Joint Venture

Bangladesh has become a hot spot for direct foreign investments (FDIs) because of its fast-growing economy, cheap, young, and skilled workforce. On top of that, the Government of Bangladesh provides massive lucrative incentives to the investors whether it is a FDI or a local investment which includes tax holidays, tax exemptions, and duty-free imports of raw materials and machineries provided the products are exported to other countries. The foreign investors could invest in the local market in various processes; for example, by incorporating a private limited company, by incorporating a branch office in Bangladesh, by incorporating a public limited company or by tying up with the local company to constitute a joint venture company in Bangladesh. This short guide is to illustrate the process of incorporating a joint venture company in Bangladesh at piecemeal. 

Before jumping onto the procedure, it would be prudent to discuss in brief what is a joint venture company or what is the purpose of forming a joint venture company in Bangladesh. A joint venture company can be formed by one or more foreign entrepreneurs or investors by collaborating with one or more entrepreneurs from Bangladesh through a registration with the Registrar of Joint Stock Companies and Firms (in short, RJSC), the company house of Bangladesh. Once formed, the joint venture company creates a separate legal entity. If the entrepreneurs form a limited liability company, the debts of the company are limited to the share capital they have contributed and if it is an unlimited company, there is no restriction on the recovery of the debts. The joint venture company is at liberty to perform its business activities within the boundaries prescribed by existing law of Bangladesh. The company could provide dividends to its share subscribing members and has to conform to the TAX, VAT and other legal obligations. 

Now, why the foreign investors or entrepreneurs would be inclined to incorporate or to form a joint venture company in Bangladesh rather than a fully owned private company without a need to share his profits. The reason is the local entrepreneurs have more knowledge of the law and regulations pertaining to carry out the business. Therefore, if a foreign investor intends to run a business in Bangladesh, he might inadvertently fall outside the scope of the legal authority. Furthermore, the local businesses have more knowledge of the local markets, for example, in terms of better suppliers of the raw materials, where to sell the produced goods or the distribution channels for their products, or for better know-how regarding the import and export of their products. Albeit, the investor has the opportunity to incorporate a 100 percent foreign owned limited liability company, it would be prudent for the investor to form a joint venture in Bangladesh if he does not have the knowledge regarding the 

market and country and wish to provide services in Bangladesh for a long period of time. However, should the investors opt to shut the business down, or unfortunately, the company winds up, they would have to go through rather a boisterous process which could take up to 8 (eight) months.

The Procedure:

Step 1: A Joint Venture Agreement:

The procedure starts with a joint venture agreement between the local entrepreneurs and the foreign investors. The agreement specifies and includes the name and address of the joint venture, the purpose of joint venture, that is, what they are thriving for,  start and end date of the agreement, the details of the joint venture members and the capitals they contributed each, the duties and the obligations of the members, the procedure of conducting meetings and voting, management of the venture, dissolution process, assignment of interest, non-compete clauses, confidentiality and dispute resolution clauses. When the parties are in accord with the terms, they should prepare the agreement by printing it onto a BDT 300 (three hundred) non judicial stamp paper and signed by the parties or their authorised representative in presence of at least two witnesses.

Step 2: Name Clearance Certificate: 

The next step of forming a joint venture is to obtain a name clearance certificate from the RJSC. The purpose of the name clearance certificate is twofold, one is to ensure that no other company is conducting its business activities in the same or similar name and the other is to prevent the business entities from evading tax, VAT, and other governments taxes liabilities. The procedure is pretty straight forward and could be done online by registration and submitting the application and the proposed name. Before so doing, the parties could search the proposed name whether any other company exists in the same or similar name or has reserved the name by using the ‘search entity name’ option available on the RJSC website. The parties, however, should keep in mind that the name should not infringe any trademark regulations, should not seem vulgar or offensive, and should not invoke any racial or religious uprisings. Refer to our guide on the name clearance certificate for more information or contact us for free consultation.

Step 3: Memorandum of Association & Articles of Association:

The next step is to prepare the Memorandum of Association or in short, MOA and the Articles of Association or in short, AOA. One might wonder what is the purpose of these documents.In order to describe it in short, MOA and the AOA serve as the constitution of the company. MOA is a legal document created during the formation of the company illustrating its (the company’s) relationship with the shareholders. It also specifies the objectives of the company. The objectives work as a boundary beyond which the company cannot operate its business activities. On the other hand, it also assists the shareholders and other creditors to know about the rights and powers of the company. The prospective shareholders could also make an informed probably the best decision whilst deciding whether to invest their hard-earned money in that company or not. 

AOA, on the other hand regulates the day-to-day business of the company. It also articulates the manner in which the company issues the shares to the shareholders, pay up the dividends, audit of financial records. Since it guides the activities of the company, sometimes it is referred to as user’s manual. So as to prepare an appropriate and suitable MOA and AOA which adhere to the existing laws 

of Bangladesh, it would be better for both the parties to seek professional help so that the MOA and the AOA mirrors the intentions of the parties. ABC Partners provides support regarding the MOA and the AOA starting from drafting to the final stage. Find out more about the MOA and the AOA or contact us.

Step 4: Execution of Various Forms:

Once both the entrepreneurs have entered into the joint venture agreement, obtained a name clearance certificate, prepared the MOA and the AOA, they need to fill out various forms, which are available on the RJSC website. The list of all the required forms along with a brief description is provided below:

1. Form I: The declaration on Registration of Company under section 25(2) of the Companies Act 1994. In this form, an Advocate or an Attorney, who is entitled to appear before the High Court Division of the Supreme Court of Bangladesh, solemnly declares that all the formalities regarding the incorporation of a company under section 25(2) of the Companies Act 1994 has been carried out and complied with. 
2. Form VI: Notice of Situation of the registered office under section 77 of the Companies Act 1994. In this form the applicant provides the details about the location of the registered office that is where the registered office is situated. This form is also required if there is any change of location of the registered office. In both the cases, the director or the responsible person must inform the registrar within twenty-eight calendar days.
3. Form IX: Consent of the directors to act under section 92 of the Companies Act 1994. In this form the directors of the company must provide their consents to act as the directors of the company. They need to provide their details as in their addresses, copy of their national ID or a passport if the person is a foreign national, and most importantly their signatures. If the director(s) signs by ‘his agent authorised writing’, the original authorization along with a copy of that authorization to be produced with the form IX. This form is to be submitted by all the directors individually.
4. Form X: The list of the directors consenting to act as directors of the said company under section 92 (2) of the Companies Act 1994. In this form, the main applicant would list all the details of the directors and undersign the form stating that the directors have consented to act as the directors of the company. This form could be termed as a single form listing all the form IX submitted by the directors individually and approved by the applicant.
5. Form XII: Particulars of the directors, managers, and the managing agents and of any change there may be under section 115 of the Companies Act 1994. In this form the particulars of the directors and the managers should be noted. The particulars include present and permanent addresses of the directors, other business addresses if there are any, whether they are employed as an employee or as a director in other company, date of appointment as a director in the same company and other details. This form is also used to inform/notify the registrar of the RJSC of any change in directorship or managership. If the company decides to change a director or appoint a new director it 

could do so by filling out another form XII and submit to the registrar along with other required documents.

Step 5: Opening a Bank Account:

If there is a foreign investor included as a shareholder the process gets a little complicated. This step would only be necessary if one of the parties of the joint venture is an expatriate. If both the parties of the joint venture are the citizen of Bangladesh, they do not need to imitate this process. The entrepreneurs of the joint venture have to open up a temporary bank account in the name of the company where he remits the share capital. The bank could be of any scheduled bank of Bangladesh and the investor must remit the money from the outside of the country when the account is activated. After receiving the monies, the bank would issue an Encashment Certificate which needs to be submitted along with all other relevant documents. 

Step 6: Submitting all the Documents to the RJSC:

Once all the documents are prepared, the parties, that is the entrepreneurs of the joint venture should submit these documents. Upon receiving these documents, the RJSC would conduct a preliminary inspection of the documents and inform the parties whether they need any other supporting documents, if they do not require any further documents, they would issue the Certificate of Incorporation and certified copies of all other relevant documents.

Step 7: Post Incorporation: 

After the incorporation is complete the company need to obtain Tax identification Number or in short, TIN certificate, Value Added Tax or in short VAT registration certificate, Trade License and other relevant certificates, if necessary, from the respective authorities. 

ABC Partners is a leading law firm in incorporation of businesses in Bangladesh with an aim to provide 360-degree services to the clients. Should you require any sort of professional assistance please contact us