This guide provides you an overview of the various types of business entities in Bangladesh and the differences among them. Each of these is subject to different regulatory and tax regimes reflecting their organization and ownership.
Please note that we do not include nonprofit entity in this guide.
Available options for Bangladeshi citizen:
A sole proprietorship is the simplest type of business form in Bangladesh. From a legal perspective, sole proprietorship is not a separately incorporated entity and therefore the owner and the business are one and the same. The owner personally owns all assets and liabilities of the business. There is no protection of personal assets from business risks and liabilities. As the sole proprietor of a business, you have unlimited liability, meaning that if your business can’t pay all its liabilities, the creditors to whom your business owes money can come after your personal assets. Many entrepreneurs are usually unaware of this enormous financial risk. If the business is sued or can’t pay its bills, the owner is personally responsible for the business’s liabilities.
Further details about sole proprietorship can be found at proprietorship guide.
Under the Bangladeshi law, a partnership must consist of minimum two and maximum 20 partners. An agreement for the partnership is required for obtaining a trade license and opening of a bank account. The agreement is not required to be registered with the Registrar of Joint Stock Companies and Firms (RJSC). The liability of a partnership is borne by the partners.
The concept of Limited Partnership or Limited Liability Partnership does not exist in Bangladesh.
Further details about sole proprietorship can be found at partnership guide.
In Bangladesh companies are either – i) limited by shares; or ii) limited guarantee. Though it is technically possible to register an unlimited company, those companies are rare.
A limited liability company is a company limited by shares i.e. its liabilities are limited to the amount of share capital. A limited liability company is a business entity registered under the Bangladeshi laws and a separate legal entity from its members. In a limited liability company, the liabilities of the owners are limited to the assets in the company and their personal assets are protected from business liabilities.
A Bangladeshi Limited Liability Company can be – i) a private limited company; or ii) a public limited company.
Private Limited Company
A private limited company is a limited liability company in which the shares are held by less than 50 persons and are not available to general public. Most privately incorporated businesses in Bangladesh are registered as private limited companies. The shareholders of a private limited company can either be individuals or corporate entities or both.
A private limited company is the most advanced, flexible, and scalable type of business incorporation in Bangladesh. It’s also the most preferred type of Bangladesh business entity for serious entrepreneurs (as opposed to sole proprietorship or limited liability partnership). For more detailed information about private limited companies, refer to company registration in Bangladesh guide.
Why entrepreneurs prefer Private Limited Company:
- Separate Legal Entity: A private limited company has its own legal identity, separate from its shareholders and its directors. It can acquire assets, go into debt, enter into contracts, sue or be sued in its own name.
- Limited Liability: The liability of the shareholders to contribute to the debts of the company is limited to the amount that they each agreed to contribute as capital to the company.
- Perpetual Succession: The Company’s existence does not depend on the continued membership of any of its shareholders. Ease of transfer of shares or changes in shareholders ensures that company continues to exist even in the event of death, resignation, or insolvency of shareholders or directors.
- Ease of raising capital: You can raise capital for expansion or other purposes by bringing in new shareholders or issuing more shares to existing shareholders. Investors are more likely to purchase shares in a company where there usually is a separation between personal and business assets. Also, most banks prefer to lend money to limited companies.
- Credible Image: As an incorporated business entity, it commands a better image than a sole proprietorship or a partnership firm, and investors will be more willing to become part of the company as it demonstrates a vision to grow and expand. As a private limited company, your business will be taken more seriously by your potential clients, suppliers, bankers, and other professionals you will be dealing with.
- Easier transfer of Ownership: Ownership of a company may be transferred, either wholly or partially, without disrupting operations or the need for complex legal documentation. This can be done through the selling of all or part of its total shares, or through the issue of new shares to additional investors.
Public Limited Company
A public limited company is a limited liability company that may offer its shares to general public. A public limited company must have at least 7 shareholders and is subject to significantly more stringent rules and regulations since they have the power to raise funds from the public. Usually a public limited company is listed on a stock exchange.
Available options for foreign investors
Foreign investors wishing to setup a presence in Bangladesh, have the choice of setting up a subsidiary, a branch office or a representative office in Bangladesh.
A subsidiary company is a limited liability company incorporated in Bangladesh with the parent company as its shareholder. For most foreign businesses, a subsidiary company is the most preferred choice of registration in Bangladesh.
A branch office is a setup in Bangladesh as an extension of its parent company and not as a separately incorporated entity. The liabilities of a branch office extend to its parent company.
A representative office is registered in Bangladesh as a temporary arrangement for conducting marketing research activities. A representative office does not have any legal status and cannot be engaged in any profit yielding activities.