Is Your Startup Legal?
There’s a budding number of startups in Bangladesh, but that doesn’t mean starting a business is an easy job. There’s a lot of things that have to be done, lots of formal processes that are required as a prerequisite to establishing a company. Companies like The Legal Circle and Shahin’s helpline provide legal consultation and support to help entrepreneurs lay the foundation of their business to do it the right way, and legally.
We’ve had the honour and privilege of having a chat with Jarif Ahmed, Barrister-at-:Law and Associate at The Legal Circle and Md. Aminul Islam, the CEO of Shahin’s Help Line to understand their perspectives while discussing the dos and donts and legal aspects involved in building a startup.
When asked about what advice he’d give a startup at its initial stage, Mr. Aminul Islam had the following to say,
“At first we have to find out what type of work is you are passionate about, and if you can successfully convert your passion to profession, success would only be just matter of time. When you decide to startup a business you must collect all your startup related information. To be able to implement the business startup idea, you have to plan a realistic business model, including budget. To target your startup group, you must have a unique marketing plan and that should be different from others and innovative, you must think out of the box and ensure that the target group/customer/consumer knows about your goods or services. The startup business entrepreneurs do not show their interest in the matter of legal papers. Many times these startups are destitute from the facilities that their organisation needs. I also want to include banking transactions and bank account as a legal papers.”
This provides insight into the fact that a lot of entrepreneurs starting up businesses may not be prepared legally or resource wise, and it is important that they learn about them deeply before embarking on the difficult journey to build a company from the ground up.
Mr. Jarif Ahmed got right down to the specifics and nitty-gritty aspects and explained,
“The first five things a startup should do at their initial stage are:
Decide on the structure of business, i.e. profit entity or not for profit entity.Profit entity includes Company, Partnership and Sole Trader (proprietorship). Not for profit entity generally takes the form of Society, Trust and CompanyLimited by Guarantee;
Choose type of entity of the business based on consideration of the point mentioned earlier and number of founders. For example, Sole trader runs a business alone; Partnership and Company consist of at least two members; Trust consists of atleast three members and Society consists of at least seven members. It is dvisable to seek legal advice at this stage;
Begin their initial hiring process. Hiring core team is a crucial aspect for a startup;
Manage cash inflow and outflow of the startup business. It is important to know the method and record day to day business transactions for proper management of business;
Register their intellectual property (IP).”
After the completion of these steps, you’ll have officially began your journey with your very own startup. But that’s definitely not the end of the story, there’s a bunch of legal hurdles that startups face. The barrister-at-law furthermore said,
“A startup company, like any other company may face varying issues if it does not obtain expert advice. Our advice, as lawyers, to startups at the brink of entity registration/launching its business would be to first choose its trade name and brand identity carefully and check availability of the same, otherwise it may come up with a name for the company that has trademark issues, domain name problems or other issues. When picking a company name, it is important to do some research to avoid trademark or trade name infringement or domain name problems. Furthermore, it is advisable that cofounders put in place a Founders Agreement in writing, particularly setting out the percentage of shares and responsibilities of the founders. There should be proper agreements in relation to such matter. Startups may face difficulties in deciding the type of identity it wants to form. Form of entity illustrates the significance of the business and its durability in the long run. Last but not least, startups often times fail to ensure that intellectual property created by outside developers is assigned to the company. It is important to make sure that there are written agreements with everyone who works on the intellectual property.”
Mr. Islam was quick to point out the issues that usually occur in the initial stages of a company,
“Startups companies face many kinds of problems in Bangladesh, the main problem being the lack of coordination of different licensing authorities and many laws are not entrepreneur friendly. I would like to address two of the problems, the first one is that taking approval from the trade license authority requires the use of a commercial address. It’s not an easy task for a startup, as a result, the problem begins from there. Secondly, a startup entrepreneur must have a VAT license and has to pay VAT on for instance, house rent regardless of whether the business is profiting or not.”Starting up a business requires money, a lot of it!
But a lot of people don’t have any idea about the required legal paperwork and how much they should be spending for legal help. Mr. Islam addressed this issue stating,
“Common legal papers are necessary for business. With many startups opening up creating a huge framework, a 1% budget is enough for legal documents. Being aware of legalities is very important to get all your business legal documentation up to date.”
A lot of entrepreneurs starting up a business, may not know about all the legal aspects, and how much money they have to allocate for legal support in Bangladesh. Mr. Ahmed shed some light on this,
“In Bangladesh, a startup company should start with a fund of around BDT 15,00,000 (Bangladesh Taka Fifteen Lac). Around 8-10% of this amount should be allocated for legal support. At initial stage there would be legal fee on drafting of Memorandum of Association, Article of Association, relevant forms of the company and other legal support, including but not limited to drafting and filing for intellectual property protection, applying for trade license, TIN and VAT registration of the company, and drafting or reviewing of lease agreement for the business premises. Legal fee varies from lawyer to lawyer.”
There’s multiple steps to establishing a company that a lot of people may be unaware of or don’t know where to acquire the information. The procedures to register a company are:
- Name clearance from the RJSC website which requires a Tk. 600 fee,
- Opening a bank account and bringing in the paid up capital.
- Submission of all your required documents along with Form IX to the RJSC website here.
- Payment of the registration fee.
But that’s not all, there are things you have to do post-registration from collecting documents from the RJSC which include the Certificate of Incorporation, Form XII and certified copies of MoA and AoA. Upon registration, you’ll also have to have share certificates for each of the shareholders, register for shareholders, shares, directors, have a seal and rubber stamp for the company.
The final chapter of establishing a company includes buying or renting a commercial space, applying for Trade License, Tax Identification Number and other licenses in accordance to your business.
Mr. Islam furthermore talked about the groundwork that must be done by a startup company before approaching a lawyer or law firm,
“Startups need to go step by step, what type of startup do you want to get in, verify whether you have enough knowledge and experience on the subject, you must study and gather information about the market, you must finalize and focus your business target group, you have to have a clear concept on startup good/service features and you must be able to convert the startup idea to a business plan before the implementation process begins. Once you have done all these steps, you consult with a lawyer or law firm if needed.”
Startups often come into the game with a limited budget, and every bit of money they save is a benefit for them in the beginning phases of their company. Mr. Ahmed shared some insider tactics that could help entrepreneurs with low budgets.
“There are many good lawyers/law firms in Bangladesh where startup can get pro bono legal support. In the interest of time and expense, founder should create a list of questions for their lawyers and obtain quotes for services on the basis of questions prior to the meeting.
We asked our guests for their opinion regarding the legal framework of intellectual property in Bangladesh. Mr. Islam stated,
“Intellectual property law in Bangladesh is entrepreneur friendly but the problem is our entrepreneurs are not aware about the law, such as, who are the authority of the law, their office, etc. and as a result, many of the ideas that people come up with can be claimed by someone else and/or copied illegally. We have to be more aware about these matters so that we can brand our work and protect it legally.”
Jarif Ahmed also highlighted the importance of protecting intellectual property,
“In Bangladesh, protection of intellectual property other than copyright comes under the purview of Ministry of Industries. On behalf of Ministry of Industries, Department of Patents, Designs & Trademarks (DPDT) administers all the activities relating to industrial property (i.e. Patent, Design, Trademark, etc). Bangladesh Copyright Office is a quasijudicial organization under the Cultural Ministry which deals with copyright. In order to get intellectual property protection the rights must be registered at the respective department under the respective Ministry. Generally, in our experience, it takes around 2-3 year for registration of a trademark or patent and around 6-12 months for registration of a copyright. Time taken for registration is subject to any objection raised by the registrar or any opposite party. The development of intellectual property system depends on effective enforceability of intellectual property rights. Infringement is a common problem in developing countries like Bangladesh. In Bangladesh, intellectual property law is governed by Patent and Design Act, 1911, Copyright Act, 2000 and Trademark Act, 2009, where penalties for infringement are well defined. However, very few disputes in relation to intellectual property reach the court since most of the disputes are decided by the tribunal.
As we came towards the end of the interview, we decided to close by asking Mr. Islam whether he thinks there should be any changes in our legal framework to encourage foreign investment in our ICT sector. He agreed and said,
“Obviously there should be. We can provide facilities to investors to encourage investments, this may be by removing tax or VAT, etc. We can also award them to give special privileges to specific sectors, such as the ICT sector.”
Jarif Ahmed expressed his optimism and spoke about Bangladesh’s progress over the year, especially the ICT division and how it could help make a lot of processes much easier.
“In Bangladesh Information Communication and Technology (“ICT”) industry has consistently grown in recent years. Law relating to information communication technology is primarily governed by Information Communication Technology Act, 2006 as amended in 2013, and Finance Act, 2016. The legal framework relating to taxation in ICT sector is satisfactory as it encourages foreign investment by providing tax exemption on Information Technology Enable Service (“ITES”) in Bangladesh till 30th June 2024. ITES is defined as digital content development and management, animation, geographic information services, IT support and software maintenance services, web site services, business process, outsourcing, data entry, data processing, call centre, graphics design (digital service), search engine optimization, web listing, document conversion, imaging and archiving.”