How to Setup Jute Business in Bangladesh

In Bangladesh, if someone seek to set up an entities to operate in the jute industry, the same can be done by a sole proprietorship, partnership or incorporating a limited liability company. The business range forms opening up jute mills, making handicrafts and other products from jute, marketing/distributing jute products etc.

In Bangladesh, a Sole Proprietorship does not constitute a separate legal entity, therefore, it is not distinct from the owner/ proprietor. During the course of business if any liability arise, the business owner will be personally accountable for all liabilities. Any Bangladeshi citizen of a minimum age of 18 years is eligible for a sole proprietorship. 

In order to set up a sole proprietorship business in Bangladesh, the following steps need to be followed:

Step 1- Proposed business name in Bangla

Step 2- Obtaining Trade License. 

Trade License – It is the basic requirement for proprietorship. This can be obtained by making an application to the respective City Corporation/local government along with the lease/rent document of the office space of the business. 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.

TIN Certificate --- The application needs to be made through online portal of National Board of Revenue (NBR).

VAT Certificate --- The application needs to be made through online portal of National Board of Revenue (NBR).

A partnership business need to be registered with Registrar of Joint Stock Companies and Firm of Bangladesh (“RJSC”).

STEP 1- CHOOSING THE PARTNERSHIP NAME

A Name Clearance for the proposed name of the Partnership Business, must be obtained from the Registrar of Joint Stock Companies And Firms (RJSC).

STEP 2 – PREPARE A PARTNERSHIP DEED

The Partnership Deed should be written on a stamp paper in accordance with the Stamp Act and all partners should sign it and subsequently be notarized.

STEP 3- REGISTER PARTNERSHIP DEED WITH RJSC

The partnership deed along with filled up Form I should be filed with RJSC. The officials of the RJSC will review the documents shall issue a Certificate of Registration.

Timeline – It usually takes around two weeks to obtain the Certificate of Registration from RJSC after the submission of the documents as per STEP 3.

TIN Certificate ------- The application needs to be made through online portal of National Board of Revenue (NBR).

Trade License -The application needs to be made, along with the appropriate government fees, to the relevant city corporation office/ local government office along with the business documents and the lease/rent deed of the office space of the Business. 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.

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;

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.

Special Licenses and approvals

Jute Goods Export License is issued by the Ministry of Textiles and Jute (Department of Jute). Following are the steps:

Step 1: Collection of the prescribed application form from the district office or head office of the Department of Jute;

Step 2: Payment and collection of a Treasury Challan;

Step 3: Submission of the filled-in application form along with supporting documentation and Treasury Challan to the Directorate General of the Department of Jute at the Head Office;

Step 4: Verification and approval by the Department of Jute;

Step 5: Obtains License from the Head Office of the Department of Jute.

1. Filled in designated Application Form;

2. Treasury Challan and a copy of the original duly attested by a First Class gazette officer;

3. Memorandum of Association and Articles of Association and a copy of the original duly attested by a First Class gazette officer;

4. Recent Bank Solvency Certificate and a copy of the original duly attested by a First Class gazette officer;

5. Valid Export Registration Certificate and a copy of the original duly attested by a First Class gazette officer;

6. A valid Membership Certificate issued by any of the concerned agency i.e. Bangladesh Jute Association/Bangladesh Jute Goods Association/Bangladesh Jute Spinners Association/ Bangladesh Jute Mills Association/ Bangladesh Jute Exporters Association/Local Chamber of Commerce and Industry and a copy of the original duly attested by a First Class gazette officer;

7. Valid Trade License and a copy of the original duly attested by a First Class gazette officer;

8. Income Tax Certificate and a copy of the original duly attested by a First Class gazette officer;

9. Nationality Certificate (to be provided by all board members in case of a Limited Company) and a copy of the original duly attested by a First Class gazette officer;

10. Statement of Immovable assets;

11. Name, Permanent address and Nationality Certificate for adult members of the family (to be provided by all board members in case of a Limited Company) and a copy of the original duly attested by a First Class gazette officer.

In Bangladesh, the Department of Inspection for factories and Establishments (DIFE) is the sole authority providing the approval and certificate of registration of factories. The Department (DIFE) is operating under the Ministry of Labour and Employment of Bangladesh. 

To obtain a license for a jute mill, one has to follow the online factory license application procedure. The Department of Inspection for factories and Establishments (DIFE) has its online license application portal. 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.

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.

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.

Jute Act 2017 --- As per the Act government holds a discretionary power to control the jute market by allowing or restricting the marketing of jute products as per the situation. The act obligates everyone to obtain a license from the government before starting any business which is of jute or jute products in Bangladesh.  

Mandatory Jute Packaging Act, 2010 and Mandatory Jute Packaging Rules, 2013 ------- Government, as a step to ensure the expansion of the local jute market and for environmental purposes, has enacted these to legislation which makes certain product packaging to be mandatorily made by jute. This will have a positive impact on the local market and also the environment as jute being a disposable item compared to its competitors like plastic.

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 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 vendor agreement while selling products  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

1. Application through prescribed form-3 under Environment Conservation Rules 1997 

2. Prescribed fees under schedule-13 under Environment Conservation Rules 1997 (Amended 2002) 

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

4. Report on the Initial Environmental Examination of the industrial unit or project, and also the process flow diagram, Layout Plan (showing location of Effluent Treatment Plant), design of the Effluent Treatment Plant (ETP) of the unit or project (these are applicable only for a proposed industrial unit or project); 

5. 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 of the Effluent Treatment Plant and information about the effectiveness of the ETP of the unit or project, (these are applicable only for an existing industrial unit or project); 

6. No objection certificate (Prescribed Form) from the local authority; 

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

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

9. Other necessary information (where applicable). 

If an application is made along with the relevant documents, then Orange-B 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.

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. 

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. 

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.

Entities in the cement industry needs consider 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.

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.  

In order to revive the old glory to the full extend and establish Bangladesh as a key player of jute, an environmental friendly material, in the global market, Bangladesh government has been working restlessly. It is forecasted that proper guidance to the local investors and appropriate marketing strategies could increase the jute consumption level in the local economy.   

Bangladesh is the most suitable area for jute business. The jute of Bangladesh is known as the ‘golden fiber’ all over the world. The jute of Bangladesh has the potential to dominate the world market. Manufacturers in the jute sector produce and trade a variety of jute products. The business entities in this sector can complete the registration and licensing process, as discussed above, to ensure the legal compliances are met. 

 

FM Associates, as a full services law firm, has been consistently giving service to clients in the jute sector. It provides all sort of legal and financial assistance starting from registering entities to obtaining required licenses; drafting agreements and notices to providing annual compliances and litigation services. FM Associates is enriched with experienced Barristers and Advocates who have expertise in different legal sectors which enables to provide the required services with high standard and the clients can obtain all the essential and ancillary legal services under one umbrella.  

The covid 19 pandemic has its toll on this sector as the mills and the factories are labour dependent and due to the lockdown regulations, labours are unable to work. Furthermore, the lockdown in the exporting countries has make the condition worse as the investors find it difficult to survive as their business has come to a halt and they are facing a huge financial crisis. 

Nonetheless, it is expected that as the epidemic starts to decline and the market is up and running, this sector shall overcome its loss if it receives the due attention of the government and the financial package.