One Person Company and paybacks of small entrepreneurs

Ferdaus Ara Begum | Saturday, 29 May 2021

For the first time in the country small entrepreneurs are going to get an opening to be a registered corporate to avail all benefits allowed for a company and eventually graduate to a big company. From our experiences, we have seen that the embryo of a very giant company may remain concealed in a very tiny one, it opens up from a very small seed. The amended companies act 1994 has introduced One Person Company (OPC) and the concerned government agency is getting ready to create new software and taking necessary preparations for welcoming new companies for on-line registration. This may gradually reduce the number of informal companies and contribute more to the Gross Domestic Product (GDP).
On February 25, 2020 some reforms have been announced in the act through abolition of some stringent requirements for companies, such as common company seal, document execution from outside Bangladesh through attorney, digitalisation of records, clarification of share transfer registration process etc. In the 2nd amendment on November 26, 2020, introduction of OPC, by only a single 'natural person' has been introduced by adding a new section 11(ka ka). These companies need to mention OPC at the end of the company name.
OPC companies will be those companies whose paid up capital will be from Tk 2.50 million to Tk 50.0 million and turn over from Tk 10 million to Tk 500 million. A question has already tiptoed why there is a need for minimum limit which is not the case for other categories of companies. In India, minimum capital for OPC is Rs 0.10 million and maximum is Rs 5.0 million. Foreign Direct Investment (FDI) is not allowed for OPC in India, statutory yearly audit is required. A number of OPCs are active in India and engaged in agriculture, housing and forestry. In Bangladesh also there could be a number of business entrepreneurs in agriculture, housing & construction, ICT and many others.
In Bangladesh, whether foreign investment companies as 'natural persons' will be allowed to open OPC in the country is not clear. In case of transferring share, there is a need for NID as per memorandum of article of association. A number of foreign companies that have offices in Bangladesh as branches, liaison office and in many other forms, face some restrictions, limitations as per the present policies.
Another issue for OPC is tax structure. It generally falls under the band of corporate tax-- presently 32.5 per cent, which is high for the companies starting with such a small capital. Income Tax Ordinance (ITO) and VAT Act are aligned in providing exemption on yearly turnover (up to Tk 5.0 million) but the type and rate of corporate income tax is not defined specifically in the law. Currently, turn over above Tk 5.0 million is subject to pay CIT at the rate of 32.5 per cent irrespective of type of companies other than mobile, tobacco, Banks and FI, NBFI etc. In case of VAT, ad-valorem tax to the amount of Tk 30 million is allowed to pay 4 per cent Turn Over Tax instead 15.0 per cent VAT. For this category there could be a separate CIT limit at least initially to encourage these companies.
Again, a number of companies engaged in cross-border trade cannot get any chance to do their business officially and open a company in the country and avail this benefit.
The non-resident Bangladeshis (NRBs) may now be encouraged to establish their own companies in Bangladesh who in the past had to look for local partners and sometimes without good partner they were unwilling to invest. This could generate huge foreign investment in the country.
In order to implement the reforms, the Registrar of Joint Stock Companies (RJSC) is taking preparation; name clearance which will now be together with the company registration has been implemented. Now single process registration will work for which separate name clearance will not be required. But for foreign companies, they will need name clearance for opening their bank account, so there may be two parallel systems in place. These are all worthy steps and will help formalisation of proprietorship companies number of which is huge in the country-- about 99.90 per cent. We came to know that some companies have already started to gather information to get registration from RJSC. It seems because of the Covid-19, the process is delayed.
RJSC is working for regularising digital signature which is to be introduced soon. This will streamline and simplify the requirements of submission of papers to the organisation. It is seen that about 50 per cent of the companies go inactive because of fulfilling the requirement of timely submission of 10-12 types of returns to RJSC, which mandatory issues to keep the company alive.
Proper and adequate policy reforms have enormous potential to support companies to be formalised and thus expanding their business. Digital service which is much more instant in nature could be helpful for these micro and small companies. Bangladeshi companies often take help of consultants/lawyers to get support services from the concerned government offices, which cause extra cost and delay. It is seen that in most of the cases communication is being done via lawyer, thus the companies are deprived of getting the information of instant requirements,
A separate desk can be established in the RJSC so that proper awareness about the benefits of OPC can attract more new companies. A number of start-up companies may like to join as OPC for which recently Bangladesh Bank has announced a good package.
Ferdaus Ara Begum, CEO, BUILD-a Public Private Dialogue Platform works for private sector development. [email protected]