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Legal process for business mergers, acquisitions in Bangladesh

Published : Sunday, 27 April, 2025 at 12:00 AM  Count : 397
Gazi Sirazul Islam
Mergers and acquisitions (M&A) are becoming business development and restructuring techniques in Bangladesh. With the growing economy and established private sector, companies are looking increasingly towards consolidation, joint ventures, and acquisitions to gain market share, achieve operational efficiency, and venture to new markets. However, these business activities are regulated by a codified legal and regulatory infrastructure. It is most crucial that any domestic or foreign organization interested in conducting a successful merger or acquisition in Bangladesh must have a sound understanding of the legal framework.

The legal framework to operate M&A business in Bangladesh is framed and governed by several central laws and institutions. Companies Act, 1994, is one of the most important ones that form the corporate framework for company business, amalgamation, and winding up. Regulatory roles are also provided by the Bangladesh Securities and Exchange Commission (BSEC) to listed companies, the Bangladesh Competition Commission in ensuring market equity, and Bangladesh Bank in case of cross-border and foreign exchange transactions.

The most common forms of mergers and acquisitions that are available in Bangladesh are statutory mergers, share acquisition, asset purchase, and joint ventures. Two or more companies are legally combined into a single company in a statutory merger either by the creation of a new company or by the merger of one company into another. A company acquires control over another by purchasing its shares in a share purchase. Asset buying, however, involves the acquisition of individual business assets without liabilities. Joint ventures tend to be the start of working together and can turn into complete mergers later on.

Whether cash or shares, or some other type, all M&A transactions follow the same legal procedure that begins with due diligence. The process plays an important part in identifying financial, legal, and operational risks. The buying group makes a sweeping review of the target company's assets, liabilities, litigation, tax returns, intellectual properties, employee contracts, and other relevant documents. The result of the audit has a considerable effect on the valuation and structuring of the ultimate deal.

Following due diligence, the parties subsequently agree and price. The agreed value is taken from financial performance, asset worth, liabilities, and comparison to the market. The parties subsequently typically enter a non-binding Letter of Intent (LoI) or Memorandum of Understanding (MoU) to note first terms and intentions. Although not binding in law, they demonstrate the seriousness of the transaction and provide basis for final agreements preparation.

Regulatory approvals are leading the M&A activity. Where any of the parties to the transaction is a listed company, advance approval must be obtained from the BSEC under applicable securities laws. Mergers resulting in significant market shares may attract examination by the Bangladesh Competition Commission to ensure that they do not result in unfair monopolies. Where there is cross-border restructuring or in the case of involving foreign shareholders, Bangladesh Bank approvals under the Foreign Exchange Regulations Act, 1947, are necessary. In large-ticket restructuring, clearance from the Bangladesh Investment Development Authority (BIDA) is also there.

When all consents necessitated are procured, the two parties embark on preparation and execution of closing agreements. They are Share Purchase Agreements (SPA), Asset Purchase Agreements (APA), Merger Agreements, and other contractual documents setting terms of sale, terms of payment, timeline, representations, warranties, indemnities, and post-closing covenants. The said documents need to be company laws applicable compliance and may subject to shareholder sanction through general meeting resolutions.

In mergers of two or more firms into a single corporate body under the law, the Companies Act, 1994 necessitates judicial approval. This entails filing a petition before the High Court Division of the Supreme Court of Bangladesh, publishing public notices to invite objections, and undergoing a formal hearing. After the court scrutinizes the scheme of amalgamation and objections, if any, it can pass an order approving the merger. The final judicial order should finally be filed with the Registrar of Joint Stock Companies and Firms (RJSC) for the final effect of legal authorization of the consolidation.

Tax is another significant area of concern in M&A transactions. Depending on the nature of the transaction, there can be more than one tax cost, like capital gains tax, value-added tax (VAT), and stamp duty on transaction documents. The Income Tax Ordinance, 1984 speaks of tax treatment in the case of share transfer and disposal of assets. The firms are also required to undergo proper issuance and renewal of Electronic Tax Identification Numbers (eTINs) as part of compliance and reporting on a regular basis.

Foreign investment through mergers and acquisitions is achievable in Bangladesh, and foreign investors are involved in most of the transactions. Foreign direct investment in certain sectors such as telecommunications, defense, or energy could also require clearance. Capital movement is regulated by Bangladesh Bank and must sanction any repatriation of profit or dividends in foreign exchange. Foreigners must also comply with the BIDA's FDI policies that delineate sectoral guidelines and minimum equity requirements.

Post-merger integration is the final but no less important phase of the process. It is the combination of operations, systems, people, and corporate culture. Complete integration is needed to ensure the anticipated advantages of the merger or acquisition. It generally includes rebranding, updating company bylaws, synchronization of supply chains, and management of customer relations. Effective change management methods, stakeholder communication, and regulatory compliance are required in order to generate smooth transition.

Despite the existence of an overall regulatory framework, corporations may face actual hindrances in the M&A context. These are too long approvals from the authorities, unclear taxation policy, lack of cross-border transaction expertise, and resistance from insider stakeholders. Furthermore, legal agreements in mergers and acquisitions can prove to be cumbersome and need expert advice by finance and law advisors.

The last few years have seen increased M&A activity in Bangladesh, particularly in the banking, pharma, telecom, and technology industries. It is a sign of increased investor confidence and the changing dynamics of the local corporate landscape. In response, the regulatory bodies have turned to overhauling company laws, encouraging ethical business consolidation, and removing procedural barriers. In particular, the Bangladesh Securities and Exchange Commission (BSEC) has proposed reforms for simplifying takeover rules and improving disclosure practices.

Since the economy of Bangladesh is on the upswing, the use of mergers and acquisitions cannot but assume greater significance. Companies looking to grow, reorganize, or grow in new regions can derive immense advantage through M&A operations-if only they have knowledge and remain well-informed about the law. Through good planning, compliance with regulations, and professional advice, the M&A process can be a virile force propelling company growth and for economic progress of the country as a whole.

The writer is an advocate



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