TR Barristers, including branch registration in Bangladesh and Private Limited company in Bangladesh:
The Barristers, Advocates, and lawyers at TRW Law chamber in Gulshan, Dhaka, Bangladesh are highly experienced at assisting clients in dealing with and registering branch offices in Bangladesh. For queries or legal assistance to set up a branch office in Bangladesh, please reach us at:
E-mail: info@trfirm.com
Phone: +8801847220062 or +8801779127165
House 410, Road 29, Mohakhali DOHS