How to Setup Cement Business in Bangladesh

REGISTARTION AND LICENSE PROCESS

In Bangladesh, if someone seek to set up a cement manufacturing factory, the same can be done by incorporating a limited liability company. 

PRIVATE LIMITED COMPANY

Procedure for company setup:

The procedure of setting up a company are as below:

Step 1: Obtain the Name Clearance Certificate from the RJSC.

Step 2: Drafting and signing the required documents.

Step 3: Open the bank account for Bangladeshi Company and remitting the share capital amount of the foreign shareholders to the local company’s bank account (not required for local shareholders).

Step 4: Receive encashment certificate from the Bank for the foreign shareholders’ remittance in the capital of the company (not required for local shareholders).

Step 5: Submit the required documents along with the encashment certificate (if necessary) and the government fees.

Step 6: The RJSC shall verify the documents and provide the Certificate of Incorporation.

The following are the required list of documents:

1. Copies of National Identity Card (NID) and Tax Identification Number (TIN) and Photos (Passport size) of all the directors and shareholders; however, in case of foreign directors and shareholders only copy of their Passport and Photos (Passport size) is sufficient.

2. Bank Encashment Certificate with respect to each foreign shareholder/s. 

3. Signed Memorandum of Association and Articles of Association for the proposed company; 

4. Completed Form IX and XII;

General Licenses:

TIN certificate - In order to obtain the certificate, an online application needs to be made after the company has been duly formed. Additionally, a local phone number and registered office address are required to complete the application.

Trade License - The application needs to be made, along with the appropriate government fees, to the relevant city corporation office along with the company documents and the lease/rent deed of the office space of the Company. Entities which shall operate in commercial sector and the entities which shall operate in industrial sector shall have to apply for commercial trade license and industrial trade license respectively.

VAT certificate - The application needs to be made through online portal along, with Company documents.

Specific licenses/approvals

Factory license and registration procedure

In Bangladesh, the Department of Inspection for factories and Establishments (DIFE) is the sole authority providing the approval and certificate of registration of factories. 

To obtain a license for a cement factory, one has to follow the online factory license application procedure. Before applying for the license, it is mandatory to apply for Factory Layout Plan approval in the same portal. 

Following is the list of documents which requires for the Factory Layout Plan application:

1. Trade license (where applies).

2. Lease agreement (where applies).

3. Copy of National ID card of the owner/managing director/CEO/manager).

4. Soil test report (where applies).

5. Structural design/drawing by the certified engineer/ certified engineering organization (where applies).

6. Load Bearing Capacity Certificate by the certified engineer/ certified engineering organization (where applies).

7. Certificate of building construction by the certified engineer/ certified engineering organization (where applies)

8. The copy of Building Plan Approval by the local authority.

The below are the list of documents requires for the factory license application:

1. Copy of Trade License (where applies).

2. Lease agreement (where applies).

3. Copy of National ID card of the owner/managing director/CEO/manager).

4. Demand note of electricity (where applies).

5. Memorandum of article/agreement of partnership (where applies).

6. Copy of Factory Layout Approval (where applies).

7. The copy of Building Plan Approval by the local authority.

8. Main copy of Treasury Challan.

9. Copy of Main License (where applies).

10. List of labor or employees of the factory or establishment (where applies).

11. Fire License.

Export Registration Certificate (ERC) & Import Registration Certificate (IRC)

To obtain IRC or ERC, the procedure is same, it is required to collect IRC Form from the Office of Chief Controller of Import and Export and submit the required documents to the Office of CCI&E.

The required documents:

- Trade Licence;

- Membership Certificate from recognized Chamber/Trade Association;

- Tax Identification Number;

- Bank Certificate;

- Memorandum and Articles of Association and Certificate of Incorporation (in case of Limited Company).

Fire License

It is mandatory for business establishments to obtain fire license. The fire license is issued by the Fire Service and Civil Defense (FSCD) authority operating under the Ministry of Home Affairs, Bangladesh. 

The documents required to be submitted in order to obtain a fire license are as follows: 

1. Prescribed application form;

2. Trade license;

3. Yearly valuation certificates;

4. Deed of agreement;

5. Layout of the establishment;

6. Certificate of Incorporation;

7. Memorandum and Articles of Association;

8. No objection certificate from the local authority;

9. Clearance certificate from the FSCD office;

10. Deposit slip/treasury challan.

LEGAL ISSUES

Annul General Compliances of the business entities- The entities are required to comply with the annual filing requirements, such has updating trade license at the respective city corporation, renewal of chamber membership, renewal of IRC & ERC, filing taxes, updating the annual filings at the RJSC for limited liability companies and renewing branch office permission at BIDA after it expires.

Implication of Contract Law – The entities’ in this sector has to maintain many dealers in order to carry its business and market its product in the local market and also requires a lot of vendors who provides the entities with various goods and services, eg the vendors who supply raw materials, the transport agencies. There should be a presence of dealership and vendor Agreement while selling products to dealers or receiving any goods and/or services from the vendors. In the time of dispute, in additional to the applicable laws, the agreement plays a vital role to resolve the disputes, hence it is very important to safe guard one’s the interest while drafting the agreements. 

Requirements Labour laws – The entities need to ensure that its relation with the employees are coordinated with the labour laws of Bangladesh. The employees shall have an appointment letter which shall duly mention their job title, job description, salary, benefits and welfare, applicable working hours and leaves etc. It is to be noted that the employer cannot, by contract or appointment letter, provide anything less than that is provided by the labour laws. It is also the employer’s duty to provide a safe and healthy environment for the employees.   

Foreign Exchange regulations– The entities with foreign investors shall need to ensure that the initial investment are made via proper banking channel, eg.  at the time of company incorporation or buying shares of an existing company, the foreign investors should be remitting the share capital amount from their foreign bank account Company’s bank account with a note ‘investment in the share capital of the (Name of the Company)”. This will show that the investment has been made via proper channel and while remitting the profit such initial investment documents/information shall allow a smooth transection as per Bangladesh Bank guidelines. 

Environmental laws

According to Bangladesh Environment Conservation Act, 1995 (Amended 2010), it is mandatory to obtain Environmental Clearance Certificate for each and every type of industry and project. Environmental Clearance Certificate are classified into 4 (four) categories:

i. Green

ii. Orange-A

iii. Orange-B

iv. Red

Environmental Clearance for Green category industries and projects is provided through comparatively simple procedure. In case of Orange-A, Orange-B and Red Category industries and projects, Site Clearance is mandatory at the beginning, then EIA approval and finally Environmental Clearance is issued. 

The Environment Clearance requires to be renewed after three (03) years for Green category and one (01) year for Orange-A, Orange-B and Red category industries.

The following is the procedure to obtain the Environment Clearance Certificate:

Step 1: Submit application (Form-3) with supporting documents and pay prescribed fees.

Step 2: Verification of application and supporting documents by Department of Environment.

Step 3: Inspection by the authorized officer after verification of all report and documents. [Then make decision about the clearance (Only Green and Orange-A)] 

Step 4: Meeting of Environmental Clearance Committee (for Orange-B and Red Category) 

Step 5: Decision

Required documents for Cement: Red

1. Report on the feasibility of the industrial unit or project (applicable only for proposed industrial unit or project); 

2. Report on the Initial Environmental Examination (IEE) relating to the industrial unit or project, and also the terms of reference (ToR) for the Environmental Impact Assessment (EIA) of the unit or the project and its Process Flow Diagram; or Environmental Impact Assessment (EIA) report prepared on the basis of terms of reference previously approved by the Department of Environment, along with the Layout Plan (showing location of Effluent Treatment Plant), Process Flow Diagram, design and time schedule of the Effluent Treatment Plant of the unit or project, (these are applicable only for a proposed industrial unit or project); 

3. Report on the Environmental Management Plan (EMP) for the industrial unit or project, and also the Process Flow Diagram, Layout Plan (showing location of Effluent Treatment Plant), design and information about the effectiveness of the Effluent Treatment Plan of the unit or project (these are applicable only for an existing industrial unit or project); 

4. No objection certificate (Prescribed Form) of the local authority: 

5. Emergency plan relating adverse environmental impact and plan for mitigation of the effect of pollution; 

6. Outline of relocation, rehabilitation plan (where applicable); 

7. Other necessary information (where applicable); 

If an application is made along with the relevant documents, then Red Category industrial unit or project, within 60 days of the receipt of the application, a Location Clearance Certificate shall be issued or the application shall be rejected mentioning appropriate reasons for such rejection.

Trademark laws -- The entities, if requires, can register their trademark in order to prevent anyone else from using the same or similar marks. In order to register the trademark, the entity can apply to the Department of Patents, Designs and Trademarks (DPDT) to the Trademark Registry Wing of the DPDT.

An application for the registration of a trademark shall include the following-

• the Mark /Logo

• Name of the Applicant.

• Full Address and nationality of the Applicant.

• Status of the applicant i.e. Merchandisers / Manufacturers /Service Providers

• Specification of Goods and Class.

• User date of the mark (whether the mark is in use or proposed to be used in Bangladesh).

• General/specific power of attorney may be required.

• Application fee

Acceptance or Rejection of Trademark:

Once the application is made and the documents are verified and accepted by the Registrar, the same shall be provided to the journal publication to find out whether there is any objection against such mark. If there is an objection, the same shall be decided by the Registrar, based on the documents submitted by both the parties.  

However, if there is no opposition, DPDT will inform the applicant to pay certification fees and subsequently provide the registration certificate of the trade mark.  It usually takes 3 to 5 years to obtain the final trademark registration certificate. In the meantime, the entity can start using the mark. A registered trademark is valid for an initial period of seven (7) years from the date of filing and renewable thereafter for successive periods of Ten (10) years.

Bangladesh Standards and Testing Institution (BSTI) regulations -

The BSTI Catalogue 2018 states that cement is one of the mandatory 166 products which requires BSTI’s certification before marketing the same in the local market. To use the Standard Mark of BSTI, on has to obtain the Certification of Marks (CM) License. The procedures are given below:

Step 1: Apply in the prescribed form to the BSTI along with necessary documents for obtaining the CM license.

Step 2: BSTI shall inspect the application and the necessary relevant papers.

Step 3: If the inspection report is found satisfactory, then samples are collected on random basis and those are jointly signed and sealed by the BSTI Officer and the producer.

Step 4: The collected sample is tested in the BSTI Laboratory or any other laboratory approved by BSTI according to the relevant Bangladesh Standard (BDS)

Step 5: If the results of the test parameters are found in conformity with the relevant BDS. a license is granted in favour of that article.

Step 6: Normally a license is granted for a period of three years, which is being renewed, if the samples are found satisfactory after following the same procedure as has been described in step (2) and (5), for a subsequent period of another three years.

Step 7: A license is to pay fees in favor of BSTI which is known as CM fee.

Step 8: A license granted in favour of any article can be cancelled, withdrawn or revoked at any time if it is found that the license has violated any of the conditions specified in the license and BSTI Ordinance as well.

INTRODUCTION OF FMA AND ITS SERVICES

.  FM Associates, as a full service law firm, provides all types of legal and financial services with its experienced and skilled teams.

Entity registration and licenses: FM Associates provide the services for establishment of entities, i.e. sole proprietorship, partnership business and/or limited liability company, in Bangladesh, and obtaining the required licenses from the relevant government authority. The services include drafting relevant documents, forms and providing the required document list and procedure and subsequently file the application with the relevant documents to the relevant government office and liaising with them throughout the verification process and obtain the necessary certified documents.

Drafting, vetting agreement: The entities, as mentioned above, requires drafting of various types of agreements, eg, vendor, employment, franchises agreement, which are require to be drafted as per the applicable laws of the Bangladesh and at the safe time is requires to safe guard their interest in order to use these agreements for their favour in relation to any future disputes. 

Legal Opinion and/or due diligence report: FM Associates provides legal opinion to the clients, in relation to implication of laws and its impact in various matters which enables them to take informative business steps by considering the legal aspect.

Additionally, FM Associates also provides due diligence report to the interested clients for their entities which flags out all the legal requirements which are required to be followed and also non – compliances, if any, which needs to be fixed. 

Litigation services: FM Associates has a very strong litigation team which assist and represent the clients to defend/file disputes at court or tribunals in relation to all types of litigation. 

COVID-19 IMPACT ON BUSINESS

While the whole world is asking people to stay home to stay safe, it has consequently taken drastic effect on the world economy. Like other Governments worldwide, Bangladesh government has also resorted to lockdown mechanism to protect its people from the COVID-19 pandemic. However, this has badly affected its industrial sectors, mostly the country’s export-oriented industries such as Garments, Cement, Jute etc. 

In the current COVID0-19 context, since the employers are facing challenges to run their factories or establishment, they may reach any decision as they think fit in compliance with the procedures laid down in Bangladesh Labour Act 2006 (BLA) and Bangladesh Labour Rules 2015 (BLR). Some of the legal issues relating to labour matter which are evolving around currently, such as, lay off, compensation, retrenchment. 

As per government circulars, the employers are asked not to lay off or terminate any employees under these circumstances and also announced that if the employers still do so due to financial reasons, then those employers, i.e. entities, will not be entitled to get any benefit from the stimulus package announce by the government. 

COVID-19 Economic Package for the sector:

The Bangladesh Government has announced stimulus packages of Tk 5,000 crore for export-oriented industries sector alone, to pay wages to the workers. The fund can only be used for the purpose of paying wages and allowances to the workers and employees in the export-oriented industries. Besides, the government will provide working capital of Tk 30,000 crore for the COVID-19 affected large industries and service sectors at an interest rate of 4.5 percent. Although the interest rate of the loan will be 9 percent, however, the government will give the respective bank subsidy of the rest of interest.

Force Majeure 

Entities in the cement industry needs to  whether they are entitled to invoke force majeure clause under the various commercial contracts, and thereby defer the performance of their contractual obligations without penalty. A force majeure event is an extraordinary event or circumstance, like a pandemic, which is beyond the control of the contracting parties. Generally, the parties get relieved from their respective contractual obligation and/or liability if a force majeure clause can be invoked successfully. A force majeure clause does allow a party's non-performance entirely, but only suspends it for the duration of the force majeure event. If properly drafted, the force majeure clause may provide that where a force majeure event continues for more than a stipulated period then either party may, at its own option, terminate the contract without any financial consequences to each other.

If the contract does not consist of a force majeure, parties can opt for the Contract Act 1872 (the "Act of 1872"). The doctrine of frustration is enshrined in Section 56 of the Act of 1872 which provides that a contract becomes void when it becomes impossible to perform or, by reason of some event, it becomes unlawful after it was entered into. Therefore, if the contract becomes impossible to perform for reason of Corona, it shall be treated as void under the laws of Bangladesh, provided that the defaulting party did not know, or with reasonable diligence, could not have known that the contract would be so frustrated. In simple terms, the effect of a void contract is that it cannot be enforced by law and the parties are relieved from their respective obligations. 

Taxation

General rate of tax is 32.5% currently in the laws of Bangladesh. Nominal requirements for a limited company formed locally includes a number of reporting to be done to NBR, such as: Opening a TIN, Monthly Tax deduction statement, Half Yearly Withholding Tax statement, Yearly statement related to tax return submission of its employees, Yearly statement related to salary disbursed from company to its employees, Quarterly Advance tax deposition, Yearly Tax return submission, attending appeal/hearing session as required on behalf of the company, Monthly VAT return etc. FMA can advise and assist to satisfy all regulatory compliances to enable the company to run smooth and hassle free.  

CONCLUSION

The cement sector has been growing at the steady rate in the recent past due a rapid increase in demand in both local and international market. It also has a potential to increase its market shares in the global market.  

EXECUTIVE SUMMARY

The rapid growth of the local market along with it bright future in the international, the cement industry of Bangladesh has a bright future ahead. The demand of cement has increased greatly due to various government projects, urbanization and private real estate projects. To establish a factory in this lucrative market requires to follow a number of procedures which includes setting up an entity and obtain the general  and special licenses and approvals such as TIN, VAT, Trade License, BSTI certification, IRC and ERC, factory approval etc.  FM Associates, being a leading law firm in Bangladesh, can certainly help its client to open their business in this sector and also assist with the legal issues. The experienced lawyers of the firm provide full service to their clients, starting from registration of the entity and obtaining various licenses and approval to providing legal opinion, litigation and other legal survives as required by the client. 

Due to Corona Virus Pandemic the industry is facing serious problem due to the lockdown measure taken by the government in order to reduce the spread of the disease.  This has hampered both local and the international business of the industry as both the local factories and the borders are closed down. 

Nonetheless, it is expected that, as the epidemic starts to decline, business shall resume and with the help of the financial package announced by the government, this sector shall find its steady growth in a short period of time.