Private & Confidential
M E M O R A N D U M
TO: Japan External Trade Organization, Dhaka
I - K Tower 3rd Floor, North Avenue, Gulshan - 2, Dhaka - 1212
Attention:
Mr. Kei Kawano
FROM: FM Associates
RE: Legal Memorandum on increase/decrease of paid up capital
DATE: 22 .12.2015
This Memorandum should be read not in conjunction to any other purpose apart from the
scenario mentioned.
Background
JETRO Dhaka is a non-profit organisation and it is the official investment and trade promotion
organisation of the Government of Japan which falls under the purview of Ministry of Economy
Trade and Industry (METI). Its main operation of business is to ensure that the interest of all
Japanese companies existing in Bangladesh and all Bangladeshi companies doing business in
Japan is duly fulfilled.
As of date, JETRO has sought the legal opinion from FM Associates in the form of a legal
memorandum in relation to the rules and regulations associated with the increase or decrease of
paid up capital both in case of a private or public limited company and what
permissions/approval would be required from Bangladesh Securities and Exchange Commission
(hereinafter referred to as ' BSEC ') and Registrar of Joint Stock of Companies and Firms
(hereinafter referred to as ' RJSC ').
Confidential legal advice in relation to increase/decrease of paid - up capital
JETRO : Advising on the query that if a foreign company (X) would like to increase or decrease
its paid up capital, then does it require to take approval / permissions from BSEC and RJSC?
FMA: This part of the advice will consist of the following two perspectives:
1. Increase of paid-up capital
2. Decrease of paid-up capital
Perspective 1: Increase of paid - up capital
This part is further segregated into two parts where:
a) The foreign company (hereinafter referred to as 'X') is a private limited company; and
b) X is a public limited company.
Situation A: Where X is a private limited company
In this situation, if X intends to increase its paid up capital, then permission from BSEC will be
needed only when the paid-up capital exceeds BDT 10 Crore (Hundred Million Taka) only.
Once BSEC permits the increase of paid-up capital for X and marked it as secured then X will
have to seek assistance from RJSC for the allotment of shares.
Situation B: Where X is a public limited company
In this situation, if X wishes to increase its paid-up capital then permission from BSEC will only
be required where the said paid-up capital exceeds BDT 1 Crore (Ten Million Taka) only.
Once BSEC grants approval, X will have go to resort to RJSC for the allotment of its shares.
Also this imperative issue must be noted with care that 10% of the total public offering shall be
reserved for non-resident Bangladeshi, 10% for mutual funds and collective investment schemes
registered with the Commission, and rest of the 80% shall be open for subscription by the
general public.
The issuer will be responsible to appoint issue manager(s) registered by the BSEC for the public
offering of shares.
Procedure involved in increasing the paid-up share capital of X
If a public limited company wants to sell its shares within its existing shareholders or if a private
limited company wants to sell its shares, then the procedure involved in increasing the paid-up
share capital will be the same as given below-
Method of Application
X shall apply to the BSEC to acquire their consent. The application shall contain the following
information:
Name of the company;
Address of the registered office;
Telephone number;
Fax number and e-mail address;
Date of incorporation;
Date of commencement of business;
Authorised capital;
Paid up capital;
Amount of capital to be issued;
Face value of shares; and
Period within which capital is to issued.
The following documents shall accompany the application:
A certified copy of memorandum and articles of association or attested copy of the draft
memorandum and articles of association, whichever is needed;
Certified copy of certificate of incorporation and certificate of commencement of
business or receipt issued against filing for incorporation of a proposed company;
List of directors;
Audited/provisional financial statements;
Statement relating to purpose of raising capital;
A copy of the resolution of the board of directors deciding to raise capital, attested by the
Managing Director/Chief Executive Officer;
Banker’s certificate/bank statement showing deposit of an amount equivalent to the paid
up capital/auditor’s certificate in that regard attested by the Managing Director/Chief
Executive Officer;
Vendor’s agreement in case of raising of capital; and
Short description of the business.
Repeat Public Offering
However, if X is a public limited company and it wants to sell its shares through public offering
by raising capital through repeat public offering then the following conditions need to be duly
fulfilled:
(i) Information regarding the repeat public offering shall be disseminated as a price
sensitive information immediately upon board decision as well as upon approval at
the general meeting and approval of the BSEC which will be in line with the relevant
notifications issued by the BSEC;
(ii) An unambiguous announcement shall be made while dissemination the
aforementioned information that the repeat public offering shall be subject to
approval of the BSEC;
(iii) Such offering and price thereof have been approved by the Board, the shareholders in
a general meeting, and the consent to which is obtained from the BSEC;
(iv) The proceeds of either initial public offering or previous rights issue, has been utilised
fully and relevant reports have been duly submitted to the BSEC;
(v) Annual general meetings have been held regularly;
(vi) The issue has been duly underwritten on a firm commitment basis by the underwriter;
(vii) The financial statements of the issuer is prepared as per International Accounting
Standards(IAS) as is applicable in Bangladesh and audited as per International
Standards of auditing (ISA) as applicable in Bangladesh; and
(viii) The issuer or any of its directors is not a bank defaulter.
Perspective 2: Decrease of paid - up capital
The procedure and the laws associated with the decrease of paid - up capital shall remain t he same
for both private and public limited companies.
The applicable law in this regard is Companies Act 1994 (her e inafter referred to as CA 1994).
The law proceeds on three key assumptions:
1. A company cannot buy or finance the purchase of its own shares (section 58) unless the
consequent reduction of capital is effected and sanctioned in the manner provided by sections 59
to 70;
2. The articles must provide for such reduction; if the articles do not do so, these will have to be
amended to insert su ch a provision; the resolution sanctioning the reduction must be passed by a
special resolution (section 59); and
3. The court must sanction the reduction; while doing so the court will look to safeguard the
interests of the creditors.
X may reduce its sh are capital in any way and, as part of its general power, may:
(a) extinguish or reduce the liability on any of its shares in respect of share capital not paid
up; or
(b) either with or without extinguishing or reducing liability on any of its shares, cancel any
paid up share capital which is lost or presented by the available assets; or
(c) either with or without extinguishing or reducing liability on any of its shares, pay off any
paid up share capital which is in excess of the wants of the company and so far as is
necessary, alter its memorandum by reducing the amount of its share capital and of its
shares accordingly.
Once the company has passed a resolution for reducing share capital, it shall apply by petition to
the court for an order confirming the reduction.
On and from the passing by a company of a resolution for reducing share capital, or where the
reduction does not involve either the diminution of any liability in respect of un-paid share
capital or the payment to any share holder of any paid-up share capital, then on and from the
making of the order by the court confirming by the reduction the company shall add to its name,
until such date as the court may fix, the words "and reduced" as the last words in its name and
those words shall until that date be deemed to be part of the name of the company; provided that
where the reduction does not involve either the diminution of any liability in respect of unpaid
share capital or the payment to any shareholder of any paid-up share capital, the court may, if it
thinks expedient dispense altogether with the addition of words "and reduced".
If there is no objection from the creditors with regards to the reduction of the share capital, the
court shall give an order confirming the reduction of share capital.
However, where the creditors object, the court shall settle a list of creditors so entitled to object,
and for that purpose shall ascertain, as far as possible without requiring an application from any
creditor, the name of those creditors and the nature and amount of their debts or claims and may
publish notices fixing a day within which creditors not in the list are to claim to be entered in the
list of objectors. Where the creditor whose name is in the list of creditors objects to the reduction
of share capital the court may dispense with the objection on the company providing security for
the creditor. The court, if satisfied that every creditor has either given his consent or his credit
has been secured or his debt has been discharged may make an order confirming the reduction on
such terms and conditions as it thinks fit. While considering the application for sanction of the
reduction of share capital the court may require the company to publish the reasons for reduction
with a view to give proper information to the public.
The Registrar, on production of the order of the court and of a minute approved by the Court,
showing with respect to the share capital of the company as altered by the order, the amount of
the share capital, the number of shares into which it is divided and the amount of each share and
the amount, if any, at the date of the registration deemed to be paid up on each share, shall
register the order and minute. On such registration the resolution for reducing the share capital
shall take effect. Such minute shall form part of the memorandum and the shareholders will have
reduced liability to that extent.
Listed companies may be required to comply with the requirements of listing rules on purchase
of its own shares. Certain conditions may be fulfilled for buying back own shares by a company
listed with stock exchange. There may be certain prohibitions as well in this respect. For
example, listed companies may not be allowed to purchase its own securities during a prohibited
period. Bangladesh Securities and Exchange Commission (the “BSEC”) does not provide any
other process for reduction of share capital for listed companies and hence the process prescribed
under the Act of 1994 shall be applicable for the companies listed with stock exchange for
reduction of share capital.
JETRO: Does the company (X) require to take approval from BSEC & RJSC If it wants to
increase or decrease its paid up capital, when the paid up- capital of X has already exceeded Tk
40 Crore or Tk 50 Crore?
FMA: After the notification dated 11th June 2015 published by BSEC came into effect, foreign
owned companies and joint venture companies with foreign investment have been exempted
from legal compliance required after their paid-up capital had exceeded BDT 40 Crore or BDT
50 Crore.
Hence, the legal advice provided under query 1 shall apply for this query as well. In case of
private companies, if the paid up capital exceeds the BDT 10 Crore margin, even if it is from
BDT 40 Crore to BDT 50 Crore, permission will be needed from BSEC and after acquiring
permission from them, the company will need to go to RJSC for the allotment of shares.
In case of public limited company, if the company’s paid up capital margin exceeds BDT 1
Crore, then permission will be needed to be obtained from BSEC and afterwards they will need
to resort to RJSC for the allotment of shares.
Hence, the rule remains the same but with different monetary margins. So in simpler terms, it
basically means that in case of private limited companies, even if the company has already
acquired permission from BSEC after their paid up capital exceeded BDT 10 Crore, the
procedure will be the same as aforementioned for every time the company wishes to increase its
paid up capital. It will be an ongoing process for the company even if they are increasing their
capital every other month as the rule is that every single time the company raises their capital
after BDT 10 Crore in case of private and BDT 1 Crore in case of public limited companies, then
the company will need to go to BSEC for their permission and then get back to RJSC for the
allotment of shares.
Supporting laws and/or regulations
While preparing this legal memorandum, we have relied on the following laws, notifications
and/or rules:
Securities and Exchange Commission (Issue of Capital) Rules 2001;
Securities and Exchange Commission (Public Issue) Rules 2006;
Companies Act 1994;
BSEC Order dated 28 th March, 2001;
BSEC Order dated 19 th August, 2004; and
BSEC Notification dated 11 th June 2015
Hope this helps, and if you have further queries, please feel free to contact us.
Sincerely,
Al Amin Rahman
Partner, FM Associates