In November 2020, Bangladesh’s Parliament passed the Companies (Second Amendment) Act, 2020, amending the Companies Act of 1994. This landmark legislation introduced the concept of One-Person Companies (OPCs), aiming to modernize the business landscape and encourage formalization of small and medium-sized enterprises (SMEs).

WHAT IS A ONE-PERSON COMPANY (OPC)?

An OPC is a company that allows a single natural person to act as both the sole shareholder and director. This structure provides the benefits of limited liability and a separate legal identity, similar to that of private limited companies, without the need for multiple shareholders or directors. The introduction of OPCs was intended to simplify the process for solo entrepreneurs to formalize their businesses and access the advantages of corporate status.

KEY PROVISIONS OF THE AMENDMENT

The amendment outlines several important provisions for OPCs:

• Formation and Ownership:

Only a natural person can form an OPC, and each individual is allowed to register only one OPC. The company must include “OPC” at the end of its name to distinguish it from other types of companies.

• Capital and Turnover Requirements:

The OPC must have a minimum paid-up capital of BDT 2.5 million and a maximum of BDT 50 million. Additionally, the company should have a minimum turnover of BDT 10 million in the immediate past year.

• Nominee Requirement:

The sole shareholder must nominate a person who will take over the company in the event of the shareholder’s death or incapacity. This ensures continuity and stability for the business.

• Conversion Clause:

If the OPC exceeds the specified capital or turnover limits, it must be converted into a private or public limited company as per the regulations.

• Online Registration:

The amendment facilitates the online registration of OPCs, streamlining the incorporation process and making it more accessible for entrepreneurs.

CHALLENGES AND CRITICISMS

Despite the potential benefits, the uptake of OPCs has been slower than anticipated. Several factors contribute to this:

• High Capital Requirements:

The minimum capital requirement of BDT 2.5 million is considered high for small entrepreneurs, potentially deterring them from opting for the OPC structure.

• Limited Awareness:

There is a lack of awareness among potential entrepreneurs about the advantages and procedures related to OPCs, hindering their adoption.

• Regulatory Hurdles for Foreigners:

While the law does not explicitly prohibit foreign nationals from forming OPCs, practical challenges arise due to the requirement for a National Identification Number (NID), which foreigners do not possess. This discrepancy creates barriers for foreign investors interested in establishing OPCs in Bangladesh.

CONCLUSION

The introduction of the One-Person Company under the Companies (Second Amendment) Act, 2020, represents a significant step towards modernizing Bangladesh’s business environment. By providing a legal framework for solo entrepreneurs to operate with limited liability and corporate benefits, the amendment encourages the formalization of small businesses.

However, to fully realize the potential of OPCs, it is essential to address the challenges related to capital requirements, awareness, and regulatory inclusivity for foreign investors. With the right support and reforms, OPCs can play a pivotal role in fostering entrepreneurship and economic growth in Bangladesh.