Incorporating Sole Proprietorship & Partnership

SOLE PROPRIETORSHIP. In contrast to a private limited company or a partnership, a sole proprietorship offers a more simplified business structure and less compliance requirements. Any Bangladeshi citizen of at least 18 years old may register as the sole proprietor. As a sole proprietor,
the owner has complete control over all matters related to the business and all profits are considered personal income. All profits made by a sole proprietor are taxed as personal taxes. The sole proprietor must only obtain a trade license and renew the license every year.

However, in sole proprietorship, the owner and the business are not considered separate legal entities and therefore its owner is personally liable for all liabilities incurred. Therefore, creditors may sue sole proprietors for any unpaid debts and obtain an order to claim against personal assets. Further, as a sole proprietor, it is more difficult to finance the business as it is limited to personal finances. As the business is subject to personal taxes, sole proprietors are not eligible for corporate tax benefits or incentives.

Sole proprietorship is not an option for foreign investors. Foreign investors must consider establishing a locally registered business, a branch office, or a liaison office.

To register with BIDA as a sole proprietor, the following information and documents are required:

  • The Proposed Business Name in Bangla
  • Particulars of its principal business activities
  • Local business address for the proposed business in any commercial area
  • Lease/Rent Agreement or title deed for the office address
  • Copy of National ID of Owner

PARTNERSHIPS. According to Section 4 of the Partnership Act 1932, partnership is defined as “the relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all.” A partnership must have a minimum of 2 partners and a max of 20 partners.
Partners may be natural persons or companies. In contrast to sole proprietorships, partnerships are more capable in raising finances as they are able to pool their assets together. Unlike companies, partnerships do not require appointing directors, secretaries or shareholders. Therefore, the partners have greater control of the affairs of the business and have full ownership. However, partners are jointly and severally liable for debts of the partnership.

Although it is not legally necessary to register partnerships, Section 69 outlines various restrictions on unregistered partnerships in the enforcement of rights. As it appears from Section 69(1) of the Act, no proceedings may be instituted in any Court by a partner against another partner or the firm in connection with enforcing a contractual right unless the partnership is registered. Additionally, Section 69(2) also states that no proceedings may be instituted in any Court by or on behalf of the partnership against a third party in connection with enforcing a contractual right unless the firm is registered. Therefore, in order to conduct business in Bangladesh without significant restrictions, it would be most advantageous to register the partnership with the RJSC. The registration process can usually be completed within 1-2 days.

Step 1: Obtain a Name Clearance from the RJSC. In addition to selecting a partnership name that is not similar to any existing name in their database, the Act contains provisions of additional restrictions. According to Section 58 of the Act, the partnership name should not contain any of the following:

  • “words expressing or implying the sanction, approval or patronage of the Government or of the Bangabandhu, except when the Government signifies its consent to the use of such words as part of the firm name by order in writing.”
  • “A firm name shall not contain the name of the “United Nations” or its abbreviations through the use of its initial letters or of any subsidiary body set up by that body unless it has obtained the previous authorization of the Secretary-General of the United Nations in writing.”
  • A firm name shall not contain the name of the “World Health Organization” or its abbreviations through the use of its initial letters unless it has obtained the previous authorization of the Director-General in writing.”

Step 2: Draft a Partnership Agreement. Although the Act makes provisions for a partnership to be formed without a partnership agreement, it is a necessary document for the purpose of registration. The partnership agreement should be printed on a stamp and should comply with the Stamp Act, to be signed by all partners, and be notarized. The following information must be included in a partnership agreement:

  • Name and Address of the firm as well as all the partners
  • Nature of Business
  • Date of Commencement of business
  • Duration of the Partnership and whether it is a fixed/indefinite period
  • Business Address
  • Profit share among partners
  • Capital Contribution of each Partner
  • Rules with regards to admission of new partners, retirement of partners, and death of partners
  • Any other additional clauses

Step 3: Register Partnership Agreement with the RJSC. The partnership agreement and the Declaration on Registration (Form I) must then be submitted to the RJSC. If the RJSC is satisfied that all necessary information has been provided, it will then issue a Certificate of Registration.