Establishing a Sole Proprietorship in Bangladesh

This guide provides information on registration of a sole proprietorship in Bangladesh. To learn about various types of business entities in Bangladesh, refer to start a business in Bangladesh.

Sole proprietorship is the simplest form of business structure in Bangladesh. However, it is suitable only for very small single-owner type business that does not carry any risks. Unlike a private limited liability company, a sole proprietorship does not provide limited liability protection and your personal assets are not protected from business risks.

Sole-Proprietorship – Key Facts

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• A sole proprietorship in Bangladesh does not constitute a separate legal entity therefore it is not distinct from the owner/ proprietor. The business owner is personally accountable for all liabilities incurred during the course of the business.
• Any Bangladeshi citizen of at least 18 years of age is eligible for a sole proprietorship.
• A local commercial address must be provided as the business address for the sole proprietorship.
• Profits of the sole proprietorship are treated as income of the individual who owns the entity, thus it is subjected to a tax rate as that of personal income.
• As a Bangladesh sole proprietorship is not a legal entity, it cannot register another business firm.
• Sole proprietorships do not need to audit their accounts as any profits will be taxed as personal taxes.
• Trade License is the basic requirement for proprietorship.
• Trade License needs to be renewed annually.

Considerations for Foreigners

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Documents Required and Registration Procedure

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In order to register a sole proprietorship business in Bangladesh, the following documents/information are required:

• Proposed business name in Bengali and English
• Description of principal activities
• Local business address for the proposed business in any commercial area/building.
• Lease/Rent Agreement or title deed for the office address.
• Copy of National ID for the owner.

Sole Proprietorship Advantages

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• Ease of setting up: It is the easiest and least expensive business structure to set up.
• Owner Control: As a sole proprietor you are in complete control of all the business affairs including decision making.
• No profit sharing: You accrue all income generated by the business.
• Ease of termination: Terminating a sole proprietorship is easier, less time consuming and less expensive than other business entities.
• Least compliance requirements: You are free of the obligation of filing returns annually and only need to renew your membership every year.

Sole Proprietorship Disadvantages

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• No separate legal entity: You are inseparable from your business. This makes you financially and legally responsible for all debts and legal actions against the business.
• Unlimited liability: Creditors may sue you for debts incurred and can also obtain a court order to claim against your personal assets, including your property.
• No corporate tax benefits or incentives: Taxes are determined at your personal income tax rate and you do not enjoy special tax benefits that are available to a private limited company.
• Limited capital: Capital is limited to your personal finances and the profits generated by the business. Thus, business expansion is limited and difficult.
• No perpetual succession: The business lives and dies with you as you and the business are one and the same thing. However, after the death of the owner of proprietorship, the successor may continue the business in the same name.
• Low public perception: This entity is the least preferred for serious businesses as nobody would be willing to lend you large sums of money. It is also difficult to attract high-caliber employees, or senior level executives who usually look for a more advanced form of business structure such as a private limited company.
• Sale/transfer of all or part of the business: You can transfer the business only by the sale of business assets.

Registration Procedure: Obtaining the Trade Licence

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The formal establishment of a sole proprietorship hinges on obtaining a Trade Licence from the relevant local government authority, such as the City Corporation (in metropolitan areas) or the Pourashava/Union Parishad (in other areas). The process involves the following steps:

1. Application Submission: The proprietor must submit a prescribed application form to the appropriate local government office governing the area where the business will operate.
2. Required Information and Documents: While specific requirements can vary slightly by locations, the application typically necessitates:
   • The proposed business name (often required in Bangla).
   • A clear description of the principal business activities.
   • The full business address located within a designated commercial area.
   • Proof of the right to use the premises, such as a lease/rent agreement or property title deed.
   • A copy of the owner’s National ID (NID) card.
   • Recent passport-sized photographs of the owner.
   • Evidence of payment of applicable government fees.
3. Potential Inspection: Upon receiving the application, an official from the licensing authority (e.g., a City Corporation inspector) may conduct a physical visit to the proposed business premises to verify the details provided.
4. Issuance of Trade Licence: If the application is complete, accurate, and the premises are deemed suitable, the authority will issue the Trade Licence.

It is noteworthy that the process for obtaining and renewing Trade Licences is undergoing significant digital transformation across Bangladesh, with many local government authorities transitioning towards online application systems to improve efficiency and transparency. However, the specific procedures and the extent of digitalization can still vary depending on the locality.

For assistance with establishing your sole proprietorship and obtaining a Trade Licence in Bangladesh, please reach out to:

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