FORMATION
OF A COMPANY
Different
Stages and Their Functions
A Primary Study Note | Companies Act, 1994 —
Bangladesh
1. What is a Company?
A company is a legal entity incorporated according to
the laws of a particular territory. Upon registration, it acquires a distinct
legal personality: it can own property, enter contracts, sue and be sued, and
conduct any legal business within its registered territory.
A company has no natural lifespan — it continues to
exist perpetually until formally dissolved by law. This concept of perpetual
succession distinguishes a company from sole proprietorships and partnerships.
Key Principle: Under the Companies Act, 1994, a
registered company is a separate legal person — entirely distinct from its
members, directors, and shareholders.
2. Types of
Companies
Under the Companies Act, 1994, companies in
Bangladesh are classified as follows:
A. Based on Mode
of Incorporation
◆ Chartered
Companies — Formed by Royal Charter (e.g., East India Company). No longer exist
in contemporary law.
◆ Statutory
Companies — Created by a special Act of Parliament (e.g., WASA, BRTC,
Bangladesh Bank).
◆ Registered /
Incorporated Companies — Formed by registration under the Companies Act, 1994.
Most prevalent today.
B. Based on
Territory
◆ Foreign
Companies — Incorporated outside Bangladesh but operating within the country.
Must comply with local laws.
C. Registered
Companies (Primary Classification)
◆ Public
Limited Company — Can invite the general public to subscribe to shares; no
restriction on maximum membership.
◆ Private
Limited Company — Restricts share transfer; maximum 50 members; cannot invite
public subscription.
◆ One Person
Company (OPC) — Restricts share transfer; 1 members; cannot invite public subscription;
must have a nominee; characteristics are almost same as Private Company.
3. Public vs.
Private Company — A Comparison
Note: A private limited company is the most common
form in Bangladesh, suitable for SMEs, family businesses, and startups seeking
limited liability without public capital market obligations.
4.
Characteristics of a Company
A registered company possesses several defining
characteristics distinguishing it from other business forms:
5. Process of
Formation — Step-by-Step Flowchart
The flowchart below presents the complete, sequential
process of incorporating a company in Bangladesh under the Companies Act, 1994.
Each stage is legally mandatory and must be completed in the prescribed order.
01 NAME
CLEARANCE
Submit
proposed name to RJSC. Must be unique and comply with naming rules. Obtain
written clearance before proceeding.
▼
02 PROMOTERS'
/ DIRECTORS' RESOLUTION
Founding
members pass a formal resolution declaring intent to incorporate, defining
business nature, liability structure, authorized capital, and investment plan.
▼
03 MEMORANDUM
OF ASSOCIATION (MOA)
Draft
the company's constitutional charter — name, registered office, objects,
liability, and share capital. MOA is a public document.
▼
04 ARTICLES
OF ASSOCIATION (AOA)
Draft
internal regulations governing management — meetings, director appointments,
share transfer, dividend policy, and financial management.
▼
05 TEMPORARY
BANK ACCOUNT
Open a
provisional account in the proposed company's name with a scheduled bank for
initial capital deposit. To be regularized post-incorporation.
▼
06 PREPARATION
OF REGISTRATION FORMS
Complete
all statutory forms (Forms I, II, III, IV, IX, XII, XIV) prescribed under the
Companies Act, 1994. Ensure accuracy and proper attestation.
▼
07 DOCUMENT
SUBMISSION TO RJSC
Submit
MOA, AOA, all completed forms, bank details, name clearance certificate, and
prescribed registration fee to RJSC.
▼
08 CERTIFICATE
OF INCORPORATION
RJSC
issues the Certificate of Incorporation — the company's legal birth
certificate. Private companies may begin business immediately.
▼
09 PROSPECTUS
(PUBLIC COMPANIES ONLY)
Public
companies must prepare and file a Prospectus inviting public subscription to
shares. Must comply with BSEC regulations before distribution.
▼
10 CERTIFICATE
OF COMMENCEMENT OF BUSINESS
After
fulfilling minimum subscription requirements, public companies receive this
RJSC certificate authorizing commencement of commercial operations.
▼
11 POST-REGISTRATION
COMPLIANCE
Obtain:
Trade License, TIN, VAT Registration, Fire Certificate, Environment Clearance
(if applicable), BERC License (power sector only).
6. Stage 1 —
Name Clearance
The very first step is obtaining clearance of the
proposed company name from RJSC.
◆ The name
must be submitted in writing to RJSC and must be unique.
◆ Must not be
identical or deceptively similar to any existing registered company name.
◆ Must not
violate legal restrictions or falsely imply government affiliation.
◆ Name
clearance is valid for a limited period; registration must be completed within
this window.
Practical Tip: Submit 2–3 alternative names in order
of preference. RJSC may reject the primary choice if it conflicts with an
existing entity.
7. Stage 2 —
Promoters' / Directors' Resolution
The founding members must pass a formal resolution
declaring their commitment to forming the company. It should specify:
◆ The purpose
and rationale for forming the company
◆ Nature,
scope, and territory of proposed business activities
◆ Liability
structure of directors (limited or unlimited)
◆ Amount of
authorized capital and its division into shares
◆ Intended
investment plan and funding arrangement
The promoters' resolution is the foundational
internal document upon which the MOA and AOA are subsequently drafted. It
formalizes the directors' commitment to the venture.
8. Stage 3 —
Memorandum of Association (MOA)
The MOA is the company's constitutional charter — the
most fundamental document defining its identity, scope, and relationship with
the outside world. No company can be registered without a properly executed
MOA.
Key Clauses of the MOA
Legal Note: The MOA is a public document. Anyone
dealing with the company is presumed to have notice of its contents
("constructive notice"). Activity beyond the objects clause is ultra
vires and legally void.
9. Stage 4 —
Articles of Association (AOA)
The AOA governs internal management. Where the MOA
defines what a company can do, the AOA defines how it will do it.
◆ Appointment,
powers, duties, and removal of directors
◆ Procedures
for board and general meetings
◆ Maintenance
and audit of financial records
◆ Issuance,
transfer, and forfeiture of shares
◆ Declaration
and payment of dividends
◆ Rights and
obligations of members and winding-up procedures
If a company does not draft its own AOA, the model
articles under the Companies Act, 1994 — "Table A" — automatically
apply to public companies.
10. Stage 5 —
Opening a Temporary Bank Account
Before formal registration, directors/promoters must
open a temporary bank account in the proposed company's name with any scheduled
commercial bank.
◆ Account
opened in the name of the proposed (not yet incorporated) company.
◆ Initial
capital contributions are deposited here as evidence of paid-up capital.
◆ Remains
provisional until the Certificate of Incorporation is received.
◆ Regularized
as the permanent operational bank account upon incorporation.
11. Stages 6
& 7 — Registration Forms & Submission to RJSC
Registration requires preparation and accurate
completion of statutory forms, submitted as a complete package with all
required documents.
Additional Documents Required
◆ Duly
executed MOA and AOA
◆ Name
clearance certificate issued by RJSC
◆ Temporary
bank account details and initial capital deposit evidence
◆ Prescribed
registration fee (calculated on authorized capital)
12. Stage 8 —
Certificate of Incorporation
Issued by RJSC upon satisfactory review of all
submitted documents and fees — this marks the legal birth of the company.
◆ Conclusive
proof of the company's legal existence under the Companies Act, 1994.
◆ The date on
the certificate is the company's official date of incorporation.
◆ Once issued,
existence cannot be challenged even if procedural errors are discovered later
(Section 13).
◆ Private
companies may commence business immediately. Public companies need the
Commencement Certificate.
Important: The Certificate of Incorporation is
irrefutable evidence of incorporation under Section 13 of the Companies Act,
1994.
13. Stage 9 —
Prospectus (Public Companies Only)
Mandatory for public limited companies intending to
raise capital from the general public — a formal invitation to subscribe to
shares or debentures.
◆ Company
name, registered address, and nature of business
◆ Details of
shares offered and subscription price per share
◆ Names and
qualifications of directors and key management
◆ Financial
projections, risk factors, and use of funds raised
Regulatory Note: For listed public companies, the
prospectus must comply with BSEC rules and receive BSEC approval before public
distribution.
14. Stage 10 —
Certificate of Commencement of Business
A public company cannot legally start business
without this RJSC certificate, ensuring minimum capital subscription
requirements are met.
◆ Minimum
subscription amount stated in the prospectus must be raised from the public.
◆ All
directors must have fully paid for shares allotted to them.
◆ Statutory
declaration of compliance by a director or company secretary must be filed.
15. Stage 11 —
Post-Registration Compliance
Obtaining the Incorporation/Commencement Certificate
doesn't conclude all obligations. Additional licenses and registrations are
required before full commercial operations.
Note: Specific licenses vary based on business type,
scale, location, and industry. Non-compliance may result in penalties,
suspension, or enforced closure.
16. Conclusion
The formation of a company in Bangladesh is a
structured, multi-stage legal process governed by the Companies Act, 1994. Each
stage — from name clearance to post-registration compliance — carries specific
legal obligations that must be fulfilled rigorously and in sequence.
A properly incorporated company enjoys significant
advantages: limited liability, a distinct legal identity, perpetual succession,
and the capacity to raise public capital. Understanding this process is
essential for entrepreneurs, business professionals, legal practitioners,
corporate governance officers, and students of business law.
Disclaimer: This document is intended as a primary
study note and general reference guide only. It does not constitute formal
legal advice. For actual incorporation, consultation with a qualified legal
practitioner or Chartered Secretary is strongly recommended.
Reference: Companies Act, 1994 (Act No. XVIII of 1994),
Bangladesh | Registrar of Joint Stock Companies &
Firms (RJSC)