A question that often bugs a startup founder in the initial days of his business is this:
Which form should I go for in going forward with my business?
Needless to say it is an extremely pertinent question and the founder ought to know the types of different business structures before reaching a conclusive answer to that question. We list below the main features of the forms of businesses which can be set up in Bangladesh:
Sole Proprietorship: As the name indicates, when a business is owned and operated by a single individual, it will be deemed to be a sole proprietorship firm. In terms of formalities and compliance requirements, it imposes the minimum obligations. A sole proprietorship can be set up merely by obtaining a trade license from the local City Corporation or Paurashava. However, this form of business entity will not cater for businesses having two or more owners. It is important to note that the owner of business will be personally liable for all the liabilities and obligations of the business, including the tax and debt.
Partnership: A partnership can be formed by two or more persons by executing a Deed of Partnership. It is advisable to register the partnership with the Registrar and Joint Stock Companies and Firms (RJSC). Each partner will be personally liable for the actions/liabilities (whether undertaken/incurred by himself or other partner(s)) of the partnership . If a partnership is formed, it is strongly recommended to specify in the Deed of Partnership the future of partnership in the event of death of a partner (unless so specified, the partnership will dissolve upon death of a partner).
Company: A company is a separate legal entity established by way of registration with Registrar and Joint Stock Companies and Firms (RJSC). At least two shareholders are necessary for setting up a private company. For a public company, the minimum number of shareholders is seven. In a company, the liabilities and obligations of the company remain separate from its owners (unless personal guarantees are taken from the shareholders). This means that the personal assets of the shareholders shall remain beyond the reach of the creditors regardless of the amounts of liabilities of the company. The paperwork involved in forming a company includes Memorandum and Articles of Association, Form IX (Consent of Director) (as prescribed by RJSC, signed by the proposed directors), Subscription Page (signed by the proposed shareholders) etc. A company is legally required to hold at least 1 (one) Annual General Meeting and 4 (Four) Board Meetings. Besides, each year it will be required to submit Annual Returns with RJSC. It is noteworthy to mention that if the startup is planning to raise funds in the near future, it is advisable to form a company as it is unlikely that any venture capital firm will invest in a sole proprietorship or partnership.