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Capital Markets in Bangladesh and IP
The capital market is the engine of an economy’s growth and plays a crucial role as an intermediary between savers and businesses seeking additional funding for business expansion.
A robust economy is likely to be supported by thriving capital. While commercial bank lending provides initial support for corporate growth, a developed stock market is a crucial prerequisite for entering a more mature growth phase with more complex conglomerates.
The Bangladesh capital market has a considerable distance to travel. The transitional government’s recent actions have already begun to have a positive effect on the markets. If more investor-friendly policy reforms were implemented, the capital market would unquestionably play a crucial role in propelling Bangladesh to become the next Asian tiger, with growth comparable to India, Vietnam, and the other most dynamic economies in the region.
Capital market provides an alternative channel for intermediation of savings. The capital market permits small savers to share in the benefits of economic expansion and increased corporate profits.
The capital market is attractive to entrepreneurs because, unlike bank loans, there are no fixed repayment obligations. Unfortunately, the supply of shares does not increase at the same rate as demand, which is cause for concern. Recent measures taken by the regulator will help stabilize the market in the short term, but not in the long run. This article emphasizes about the Initial Public Offering Process, its benefits and drawbacks, and its effect on any company.
This article discusses the participation and role of regulators (Securities & Exchange Commission), stock exchanges (Dhaka Stock Exchange and Chittagong Stock Exchange), and other facilitators (Registrar of Joint Stock Companies and Firms, Board of Investment, Central Depository Bangladesh Limited) in the process. Complying with the pertinent rules and regulations prior to an IPO has also been discussed.
Why become a Public company in Bangladesh?
Why do IPO or go Public? Pros & Cons The Going Public Methodology Taking a company public is an exciting and challenging process for the entrepreneur, the chief executive officer, and the chief financial officer, as well as for all other parties involved.
For some, going public may represent the achievement of a long-term strategic objective and the start of a new life in the public eye. Others may define success as the attainment of a substantial business and financial reward.
Being public confers prestige and visibility among all market participants, including customers, suppliers, employers, and the financial sector. As with any other endeavor with high long-term returns, the process of going public is fraught with difficulties, including complex accounting rules and reporting requirements, time and resource constraints, and the management of new stakeholders, including the board, shareholders, and possibly new management.
The initial public offering is a perpetual source of capital. Unlike debt, equity does not have a fixed maturity, interest rate, or amortization schedule. Therefore, equity capital significantly improves a company’s cash flow, relieving it of periodic payment obligations.
In an era of free enterprise and democracy, the stock market served as a vital link between investors and entrepreneurs. Investors, of their own volition, desire risk and direct investment in the project, as well as a profit-sharing stake. Why publicize? The decision to go public should be based on the company’s long-term strategic goals— Seeking growth, value creation, or value creation opportunities.
Exit strategies Growing businesses are always in search of additional capital. Going public is one way to obtain this capital, but it requires a significant investment of time and money. Typically, this decision is the culmination of a company’s long-term strategic plan. One could be an entrepreneur who founded a company based on a good idea.
A successful strategic formula has created shareholder value, and the organization is now prepared for the subsequent step. Reaching the company’s current position may have exceeded its operational and external borrowing capacity.
The organization may seek access to the public equity markets in order to attract additional investors. One who has founded a successful business and wishes to crystallize the value upon which the company was built may wish to do so. Or, one could be a private equity investor seeking an exit strategy or a return on their investment. Benefits of Listing Tax Benefit Listed nonfinancial companies enjoy substantial tax advantages.
The typical tax rate for listed non-financial corporations is 27.5%, compared to 37.5% for unlisted corporations. In addition, a 10% tax rebate is available if at least 20% of dividends are paid out. Therefore, the effective tax rate for publicly traded companies is 24.75 percent.
Improvements in Corporate Governance As listed companies are required to adhere to stringent corporate governance policies and accounting standards, the organization’s transparency is increased. In turn, greater transparency contributes to the enhancement of the company’s value. Brand Value Development A company’s brand equity is increased through bourse listing. Companies that are publicly traded enjoy greater acceptance on both the corporate and social levels.
CAPITAL MARKET LEGAL SERVICES IN BANGLADESH
TRR Associates, the Best Capital Market Law Firm in Bangladesh
It is typical for an lawyer who engages in general practice to have a passing familiarity with everything that piques their interest. However, specializing in something related to finance makes a practice unquestionably challenging and thus requires a great deal of skill.
TRR Associates offers the most qualified Capital Market Lawyers in Bangladesh, as failure to do so may diminish your future business prospects. When obtaining a loan and analyzing the market in light of legal complications is necessary, the need for a competent Capital Market lawyer remains an open secret. Foreign investors who seek Capital Market lawyers in Bangladesh face an even greater challenge, as they are aware that a lawyer or firm without the proper finance credentials could practice in this area of law. Our fully committed finance department, in conjunction with our legal associates, guarantees the highest quality of work in Bangladesh.
What is an Initial Public Offering and Capital Market?
IPO stands for “Initial Public Offering.” It refers to the first time a privately held company offers stock to the general public. It is a method by which a private company can broaden its investor base by issuing public stock.
The ability to raise more funds through an IPO makes an IPO a valuable growth tool for any private company. Moreover, it is a worthy objective with numerous potential benefits, such as assisting companies greatly with fundraising, publicity, and the ability to use publicly traded stock as a payment method, among others. Publicity is crucial for businesses because it increases their business opportunities. In addition, an IPO enables a company to invest in infrastructure development and the purchase of new equipment, etc. Additionally, it can be a great way to pay off any debts or past-due bills.
How to Make an Offering to the Public in Bangladesh
To make a public offering in Bangladesh, the Securities and Exchange Commission (Public Issue) Rules, 2001 and the Securities and Exchange Commission (Public Issue) Rules, 2006 must be followed. Additionally, there are additional rules and regulations that must be followed and observed (on the basis of applicability). Companies Act 1994; Income Tax Ordinance, 1984; Income Tax Rules, 1984; Bangladesh Accounting Standards; and Bangladesh Financial Reporting Standards.
What is a Capital Market in Bangladesh?
A Capital market, on the other hand, is a type of market where financial securities such as bonds, stocks, etc. are traded. Individuals and institutions participate in this type of trade. The capital market serves as a conduit for transactions between investors and corporations. In addition, the capital market is one of the best sources of capital creation in the economy and contributes to economic expansion. The capital market facilitates the trading of securities, encourages a wide variety of productive asset ownership, and facilitates the settlement of transitions, among other things.
Capital Market Types in Bangladesh
The Capital Market consists of two types of markets: primary and secondary. Primary markets deal with the exchange of newly issued stocks and other securities, whereas Secondary markets deal with the exchange of existing or previously issued securities. In other words, whereas the Primary market focuses solely on the trading of newly issued securities, the Secondary market focuses on the trading of previously issued securities. In addition, the capital market is divided into two significant segments: the stock market and the bond market.
Primary markets are advantageous for both investors and new businesses, as investors can invest their excess funds and new businesses can expand their operations by raising additional capital. There are various methods for raising capital; for instance, many companies invite investors to invest in their business by providing a prospectus. Investors purchase and sell securities on the Secondary market. In contrast to the Primary market, the Secondary market contains no new shares.
There are two stock exchanges in Bangladesh: the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE). Dhaka Stock Exchange (formerly known as the “East Pakistan Stock Exchange”) was founded on April 28, 1954, and Chittagong Stock Exchange was established in 1995. Both stock exchanges aim to create a robust platform for entrepreneurs to raise capital, create investment opportunities, enhance market transparency, and attract foreign investors to invest in Bangladesh. The Securities and Exchange Commission (SEC) is the capital market regulator in Bangladesh. It implements rules and regulations and works to develop the capital market. Central Depository Bangladesh Limited is the only central depository in Bangladesh (CDBL).
TRRA’s Capital Market Lawyers in Bangladesh are well-equipped to handle complex capital market matters.
We offer the subsequent services:
– Assisting in the listing process with the DSE, CSE; – Issuing an Initial Public Offering (IPO); – Drafting a prospectus; – Ensuring compliance with the securities regulations governing the capital markets; – Ensuring that all corporate and regulatory approvals are obtained on time
– Attending AGM;
– Preparation of all transaction-related corporate documents and agreements;
– Counseling on legal and regulatory issues;
– Reviewing the company’s Memorandum and Articles of Association; – Determining whether the company is ready to be listed on an exchange; – Making any necessary legal amendments to the Company’s corporate documents.
– Examining contracts
– Document drafting;
– Negotiate agreements;
– Legal counsel on a product’s rating; – Due diligence.
dividends are paid out. Therefore, the effective tax rate for publicly traded companies is 24.75 percent.
Improvements in Corporate Governance As listed companies are required to adhere to stringent corporate governance policies and accounting standards, the organization’s transparency is increased. In turn, greater transparency contributes to the enhancement of the company’s value. Brand Value Development A company’s brand equity is increased through bourse listing. Companies that are publicly traded enjoy greater acceptance on both the corporate and social levels.
KEY FACTS ABOUT COMPANY FORMATION
KEY FACTS ABOUT COMPANY FORMATION
Company Name. The name must be approved (cleared) before incorporation of the company in Bangladesh.
Directors. Minimum of two directors are required. Directors can be either domestic or international. Directors must be at least 18 years old and cannot have been declared bankrupt or convicted of misconduct in the past. The law stipulates that a director must hold the qualifying shares specified in the Articles of Association. A shareholder that is not a natural person (i.e., a corporation) may nominate a director.
All about Capitals:
Authorized Capital:
The authorized capital must be stated in the Memorandum of Association and Articles of Association. It is the maximum amount of authorized share capital that can be issued (allocated) to shareholders. A portion of the authorized capital may be held in reserve. In Bangladesh, there is no minimum or maximum limit on authorized capital.
Paid-up Capital:
The minimum paid-up capital required to register a Bangladeshi company is 1 Taka. Paid-up capital (also known as share capital) can be increased at any time following a company’s incorporation.
MoA and AoA:
Registered Address. In order to register a company in Bangladesh, you must provide a local address as the registered address of the company. The registered address must be a physical address (can be either a residential or commercial address) and cannot be a P.O. Box.
Memorandum and Articles of Association. The company to be incorporated must prepare a memorandum of association (MoA) and articles of association (AoA).
Shareholders for a Private Limited Company:
A Bangladeshi limited liability company can have between two and fifty shareholders. A director and shareholder may or may not be the same individual. A shareholder may be a person or another legal entity, such as a corporation. In most industries, 100% foreign or domestic ownership is permissible. After the Bangladeshi company has completed the incorporation process, new shares may be issued or existing shares may be transferred to another party at any time.
The legal team of TRR, The Law Firm in Bangladesh. The Law Firm in Bangladesh are highly experienced in providing all kinds of services related to forming and registering a Private Limited Company in Bangladesh . For queries or legal assistance, please reach us at:
E-mail: info@trrbd.com
Phone: +8801581473494
Address: House 410, Road 29, Mohakhali DOHS
In addition:These are the Types of Companies in Bangladesh
There are six ways of doing business in Bangladesh:
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