A Guide to Transferring Shares in a Bangladeshi Company

The transfer of shares is a fundamental aspect of corporate activity in Bangladesh, enabling changes in ownership, facilitating investment, and supporting strategic restructuring. Whether for domestic entities or Multinational Corporations (MNCs), understanding the intricate legal and procedural landscape governing share transfers is crucial for ensuring compliance and mitigating risks. This guide provides a detailed examination of the process under Bangladeshi law, focusing on the requirements of the Companies Act, 1994, foreign exchange regulations, taxation (including the critical pre-payment of Capital Gains Tax under the Income Tax Act, 2023), and practical steps involved.

Governing Legal and Regulatory Framework

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Several key pieces of legislation and regulatory bodies oversee share transfers in Bangladesh:

1. The Companies Act, 1994: This is the primary legislation governing companies. Section 30 establishes shares as movable property, transferable according to the company’s Articles of Association. It outlines the core procedures for executing and registering transfers.
2. The Foreign Exchange Regulation Act, 1947 (FERA) & Bangladesh Bank Regulations: These govern transactions involving foreign currency and non-resident shareholders. The Bangladesh Bank (the central bank) issues circulars and guidelines that dictate procedures for inward investment remittances and outward repatriation of sale proceeds and profits, often managed through Authorized Dealer (AD) Banks. This is important, if any of the party is a foreigner or non resident Bangladeshi.
3. The Income Tax Act, 2023: This Act governs the taxation of gains arising from share transfers, including Capital Gains Tax (CGT) and potential withholding tax obligations. Crucially, it introduces requirements regarding the timing of CGT payment relative to the transfer registration. The National Board of Revenue (NBR) is the primary tax authority.
4. The Stamp Act, 1899: This Act mandates the payment of stamp duty on the Instrument of Transfer, calculated based on the value of the shares or consideration. Failure to pay appropriate duty renders the instrument invalid.
5. Articles of Association (AoA): A company’s own constitutional document, the AoA, often contains specific rules regarding share transfers, particularly for private limited companies (e.g., pre-emption rights, board approval requirements).
6. Registrar of Joint Stock Companies and Firms (RJSC): The government body responsible for company incorporation and maintaining statutory records. While the transfer is internally effected first, the RJSC’s recognition or recording processes are now linked to prior tax payment under the Income Tax Act, 2023. Changes in shareholding are ultimately reflected in filings made to the RJSC (e.g., Annual Returns).

Share Transferability: Private vs. Public Companies

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• Private Limited Companies: The vast majority of companies in Bangladesh fall into this category. Their Articles of Association, as required by the Companies Act, 1994, must restrict the right to transfer shares. Common restrictions include:
  • Pre-emption Rights: Existing shareholders are given the first right to purchase shares before they can be offered to outsiders.
  • Board Approval: The Board of Directors typically has the power to approve or refuse the registration of a share transfer, though this power must be exercised in good faith for the benefit of the company.
• Public Limited Companies: Shares in public companies (especially listed ones) are generally freely transferable, subject only to minimal restrictions outlined in their Articles or listing regulations.

Step-by-Step Share Transfer Process

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The following steps outline the typical procedure for transferring shares in a Bangladeshi private limited company:

1. Mutual Agreement & SPA (Optional but Recommended): The transferor (seller) and transferee (buyer) reach an agreement on the terms of the transfer (price, number of shares, etc.). Executing a formal Share Purchase Agreement (SPA) is highly advisable for significant transactions to detail commercial terms, warranties, conditions, etc.
2. Review Articles of Association (AoA): Examine the company’s AoA for transfer restrictions (pre-emption, board approval).
3. Comply with Pre-emption Rights (If Applicable): Offer shares to existing members as per the AoA and obtain waivers if necessary.
4. Obtain Board Approval (Internal): The transferor requests the Board’s approval for the proposed transfer. The Board considers the request based on the AoA and the company’s interests. This is the company’s internal consent.
5. Execute Instrument of Transfer (Form 117): The transferor and transferee execute the prescribed Instrument of Transfer (Form 117), detailing parties, shares, consideration, and distinctive numbers.
6. Pay Applicable Stamp Duty: Calculate and pay the correct stamp duty on the Instrument of Transfer as per the Stamp Act, 1899. Proof of payment is essential.
7. Calculate and Pay Capital Gains Tax (CGT): Determine the capital gain arising from the transfer and pay the applicable CGT as required by the Income Tax Act, 2023. Obtain proof of payment (e.g., tax receipt, challan, certificate). This step is now critical before the transfer can be formally registered..
8. Obtain Necessary Regulatory Approvals (If Applicable): Depending on the industry (e.g., banking, telecom, insurance), the nature of the transaction (e.g., involving significant foreign investment changes), or specific licenses held by the company, approvals from external regulatory bodies (e.g., Bangladesh Bank, BSEC, BTRC, IDRA, sector-specific regulators) may be required before the transfer can be finalised. Identify and secure any such mandatory approvals.
9. Lodge Documents with the Company: Deliver the following complete set of documents to the company’s registered office:
   • Duly executed and stamped Instrument of Transfer.
   • Original share certificate(s) relating to the shares being transferred.
   • Proof of payment of Capital Gains Tax.
   • Copies of any required regulatory approvals (from step 8).
10. Board Resolution Approving Registration: The company secretary presents the complete set of documents (including proof of tax payment and regulatory approvals) to the Board. The Board passes a formal resolution approving the registration of the transfer in the company’s books, having confirmed compliance with AoA, stamp duty, tax payment, and external regulatory requirements.
11. Update Register of Members: Following the Board’s approval, the company updates its Register of Members, removing the transferor’s name and entering the transferee’s details. As per Section 32 of the Companies Act, 1994, the company generally has two months from the date of lodgement of complete and valid documents to register the transfer or send notice of refusal.
12. Issue New Share Certificate: The company cancels the old share certificate(s) and issues a new certificate in the name of the transferee, typically within three months after the registration of the transfer (Section 33, Companies Act, 1994).
13. Inform RJSC (Indirectly/Annually): The change in shareholding will be reflected in the company’s next Annual Return filed with the RJSC. The prior payment of CGT and securing necessary regulatory approvals facilitate the smooth acceptance and recording of this change by relevant authorities.

Note: The transferee legally becomes a member with full rights only upon their name being entered into the Register of Members, which now presupposes prior CGT payment.

Considerations for Foreign Investors and MNCs

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Transactions involving non-resident shareholders trigger additional regulatory requirements, now intertwined with the CGT pre-payment rule:

• In case of purchase - Inflow of Funds: When a non-resident acquires shares, funds must enter Bangladesh via proper banking channels (AD Bank) as per foreign exchange laws of Bangladesh. Reporting of such investment is required.
• In case of sale - Repatriation of Sale Proceeds: This remains a critical concern. To repatriate sale proceeds, the non-resident seller applies through their AD Bank. The required documentation now implicitly includes proof that CGT was paid before the transfer registration, alongside other standard documents:
  • Proof of original inward remittance.
  • Valuation certificate confirming fair market value.
  • Executed SPA and stamped Instrument of Transfer.
  • Proof of prior payment of applicable CGT in Bangladesh (now a prerequisite for the transfer itself).
  • Company board resolution approving the transfer registration.
  • Potentially, specific Bangladesh Bank approval.
• Valuation Scrutiny: Bangladesh Bank and AD Banks continue to examine share valuation for fair market value compliance, especially during repatriation requests.

Please note that the list may vary depending on the amount of the sale proceed.

Taxation and Stamp Duty Implications

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• Capital Gains Tax (CGT): Profit from share sales is subject to CGT under the Income Tax Act, 2023. Crucially, this tax must now be paid before the share transfer can be formally registered by the company and recognized by authorities like RJSC. Rates vary based on residency, holding period, etc. [Specific Citation Required for ITA 2023 provision].
• Double Taxation Avoidance Agreements (DTAAs): Non-residents should check applicable DTAAs for potential relief, but this doesn’t negate the procedural requirement for pre-payment of any CGT due in Bangladesh.
• Stamp Duty: Payable on the Instrument of Transfer ad valorem on consideration or face value. This remains a separate requirement from CGT.

Strategic Planning and Risk Mitigation

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• Due Diligence: Essential for buyer and seller, now including verification of the process for CGT pre-payment.
• Share Purchase Agreement (SPA): Should now explicitly address the responsibility and timing for CGT payment and provision of proof.
• Compliance with AoA: Still critical for internal validity.
• Expert Advice: Engaging legal and tax advisors familiar with the Income Tax Act, 2023 and its implications for share transfer procedures is more crucial than ever.

Transferring shares in a Bangladeshi company involves a structured process governed by the Companies Act, 1994, foreign exchange regulations, and tax laws. A significant recent development under the Income Tax Act, 2023, mandates the payment of Capital Gains Tax before the transfer can be formally registered, adding a critical step early in the sequence. This impacts both domestic and cross-border transactions, including the process for repatriation of funds by foreign investors. Meticulous adherence to procedures (including AoA rules, stamp duty, and now CGT pre-payment), accurate documentation, proper valuation, and securing necessary approvals remain paramount. Proactive planning, thorough due diligence incorporating this tax pre-payment step, and expert guidance are key to ensuring share transfers are executed smoothly, compliantly, and effectively achieve their intended strategic objectives within Bangladesh’s evolving regulatory landscape.

For assistance with share transfers, corporate restructuring, tax compliance related to transfers, or other legal matters in Bangladesh, please reach out to:

• Ariful Hasan
  • Phone: +8801975603559
  • Email: [email protected]
• Osman Goni
  • Phone: +8801715569498
  • Email: [email protected]