Recognition of One Person Company in Bangladesh | The Daily Star
12:00 AM, September 22, 2020 / LAST MODIFIED: 01:11 AM, September 22, 2020

Recognition of One Person Company in Bangladesh

The COVID-19 pandemic has created both challenges and opportunities for Bangladesh in terms of commerce and investments. The government has accordingly undertaken some praiseworthy initiatives to facilitate businesses in the past months. Recently, an amendment to the Companies Act 1994 has been proposed with a view to including One Person Companies (OPCs) within its ambit.

The amendment defines a 'one person company' as a company that only has one natural person as its shareholder. As per the newly added section 11A(c), such one person companies must include the words One Person Company or OPC at the end of their names.

The proposed amendment inserts a separate chapter regarding the registration and management of OPCs. As per the newly inserted section 32B, any natural person may incorporate an OPC for any lawful object by signing his/her name into the memorandum as the shareholder. The section also states that one natural person may only incorporate one OPC.  The memorandum shall also contain the name of a nominee, who, upon the death or incapacity of the shareholder, shall be deemed to be the shareholder of the company. The nominee may withdraw his consent to be listed as such through prescribed method, and may also be replaced by the shareholder upon death or incapacity. 

According to section 32C, the OPC must have a minimum paid-up capital of BDT 50 lakh but not more than BDT 10 crore, and an annual turnover of at least BDT 2 crore but not more than BDT 100 crore in the previous financial year. In case the OPC exceeds these upper limits, they may be registered as private or public limited companies upon fulfillment of the specified requirements.  

The chapter also states that the sole shareholder of the OPC shall be its director. The director may appoint the manager, secretary and other employees as necessary. The director of the OPC shall conduct at least one meeting in a financial year.

In case of any changes brought to the memorandum of the OPC, the Registrar must be notified as per the specified procedure. The OPC must submit its balance sheet and financial records within 180 days of the end of a financial year along with the necessary documents to the Registrar.

The audit and winding up of the OPC shall be done in the same procedure as done under the pre-existing provisions. In case of transfer of shares, the amendment states that the share may only be transferred to another natural person.

The inclusion of OPC in the Companies Act 1994 is an appreciable step as it extends the protections enjoyed by corporations to sole proprietorships. For example, while a sole proprietorship entails personal liability, OPC may allow for limited liability through the creation of a separate legal entity. The concept has been popular in other countries. India also incorporated OPC in its Companies Act a few years ago. However, while the Indian amendment included OPCs under private limited companies, the Bangladeshi amendment purports to create a separate set of rules for OPCs.

Moreover, while the Indian law sets the minimum paid-up capital for OPC at Rs. 1 lakh and maximum at Rs. 50 lakh, the Bangladeshi Act sets the same at BDT 50 lakh and BDT 10 crore respectively. This limit may arguably exclude smaller business undertakings from the advantage of the recent amendment.

Another point of concern is the implication this amendment shall have on foreign investments. The government has lately been making significant effort in improving its rank in the World Bank's ease of doing business index. The inclusion of OPC is therefore expected to make the legal system of Bangladesh friendlier to foreign investors. However, the inclusion of the requirement for a 'natural person' as a shareholder may mean that foreign investors that invest through a parent company by incorporating a subsidiary company in host countries shall not benefit from the proposed additions.

Overall, the recognition of OPCs has been welcomed as a positive development. Earlier this year, the Parliament passed an amendment to the Companies Act which withdrew the provision that made it mandatory for companies to have a seal in order to be registered with the aim of improving ease of doing business. 

The writer works with Law Desk, The Daily Star.

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