Comparison of Proprietorship, Partnership, Private Limited, Public Limited, and One Person Companies
The table below provides a comparison of business structures available to local entrepreneurs in Bangladesh. This comparison is not intended for foreign shareholders. Foreign shareholders should refer to this comparison.
| Feature | Sole Proprietorship | Partnership Firm | Company (Private Limited) | Company (Public Limited) | Company (One Person Company - OPC) |
|---|---|---|---|---|---|
| Governing Law | No specific law governs proprietorships. They are usually governed by established practices and common law. | The Partnership Act, 1932 | The Companies Act, 1994 | The Companies Act, 1994 | The Companies Act, 1994 |
| Formation | Simplest form. Requires obtaining a Trade License from the relevant City Corporation, Municipality, or Union Parishad. Also requires a Taxpayer Identification Number (TIN) and potentially a VAT registration certificate. There is currently no central registration body like the Registrar of Joint Stock Companies and Firms (RJSC). | Formed by a voluntary agreement (Partnership Deed) between partners (Minimum 2, Maximum 20). Registration with the Registrar of Joint Stock Companies and Firms (RJSC) is optional but highly recommended. Requires a Trade License, TIN, etc. | Formal incorporation process with RJSC under the Companies Act, 1994. Requires: 1. Name Clearance 2. Drafting Memorandum of Association (MoA) & Articles of Association (AoA) 3. Director & Shareholder information 4. Registered Office Address 5. Filing incorporation documents & fees with RJSC. Also requires Trade License, TIN, VAT registration, etc. | Formal incorporation with RJSC: Similar to Private Ltd, but can offer shares/debentures to the public. A prospectus may be required. Requires Trade License, TIN, VAT, etc. | Formal incorporation with RJSC by one natural person: Requires Name Clearance, MoA, AoA (simpler format possible), Nominee details, Registered Office. Requires Trade License, TIN, VAT, etc. Paid-up capital must be between BDT 2.5 million and 50 million; previous year’s turnover must be between BDT 10 million and 500 million. |
| Legal Status | Not a separate legal entity from the owner. The business and owner are considered one and the same. | Generally not a separate legal entity. Partners constitute the firm, although it can own property in the firm’s name. | Separate legal entity. Distinct from its shareholders and directors. Can own property and sue or be sued in its own name. | Separate legal entity. Distinct from its shareholders and directors. Can own property and sue or be sued in its own name. | Separate legal entity. Distinct from the sole shareholder/director. Can own property and sue or be sued in its own name. |
| Liability | Unlimited personal liability. The owner is personally responsible for all business debts and obligations. Personal assets can be used to satisfy business liabilities. | Unlimited, joint and several liability for all partners. Each partner can be held liable for the full extent of the firm’s debts, regardless of their individual contribution or fault. | Limited liability for shareholders. Liability is typically limited to the amount unpaid on their shares (if any). Personal assets of shareholders are protected from business debts. | Limited liability for shareholders. Liability is typically limited to the amount unpaid on their shares (if any). Personal assets of shareholders are protected from business debts. | Limited liability for the shareholder. Liability is typically limited to the amount unpaid on their shares (if any). Personal assets of the shareholder are protected from business debts. |
| Ownership | Owned solely by one individual (the proprietor). | Owned jointly by the partners as defined in the Partnership Deed. | Owned by shareholders who hold shares in the company. | Owned by shareholders who hold shares in the company. | Owned by one natural person shareholder. |
| Management | Managed solely by the proprietor. | Managed by all partners or designated partner(s) acting for all, as per the partnership agreement. | Managed by a Board of Directors elected by the shareholders. Day-to-day operations are often delegated to executives (e.g., Managing Director). | Managed by a Board of Directors elected by the shareholders. Day-to-day operations are often delegated to executives (e.g., Managing Director). | Managed by the sole shareholder, who is typically also the sole director. A nominee must be appointed to take over in case of the shareholder’s death or incapacity. |
| Number of Members/ Owners | One. | Minimum 2, Maximum 20. | Minimum 2, Maximum 50 shareholders. | Minimum 7 shareholders, no maximum limit. | Exactly one natural person shareholder. |
| Capital Contribution | From the proprietor’s personal funds or loans obtained by the proprietor. | From partners’ contributions as agreed in the Deed, or loans obtained by the firm/partners. | Raised by issuing shares to shareholders. Can also raise capital through loans or issuing debentures. | Raised by issuing shares to shareholders (potentially including the public). Can also raise capital through loans or issuing debentures. | Raised through the issuance of share(s) to the sole member. Minimum Paid-up Capital: BDT 2.5 Million (25 Lakh), Maximum Paid-up Capital: BDT 50 Million (5 Crore). |
| Profit/Loss Sharing | All profits belong to the proprietor; all losses are borne by the proprietor. | Shared among partners according to the ratio specified in the Partnership Deed. If no ratio is specified, profits and losses are shared equally. | Profits are distributed to shareholders as dividends, as determined by the Board of Directors and approved by shareholders. Losses are retained within the company, affecting its net worth. | Profits are distributed to shareholders as dividends, as determined by the Board of Directors and approved by shareholders. Losses are retained within the company, affecting its net worth. | Profits belong to the company. They can be distributed to the owner via salary or dividends. Losses are borne by the company. |
| Transferability of Interest | The business entity itself cannot be transferred, only its assets and liabilities. A new owner typically requires a new Trade License. | A partner usually cannot transfer their interest to make someone else a partner without the consent of all other existing partners. | Shares are transferable, subject to any restrictions outlined in the Articles of Association (AoA). | Shares are generally freely transferable (subject to stock exchange regulations if listed). | The single share can be transferred to another eligible natural person. The OPC must convert to a Private Limited Company if capital or turnover limits are exceeded. |
| Continuity/ Succession | The business legally ceases upon the death, insolvency, or decision of the proprietor to stop operations (though a successor might continue the business activities under a new license). | Dissolves upon the death, retirement, or insolvency of a partner, unless the Partnership Deed explicitly provides for continuation. | Perpetual succession. The company continues to exist regardless of the death, insolvency, or change of its members (shareholders) or directors. | Perpetual succession. The company continues to exist regardless of the death, insolvency, or change of its members (shareholders) or directors. | Perpetual succession. The appointed nominee becomes the member upon the sole member’s death or incapacity, ensuring the company’s continuity. |
| Compliance & Regulatory Burden | Lowest. Main compliance typically involves annual Trade License renewal and filing personal income tax returns that include business income. VAT returns may be required if a BIN is obtained. | Moderate. Requires annual Trade License renewal and filing the firm’s tax assessment. If registered with RJSC, changes in constitution or address must be notified. Internal management is governed by the Partnership Deed. | High. Requires compliance with the Companies Act, 1994, including: - Filing Annual Returns with RJSC - Filing audited financial statements - Holding statutory meetings (Board Meetings, Annual General Meetings - AGMs) - Maintaining statutory registers (members, directors, charges, etc.) - Corporate tax filings. | Highest. Similar compliance to Private Ltd, but potentially stricter regulations, especially if listed on a stock exchange. Requires compliance with the Companies Act, 1994 and potentially securities regulations. | Moderate to High. Similar compliance requirements to a Private Ltd, though meeting rules might be simplified. Annual returns and audited accounts must be filed with RJSC. Changes regarding the nominee must be notified. Mandatory conversion to Private Ltd if thresholds are exceeded. |
| Taxation | Business profits are treated as the owner’s personal income and taxed at the applicable personal income tax rates. | The firm itself may be assessed for tax purposes, but profits are typically taxed in the hands of the individual partners according to their profit-sharing ratio, at their respective personal income tax rates. | Taxed as a separate legal entity at corporate income tax rates. Dividends distributed to shareholders may be subject to further tax in the shareholders’ hands. | Taxed as a separate legal entity at corporate income tax rates. Dividends distributed to shareholders may be subject to further tax in the shareholders’ hands. | Taxed as a separate legal entity at corporate income tax rates. Profits distributed to the shareholder (e.g., as dividends) may be subject to further tax in the shareholder’s hands. |
| Dissolution | Simple process: Cease operations, settle liabilities, and cancel the Trade License. | Can be dissolved by: mutual agreement, compulsory dissolution (e.g., insolvency, business becoming illegal), upon certain contingencies (e.g., death of a partner, completion of the venture if for a fixed term), by notice (if partnership-at-will), or by court order. | Formal winding-up (liquidation) process prescribed by the Companies Act. Can be voluntary or compulsory (by court order). Involves appointing a liquidator, settling debts, distributing remaining assets to shareholders, and finally, being struck off the register by RJSC. | Formal winding-up (liquidation) process prescribed by the Companies Act. Can be voluntary or compulsory (by court order). Involves appointing a liquidator, settling debts, distributing remaining assets to shareholders, and finally, being struck off the register by RJSC. | Formal winding-up (liquidation) process prescribed by the Companies Act. Can be voluntary or compulsory (by court order). Involves appointing a liquidator, settling debts, distributing remaining assets to the shareholder, and finally, being struck off the register by RJSC. |
Key Considerations:
- Liability: This is often the most critical factor. Unlimited liability (Sole Proprietorship, Partnership Firm) poses significant personal financial risk. The limited liability offered by Companies (Private, Public, OPC) protects the personal assets of the owners/shareholders.
- Complexity & Cost: Sole Proprietorship is the simplest and least expensive to establish and maintain. Partnership Firms have moderate complexity. Companies involve higher setup costs, more complex administration, and stricter ongoing regulatory compliance.
- Funding: Companies generally find it easier to raise substantial capital by issuing shares or attracting investors compared to proprietorships and partnerships. Public Limited Companies have the broadest options for raising capital from the public.
- Control: Proprietors and the sole shareholder in an OPC have complete control. Partners share control based on their agreement. In companies, ultimate control rests with the shareholders, who elect a Board of Directors to manage the company.
- Foreign Investment: Foreign nationals or entities generally cannot form a Sole Proprietorship or Partnership Firm (unless specific permissions are granted). They typically establish a Private Limited Company, Public Limited Company, Branch Office, or Liaison Office.
- OPC Specifics: The OPC structure provides limited liability to a single entrepreneur, which was previously only achievable by finding a second shareholder for a Private Ltd Co. However, OPCs are restricted to natural persons and are subject to specific minimum/maximum paid-up capital and annual turnover thresholds, requiring conversion if exceeded.
Key Contact
For assistance with finding the suitable business structure in Bangladesh, please reach out to:
- Ariful Hasan
- Phone: +8801975603559
- Email: [email protected]
- Osman Goni,
- Phone: +8801715569498
- Email: [email protected]