New Companies Act for Bangladesh

Ferdaus Ara Begum Companies Act-1994 governs companies in Bangladesh which is the reproduction of Companies Act 1913. In that respect we have about a hundred-year old act which of course has gone through several reforms throughout a long history. The Companies Act 1994 has 11 parts and twelve schedules. All these sections have given details on different aspects of formation and operation of a company. There have been a lot of discussions about the drafting of a new Companies Act for Bangladesh for a long time. Some have opted whether to go for amendment or to have altogether a new legislation. India is going to prepare a new law while Singapore is also going for the same. This discourse needs to be resolved but it is of course true that majority are in favour of a new law covering a large area of changes to make it comfortable for the businesses. UK has drafted a new act in 2006 which is a multi-jurisdictional law. US law has also included multi-jurisdictional laws. Companies Act of Bangladesh follows the UK system while Malaysian business structure can be taken as example to gather more experiences. Since the enactment of the Companies Act, the country's private sector have undergone major changes towards making a more dynamic business community. A number of laws and regulations which should have coverage in the existing act, but in practice do not reflect all the recent developments in the business sector and to some extent impedes private sector growth. Thus several clauses in the act need to be amended and new provisions to be included in order to simplify business processes and make it easier for businesses to operate. Most of the commercial laws enacted during the British rule are outdated now. Changes in the Companies Act should be in conformity with other related laws to make it a full proof act. Simplified business processes will result in reduction of time and costs of doing business. Gradually cross border businesses have been gaining momentum, we need to know the jurisdiction of laws of other countries' businesses also. Because of speedy movement of capital and at this age of globalisation and changed role of business we need proper exposure to match with the requirement. A new and modern companies act will create a conducive business environment by eliminating difficult compliances for businesses. The proposed act will be drafted in order to capture all the recent developments in the country's vibrant private sector. Enactment of a new company law is a "must" because of the global scenario and exponential growth that the country's trade and business had witnessed. The Ministry of Commerce has already formed a 17-member public-private committee to submit a draft act to the government. The committee has sought assistance from the Bangladesh Investment Climate Fund (BICF) to frame a draft. The new act must include the provisions dealing with the situation that arose after the requirement of digitisation process. There are also some areas of concerns related to minority protection, object clause in memorandum of association, annual general meeting (AGM) and rectification of share registration etc. So, these must be taken into consideration while drafting the new act. The discrepancies in the Bengali and English versions of the Companies Act must also be removed. In Bangladesh about 96.7 per cent of the enterprises are from the small and medium group which reminds us about their importance in the economy. Electronic communication and technological aspects should be focused in the new Companies Act. Any information required to be sent to the Registrar of Joint Stock Companies (RJSC) or maintained in documentary form should be permitted to be so in electronic form and by electronic means with appropriate powers to prescribe for authentication. Meetings via electronic means should be expressly declared to be valid so long all participants have a reasonable opportunity to participate and companies should be free to communicate electronically with members for all purposes with their consent. It should also be ensured that the new act must be private sector friendly. However, whatever act is finally drafted and enacted; it must be non-discriminatory and operational. RJSC plays a very important role and presently its services have been gradually transformed to an electronic mode, but some observed that presently a parallel system is going on while district level businesses are the worst sufferers as the services are controlled by the centre. We need reform of the joint stock company through capacity building and for electronic connectivity in true sense. Downloading all forms from electronic way to avoid costs is another area of concern. A company for different purposes has to be registered with RJSC, Board of Investment (BOI) and also Bangladesh Bank and even many more in different cases. Duplication and overlapping of providing information can be avoided easily if all related organisations have access to these information submitted in one organisation electronically. This would reduce hassles and cost of doing business at the same time help confirming accuracy of information. Presently an individual entrepreneur has to shuttle from one office to another and apply for different services in different offices. For easing the process Malaysia has established Business Licensing Electronic Support System (BLESS) which is portal that provides information and facilities for companies to apply for registrationlicenses in a single office to start and operating a business. The Australian Business Number (ABN), is a unique identifier issued by the Australian Business Register (ABR) to facilitate starting a new business. At this electronic age, requirement for sending notices for annual general meeting (AGM) and extra-ordinary general meeting (EGM) should be reduced from the existing fourteen days, for private company to seven days and even it can be reduced further to only two days if full electronic system is developed. What could be the new proposals, some recommended that there should be no requirement for object clause, no qualification shares for nominee directors. Incorporation of single member companies and no AGM for single member or private limited companies could increase the acceptability of the act, as viewed by many. Single-member company is present in many countries. In sole proprietary business liabilities is unlimited while it is limited for a single member company. Small and medium entrepreneurs (SME) situation have been gaining momentum; access to banking facilities, and for other benefits this could be a big opportunity. There are some suggestions for no AGM requirement for single member companies that might need discussion. Object clause is a least referred document. While some have recommended for withdrawing object clause, there are argument in favour of this clause. Some recommended that there should not be restrictive clause, it should be as much as widened but clause must remain to categorise the company clearly. Share holders will be certain before investing in this company about the nature of the business the company will be doing. At the stages of incorporation of a company it should not be required to change, but in the process of operation there may be need for any change, but obligation for taking consent from the court is time consuming. Reduction of share capital without court's consent -- as courts time is very difficult -- needs proper attention. Some recommended for retaining the clause with adequate internal control. At the moment there is no codification of director's duties, considering the present nature of the companies and to bring transparencies of the activities of the companies there is a need for codification of the responsibilities of directors. At the same time there should be new provision for disqualification of directors to make companies run in a more transparent manner. In UK there is Company Directors Qualification Act. More research, discussions and debate are required before incorporating a new clause in the act. For foreign companies, one director may always remain out of country. In such cases they can engage an alternative director who stays in Bangladesh. Some have suggested that a company should have at least one director who has to be in Bangladesh. Dealing with premium account is another debated issue. Most of the people opined that premium account should work meaningfully for the purposes it has been made. Asset generated from premium value should not be used for paying dividend; it should be used as the capital of the company so that asset value of the company can be increased in future which in turn may help in retaining confidence on the company. While registration of a foreign company is not that much cumbersome, renewal of company every three years is cumbersome and time consuming. Investment requirements, different rules for subsidiary company and branches which have made the system a bit difficult calls for simplification. Foreign companies mostly face problems while they need to send royalties for meeting the specialised technical services. It needs approval from Bangladesh Bank, BoI and RJSC, while all these steps are unclear, complex and time consuming. Financial reporting requirement is another problem while Companies Act has given a format for maintaining disclosure. Companies now have to maintain several international financial standards. Financial reporting requirement supersedes other existing acts in Bangladesh, there is a need for coordination with all these acts and eliminating all inconsistencies. The Securities and Exchange Commission (SEC) regulations say that up to 0.4 billion paid-up capital needs not to be enlisted. Different opinions prevail in this respect while some recommend that when paid-up capital will go beyond a certain amount, there should be AGM. Several questions arise during dialogues on the revision of companies, some of these are; in the interim time dividend can not be paid from the retained earning, how a nominee director can appoint alternate director, time limit for submitting application to SEC should be streamlined, when director changes or manager changes SEC should be informed. All these issues should be streamlined to take a relief for running a company. A singular format for annual report and uniform format for providing financial statement is required. Definition of chief executive officer (CEO) and the managing director (MD) should be clear. Depreciation is at the rate 10 per cent, but when the value of the machineries will go, the company still remains for more than another ten years; SEC could have clear policies in that respect. Beyond all these, minority share holders and their limit of involvement, clear exit policy also need workable definition. Companies Act is going to be revised or even a new act may see the light, it should have a clear understanding and all these issues need to be taken care to make a transparent and effective act. We may take some more time for extensive research and go through the acts enacted by the countries which are relevant for ours to revise this age-old act rather finish it hurriedly keeping a den for further mistakes. The writer is an Additional Secretary of the DCCI. She can be reached at email: nothing_man2000@yahoo.com