Md. Mamonor Rashid :
With increasing use of information technology and computers, emergence of the service sector, it is time that the entrepreneurial capabilities of the people are given an outlet for participation in economic activity. Such economic activity may take place through the creation of an economic person in the form of a company. Yet it would not be reasonable to expect that every entrepreneur who is capable of developing his ideas and participating in the market place should do it through an association of persons. It is also possible for individuals to operate in the economic domain and contribute effectively.
To improve the situation related to ease of doing business and develop entrepreneurship in the country government of Bangladesh is going to introduce an amendment to the Companies Act 1994. The Companies Amendment Bill 2018 has already been approved with some new ideas to be introduced into Bangladeshi’s Corporate Legal System which weren’t part of the erstwhile old Companies Act, 1994, one such concept introduced by the Companies Amendment Act 2018 is the concept of “One Person Company” (OPC), which means an individual can now constitute a company. The main aim behind the incorporation of such a concept is to encourage entrepreneurs who wish to set up micro economic industry, but are in search of a business structure with less effort, time and monetary resource consumption in legal conformity. Under the Company Law 1994, there was a complete bar on an individual to start a company, the only option left with him was to have a sole proprietorship, as the erstwhile law required at least two people to form a company. OPC will help the entrepreneurs to access certain facilities like bank loans, thorough access to the market as a separate entity and legal shield for their business. The amendment Act will provide single person with full freedom to contribute in the economic activities of Bangladesh. The origin of the concept of One Person Company can be traced back to the international corporate regimes of U.K., Singapore, China, India and other European countries.
This concept of One Person Company is similar to the existing concept of Sole proprietorship. One of the most crucial questions which arise before us is why would a person prefer company over a proprietorship? To answer this question, we have to look at the rationale behind this concept which is the Company has its own existence separate from that of its Director and Shareholder; and same will apply to One Person Company too. This Principal was originated from the Case of Salomon v. Salomon & Co Ltd. Company forms a distinct legal personality from its members, thus a company is a person in law. This will help the entrepreneurs to take the risks of doing business without bothering litigations and liabilities getting attached to the personal assets. In sole Proprietorship there is no separation between person and his business.
One Person Company can be formed by any natural person, in the same manner a limited company is formed as per section 409 of the Act. Necessary amendments to sections 2(1)(q)(iii) and 2(1)(q)(iv) have been proposed to recognize OPC and as per draft amendments to section 11(10)(c), OPCs will be identified by OPC at the end of the name of the entity, similar to PLC and Ltd. for public and private companies respectively. In addition, the natural person shall be obligatory to nominate a successor/legal heir or a nominee during registration of the Company, to be responsible for continuing the OPC after death or inability of the founder. The person named must provide written consent, which he/she can withdraw at a later stage.
As proposed OPC, will be under the obligation to appoint auditor and arrange AGM as applicable for a private company and shall be required to notify in writing the Registrar within 21 days of the AGM. Along with the Audit Report, a summary of the AGM, signed by the company secretary/manager or director, as the case may be, should be submitted to the Registrar. Furthermore, in compliance with Section 87 of the Act, OPC can take necessary decisions by passing Extra Ordinary Resolutions, provided that the decision in due process is submitted to the Registrar within 14 days of the decision. The proposed amendments require the OPC to hold at least one Board Meeting is at least 90 days apart. Also, the OPC will be required to submit the audited and AGM approved financial statements of the company to the Registrar within 180 days of the AGM. The said inclusions also should be considered further to explore option for separate governance structure for OPC to reduce statutory governance structure for OPC to reduce statutory burdens related to AGM, EGM, Board Meetings, Resolutions, etc. as, otherwise, the compliance structure may appear less favorable and burdensome for a businessman who is currently operating as sole proprietor with a trade license.
In spite of the above challenges, the proposed amendments empower the sole subscriber of OPC to appoint employee directors, managers, company secretary or other administrators, who can be part of the management and the board, without any share in the OPC. Certainly this provision will facilitate OPC’s to function with full management and governance with employed personnel, without need of multiple shareholders like private limited company. Apart from the above, an OPC shall be governed by Sections 159-175 of the Act in relation to registering information pertinent to mortgage and charges, which should assist the OPC’s to secure credits and will act as a comforting point for the lenders. The OPC can also opt for voluntary winding up in compliance with sections 286-296 of the Act, as proposed in the draft amendments.
However, the concept of an OPC is very new in Bangladeshi entrepreneurship and thus will be very revolutionary, it will take time for such a new concept to be incorporated with complete efficiency, but as and when the time will pass, an OPC will have a sparkling future and it will be embraced as a most successful business concept. Foreign Investors will be dealing with one member to establish a corporate relationship and not with a score of shareholders/directors where there are more chances for disparity in Ideas, concepts etc for a business to grow. In upcoming years the impact of an OPC will be remarkable and it is a promising future for Bangladeshi Entrepreneurship. Expectedly, there will be good Foreign Investments, Joint Ventures, and Mergers etc. along with a significant growth in Bangladeshi Economy benefiting the country on the Global Level.
However, the inventiveness ought to be welcomed for the consequential impact in the initial run but markedly, added contemplation would be obligatory. Such as discarding the idea of shares for OPC or providing flexible conversion option, waiving the requirement of AGM, formulating simplified process of asset transfer, protecting creditors of OPC through personal guarantee of the subscriber, and simplifying winding up process, including allowing winding up by way of providing declaration to the Registrar, instead of court process, should be considered for successful introduction of the concept of OPC.
Taking everything into consideration, government should also complete refurbishing of the Companies Act and to take the prospect for achieving much awaited modernization of the Act, together with advancing/setting up stipulations allied to Mergers & acquisitions (M&A), protection of Minority Investors, Governing Declaration of Dividend and Effective Reorganization mechanism during insolvency for protecting financial interest of the business.
With increasing use of information technology and computers, emergence of the service sector, it is time that the entrepreneurial capabilities of the people are given an outlet for participation in economic activity. Such economic activity may take place through the creation of an economic person in the form of a company. Yet it would not be reasonable to expect that every entrepreneur who is capable of developing his ideas and participating in the market place should do it through an association of persons. It is also possible for individuals to operate in the economic domain and contribute effectively.
To improve the situation related to ease of doing business and develop entrepreneurship in the country government of Bangladesh is going to introduce an amendment to the Companies Act 1994. The Companies Amendment Bill 2018 has already been approved with some new ideas to be introduced into Bangladeshi’s Corporate Legal System which weren’t part of the erstwhile old Companies Act, 1994, one such concept introduced by the Companies Amendment Act 2018 is the concept of “One Person Company” (OPC), which means an individual can now constitute a company. The main aim behind the incorporation of such a concept is to encourage entrepreneurs who wish to set up micro economic industry, but are in search of a business structure with less effort, time and monetary resource consumption in legal conformity. Under the Company Law 1994, there was a complete bar on an individual to start a company, the only option left with him was to have a sole proprietorship, as the erstwhile law required at least two people to form a company. OPC will help the entrepreneurs to access certain facilities like bank loans, thorough access to the market as a separate entity and legal shield for their business. The amendment Act will provide single person with full freedom to contribute in the economic activities of Bangladesh. The origin of the concept of One Person Company can be traced back to the international corporate regimes of U.K., Singapore, China, India and other European countries.
This concept of One Person Company is similar to the existing concept of Sole proprietorship. One of the most crucial questions which arise before us is why would a person prefer company over a proprietorship? To answer this question, we have to look at the rationale behind this concept which is the Company has its own existence separate from that of its Director and Shareholder; and same will apply to One Person Company too. This Principal was originated from the Case of Salomon v. Salomon & Co Ltd. Company forms a distinct legal personality from its members, thus a company is a person in law. This will help the entrepreneurs to take the risks of doing business without bothering litigations and liabilities getting attached to the personal assets. In sole Proprietorship there is no separation between person and his business.
One Person Company can be formed by any natural person, in the same manner a limited company is formed as per section 409 of the Act. Necessary amendments to sections 2(1)(q)(iii) and 2(1)(q)(iv) have been proposed to recognize OPC and as per draft amendments to section 11(10)(c), OPCs will be identified by OPC at the end of the name of the entity, similar to PLC and Ltd. for public and private companies respectively. In addition, the natural person shall be obligatory to nominate a successor/legal heir or a nominee during registration of the Company, to be responsible for continuing the OPC after death or inability of the founder. The person named must provide written consent, which he/she can withdraw at a later stage.
As proposed OPC, will be under the obligation to appoint auditor and arrange AGM as applicable for a private company and shall be required to notify in writing the Registrar within 21 days of the AGM. Along with the Audit Report, a summary of the AGM, signed by the company secretary/manager or director, as the case may be, should be submitted to the Registrar. Furthermore, in compliance with Section 87 of the Act, OPC can take necessary decisions by passing Extra Ordinary Resolutions, provided that the decision in due process is submitted to the Registrar within 14 days of the decision. The proposed amendments require the OPC to hold at least one Board Meeting is at least 90 days apart. Also, the OPC will be required to submit the audited and AGM approved financial statements of the company to the Registrar within 180 days of the AGM. The said inclusions also should be considered further to explore option for separate governance structure for OPC to reduce statutory governance structure for OPC to reduce statutory burdens related to AGM, EGM, Board Meetings, Resolutions, etc. as, otherwise, the compliance structure may appear less favorable and burdensome for a businessman who is currently operating as sole proprietor with a trade license.
In spite of the above challenges, the proposed amendments empower the sole subscriber of OPC to appoint employee directors, managers, company secretary or other administrators, who can be part of the management and the board, without any share in the OPC. Certainly this provision will facilitate OPC’s to function with full management and governance with employed personnel, without need of multiple shareholders like private limited company. Apart from the above, an OPC shall be governed by Sections 159-175 of the Act in relation to registering information pertinent to mortgage and charges, which should assist the OPC’s to secure credits and will act as a comforting point for the lenders. The OPC can also opt for voluntary winding up in compliance with sections 286-296 of the Act, as proposed in the draft amendments.
However, the concept of an OPC is very new in Bangladeshi entrepreneurship and thus will be very revolutionary, it will take time for such a new concept to be incorporated with complete efficiency, but as and when the time will pass, an OPC will have a sparkling future and it will be embraced as a most successful business concept. Foreign Investors will be dealing with one member to establish a corporate relationship and not with a score of shareholders/directors where there are more chances for disparity in Ideas, concepts etc for a business to grow. In upcoming years the impact of an OPC will be remarkable and it is a promising future for Bangladeshi Entrepreneurship. Expectedly, there will be good Foreign Investments, Joint Ventures, and Mergers etc. along with a significant growth in Bangladeshi Economy benefiting the country on the Global Level.
However, the inventiveness ought to be welcomed for the consequential impact in the initial run but markedly, added contemplation would be obligatory. Such as discarding the idea of shares for OPC or providing flexible conversion option, waiving the requirement of AGM, formulating simplified process of asset transfer, protecting creditors of OPC through personal guarantee of the subscriber, and simplifying winding up process, including allowing winding up by way of providing declaration to the Registrar, instead of court process, should be considered for successful introduction of the concept of OPC.
Taking everything into consideration, government should also complete refurbishing of the Companies Act and to take the prospect for achieving much awaited modernization of the Act, together with advancing/setting up stipulations allied to Mergers & acquisitions (M&A), protection of Minority Investors, Governing Declaration of Dividend and Effective Reorganization mechanism during insolvency for protecting financial interest of the business.
(Md. Mamonor Rashid, an advocate and legal researcher at CM&A LCP; email: [email protected])
