Govt makes setting up single-member companies easier
The government has brought in a major amendment to the Companies Act allowing setting up of single-member companies, a move that is expected to give a boost to entrepreneurship, draw investors and support the growth of SMEs.
The cabinet gave its approval to the amendment on Monday and it would be now placed in parliament to set it in motion.
Allowing single-member companies would draw local and foreign investors and improve the country's ranking on the World Bank's Ease of Doing Business Index, Cabinet Secretary Khandker Anwarul Islam told reporters on Monday.
Allowing the formation of single-member companies would enable entrepreneurs and family businesses to move out of the shadow of informality and gain access to financial and business services available in the formal economy, said Finance Minister AHM Mustafa Kamal in a letter to the WB in April.
The reform is a starting point to addressing a range of improvements in the regulatory regime that are needed to support the establishment and growth of microenterprises and small- and medium-sized enterprises, said Zahid Hussain, a former lead economist of the World Bank's office in Dhaka, yesterday.
The amendment would help regularise many SMEs and microenterprises and bring them under the legal purview, and thereby reduce informality, he said.
"It would help Bangladesh improve its ranking in the next Doing Business Index," said an official of the finance ministry.
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The government is committed to moving rapidly from its current position of 168th in the Doing Business ranking to less than 100 within the next few years.
Because of the new changes, 50,000 new firms would be set up in the country, according to an estimate.
The changes to the Companies Act have been part of the $250 million budget support the government has received from the WB recently.
Usually, a country has to fulfil conditions before securing budget support from the WB. Bangladesh was also supposed to meet some conditions before availing the financing in June.
But as the government needed the emergency financing, the WB softened its stance while approving the fund to help the country meet the challenges posed by the coronavirus pandemic.
It, however, called for embarking on meeting the conditions after the availing of the budget support. So, the government is working to implement them, said the finance ministry official.
Exploiting the potential for diversified export-oriented sectors as job creators will require an improved capability to attract and service new FDI and domestic investors, the WB said in a document recently.
Firms looking to establish a new business in Bangladesh must navigate a non-transparent and cumbersome regulatory space that includes services delivered by 34 different line agencies.
"As investors re-establish but also rethink their supply chains in the aftermath of the Covid-19 crisis, addressing the onerous administrative barriers to the business formation in Bangladesh is even more urgent," the WB said.
The archaic Companies Act, the main body of which has stood since 1913, is plagued by lack of regulatory clarity in explaining business processes, limited provision for integrating modern financing instruments and onerous business entry and exit procedures, according to the WB.
An amendment to the Companies Act was passed by the parliament in February, speeding company registration by eliminating the requirement for a company seal.
A further and more substantive set of amendments that both eliminate further administrative requirements but also address barriers that restrict entrepreneurship and prevent businesses from operating formally, limiting their access to finance and judicial protection, has received cabinet approval and is expected to be enacted this year.
These amendments cover provisions for submission of electronic documents, an extension of notification for annual general meetings and introduction of new governance related to extraordinary general meetings.
"Upon enactment, amendments in the Companies Act can have an immediate impact on the business environment, as they require no further enabling rules or institutions," the WB said.
According to Hussain, if complemented by removing other regulatory barriers to entry, the reform would improve access of small businesses to investment and working capital finance, allow graduation of family businesses into corporate form and contribute to improving contract enforcement.
Among the other reforms needed is improving the use of technology for filing and integration of systems across government agencies.
"The Bangladesh Investment Development Authority has made some progress on the latter. It needs close cooperation from several other agencies to enable the creation of a meaningful one-stop service for new entrepreneurs."
The SME sector has become more important as part of the economy's resilience in the aftermath of the pandemic.
"I hope this amendment will be passed in the parliament at the earliest possible opportunity."
Introducing a modern customs regime is critical to supporting global value chain integration and facilitating a trade-led recovery, the WB said.
Bangladesh's customs regime, which fails to exploit the opportunities of automation and risk-based approaches, is increasingly a binding constraint to the expansion of export-oriented industries.
The country ranks 176th of 190 economies in the 2020 Doing Business "trading across borders" indicator, by far the worst-performing country in South Asia and far behind landlocked countries like Bhutan and Nepal, as well as India.
To ensure quick clearance of goods and modernise the customs administration through trade facilitation, the government has formulated the new Customs Act.
The new Act allows for more efficient trading and provides legislative coverage for critical initiatives such as the introduction of risk management and the National Single Window, including provisions for electronic information exchange, improved inter-agency coordination and strengthened governance, the WB said.
Reaching the government's ambitious export target will depend on the development of diversified sectors, but also improved trade and environment entailing both better trade policies and improved trade facilitation, Kamal said in April.
The government recognises that several issues such as tariff policy, access to inputs at competitive price or process and clear legal basis for more dynamic border clearances require priority policy attention to foster greater integration with global and regional markets, he said.