In the State of Delaware of the United States, it takes only 2-3 business days to incorporate or register a business, whereas in Bangladesh even with speed money it can take months to register a business based on an archaic Companies Act of 1994. Whereas more than 60% of Fortune 500 companies register in Delaware, a lot of Bangladeshi companies have to look outside of the country to set up shops – in countries such as Singapore and Dubai. Despite being poised to become a trillion-dollar economy by 2040 as per Boston Consulting Group (BCG), Bangladesh ranked 168th among 190 countries in the World Bank’s ease of doing business index. Bangladesh has witnessed only 2 unicorns so far – bKash and Nagad, whereas our neighbour India has 111 unicorns as of October 2023. All of these signals that there are missing links in the Bangladeshi startup ecosystem that are restricting the country’s startups from reaching their full potential. This article looks into some of these critical components of a country’s startup ecosystem and attempts to offer potential solutions to make the country more startup-friendly.
Streamlined Business Registration
One of the most arduous tasks is registering a startup in Bangladesh. The question is how we can fix this issue for founders so that they can focus on building the business.
Let’s start with the basics. What information does the government necessarily need to incorporate a corporation in Bangladesh or anywhere else in the world?
First, the name of the company. We cannot have two companies operating under the same name. So there has to be a way to check for founders and the government whether someone else has taken up that name and provide clearance to the name. So there has to be a database that is not only accessible by the founders and government but also user friendly. Most government websites in Bangladesh are not user-friendly. Some of them remain down most of the time which deters a lot of people from availing government services online.
Second, details of the incorporator. The person who is applying to incorporate or register the business has to provide his details and necessary documents, such as their NID or passport. The person needs to have a Taxpayer Identification Number (TIN) and provide their TIN to the government. The address, email, and contact number of the incorporator are required to not only verify the identity of the person but also create a seamless experience for them.
Third, details of the business. What category does this business fall into? In some categories and industries, government regulations are much more stringent than they should be. For instance, financial services, health care, etc. If a startup is starting a business in such sectors, some additional information may be required to enable the founders to get a license and fulfill additional requirements. Thus, startup labeling and categorisation are necessary to understand business operations.
Fourth, the physical address of the business. Information on where the business’s office or headquarters is located is key for the government to deal with the business.
Five, number of authorised shares. How many shares the company issue, who is getting how many shares, who is on the board of directors, who are the founders, who will be the managing director or president of the company, who will be the secretary, who will be chairman of the board, and whether this is a one-person company or not—there is a myriad of information the incorporator needs to share with the government to send their application to register the business.
Though it may seem like an oversimplification, governments worldwide or responsible government authorities need to have this information. These are must-haves for governments. Otherwise, it would be difficult for them to avoid financial crimes, ensure transparency and accountability, and provide a frictionless experience to new startups or businesses.
How can Bangladesh build a frictionless digital experience for businesses not only from Bangladesh but also across the globe to register their company? The Government of Bangladesh is already working on a One Stop Service (OSS) for economic zones and hi-tech parks. But the solution that I am sketching here will be universal. Not only that, Delaware, Singapore, Dubai and so many other places generate a lot of revenue by just enabling businesses to incorporate their company in their countries. Bangladesh can also become a preferred and loved destination for businesses across the world to set up their company here, which will not only add revenues but also boost economic and business activities in Bangladesh because the Bangladesh government will be able to earn from business registration fees, corporate taxes and other associated fees, charges and taxes. Delaware and Singapore earn huge amounts of government revenue from these sources just because they have created a business-friendly climate.
Preempting Illegal Financial and Corrupt Activities
My recommendation of encouraging individuals across the world to set up their business does not mean lax regulations. Instead, necessary regulations have to be put in place so that any form of fraudulent activity can be discouraged, identified and prevented. How can Bangladesh ensure that?
The Bangladesh government should make the Bangladesh Financial Intelligence Unit (BFIU) under the Bangladesh Bank more proactive in keeping tabs on suspicious transactions, money laundering activities, and other pertinent business financial activities. In the United States, individuals can obtain a FinCEN ID from the Financial Crimes Enforcement Network (FinCEN) to report their Beneficial Ownership Information (BOI). Alongside BFIU, the Anti-Corruption Commission can play a vital role in combating corrupt activities by using a legal business entity.
The solution to Bangladesh’s bureaucratic red tape in business registration could be a combination lock – where both public and private sectors are collaborating and eliminating the bureaucratic red tape to a greater extent.
Introducing Registered Agents in Bangladesh
Think of a travel agent or an online travel agency like Expedia. They figure out the best travel deals for us, even the best hotels and car rental services. We use them because they save us time and even money by taking the hassle for us. In fact, if we think about all the business models in the world, perhaps the middleman business model is one of the most successful ones. I am nowhere defending the idea that having a lot of middlemen is good. In fact, the objective should be eliminating as many intermediaries and middlemen as possible. However, sometimes having one middleman who can take all the hassle for a customer or client can be necessary. Companies such as Uber, and Airbnb are basically middlemen in their respective industries.
So how does the role of a single middleman play out in the business registration process? In four different ways-
First, when we think about making the business registration process founder-friendly, we need to acknowledge what is the one common characteristic among most founders. They are neither lawyers nor experts in corporate law who understand company law and business registration processes. From figuring out the concepts of authorised capital, paid-up capital to drafting memorandum and articles of association, and company bylaws, most founders are simply not aware of everything that is required to set up their startup. In short, there is an information asymmetry that makes the process ten times more difficult for founders.
How can we solve the information asymmetry then? In two ways- one, the Registrar of Joint Stock Companies and Firms (RJSC) should launch awareness campaigns targeted to both domestic and international markets to inform individuals and businesses about the business registration process and One Stop Service in Bangladesh. Two, our registered agent can play a pivotal role in not only bridging the information asymmetry but also in taking up the entire hassle for founders to do the needful.
Registered agents can be a person or company registered with the RJSC who will be able to take up the legal and other necessary work for new companies on behalf of the company itself. These registered agents can and should build online platforms from where founders can easily apply to register their company by providing certain information to the registered agents. One of the prominent platforms like this in Silicon Valley is Clerky from where anyone can easily incorporate their company.
These registered agents will also play a crucial role in maintaining the company’s physical address. Why is a physical address quintessential in the process of business registration? For an early idea or seed stage startup which often does not have adequate funding cannot afford a physical office space. Renting commercial office space is expensive. More importantly, in any early stage startup, renting an office space can be not so strategic as it can shoot up the fixed costs of the company, which will adversely affect its bottom line.
Some Bangladeshi startups resort to paying someone so that they get to use their address in order to register their company. However, once the company is ready to change its business address, the bureaucratic red tape makes it difficult, even with all the speed money to change the address and update with a new one. To solve this hassle for many Bangladeshi startups, a registered agent can always maintain a physical address for that startup.
The registered agents can also help the founders to prepare their Articles and Memorandum of Associations and other pertinent paperwork. Standard templates can go a long way here to ease a lot of suffering of the founders. If template files of necessary paperwork are made available by the registered agents once a founder signs up for their platform to incorporate their company, the founder can customise these templates if necessary. Some of these registered agents can also help with connecting founders with lawyers, especially corporate lawyers who have experience in incorporating a startup.
A lot of Bangladeshi startups have to register their company in Singapore and Dubai in order to avoid all these issues. Because of a lack of a business-friendly environment, many foreign investors ask Bangladeshi startups to register outside Bangladesh to make their foreign investments available. However, if we can start reforming the existing process and make the business incorporation process extremely easy for everyone, the government will be able to remove one worry from the founder’s mind and pave the way for a business-friendly Bangladesh.
Author: Shah Adaan Uzzaman
