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There are several ways by which an investor can invest into the restaurant industry, eg Sole Proprietorship, Partnership Business, and Private Limited Company. The first two options are not available for Foreign investors.
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 arises, 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.
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.
VAT certificate ---- The application needs to be made through online portal of National Board of Revenue (NBR).
PRIVATE LIMITED COMPANY
Procedure for company setup:
The procedure of setting up a company are as below:
STEP 1 - A Name Clearance for the proposed name of the Company, must be obtained from RJSC.
STEP 2 – Drafting and signing the following:
• Memorandum and Articles of Association of the company;
• Filled in Form IX: Consent of director to act;
• Filled in Form XII: Particulars of the directors, manager and managing agents.
STEP 3 – Opening the bank account for the Bangladeshi Company and remitting the share capital amount of the foreign shareholders (not required for local shareholders)
STEP 4 – Bank to issue encashment certificate of such foreign remittance (not required for local shareholders)
STEP 5 – The signed documents, as mentioned in step 2, shall be required to be submitted to the RJSC along with the encashment certificate and the government fees for the incorporating the company.
STEP 6 – RJSC shall verify the documents and provide the certified incorporation documents.
Timeline – It usually takes 3 to 4 weeks, after submitting the documents as per Step 5, for RJSC to issue the certificates.
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.
The restaurants produce commercialize food products and beverages that is served to mass people, therefore, it needs to follow special health regulations and collect special permission and license from respective government authorities to operate business in Bangladesh.
Step 1- To conduct a restaurant business application need to be made to respective registrar with prescribed fee and procedure.
Step 2- After receiving the application, the registrar will inspect the information provided in it. If the registrar gets satisfied, then he will issue registration certificate in favour of the applicant providing the time, procedure and conditions in the form.
Step 3- Restaurant business should get started and a license should be obtained within 1 year from the date of issue of the registration certificate.
Step 4 – After that the owner of the business shall apply to the respective controller in prescribed form and fee to obtain license.
Step 5 – If the controller is satisfied after inspection, he will issue the license.
License shall get expired after three years and its renewable.
Import Registration Certificate (IRC) - Entities which shall require to import Food products or machineries for restaurants requires to obtain the IRC.
The application for IRC needs to be made to the Office of Chief Controller of Imports, with entity incorporation documents, TIN certificate, trade license, solvency certificate from the bank and chamber of commerce membership certificate and relevant government fees. The certificate need to be renewed annually.
Fire License - Considering the environment and to ensure the safety of the establishment along with the employees engaged in the business, it is mandatory for buildings and business organizations to obtain fire license. It 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.
Certification Mark from Bangladesh Standards and Testing Institution (BSTI) - There are 71 Agricultural and Food Products which are under the compulsory Certification Marks (CM) scheme of BSTI which in other words means that marketing of any of these items needs conformity certificate of Bangladesh Standard from the BSTI. There are imported 23 Food Products required mandatory certification before customs clearance. If any restaurant use any of the products from these two lists it must check whether the products have the Certification Marks on it.
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, 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’ relationship with dealers/vendors is quite an integrate part who provides products or services for the business. There should be a presence of dealership/vendor Agreement while selling products to dealers or receiving any goods and/or services from the vendors. Vendor Agreements can cover a diverse area comprising software, professional services, office supplies, technology services, event planning, marketing, consultants and many others. 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.
The franchise agreement is also an important aspect in this sector as a lot of entities brings the product of international bands on franchisee- franchisor basis.
It is crucial that such agreement is drafted clarifying all the legal aspect specially in compliance with the foreign exchange guidelines of Bangladesh Bank. This shall be helpful while remitting the royalty by banking channel to the franchisor. In addition to the royalty payment, the foreign shareholders can also remit the dividend after deducting the applicable taxes.
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.
Certification Marks from BSTI - Standards Catalogue 2018 of BSTI provides a list of 166 products which are under the compulsory Certification Marks (CM) scheme of BSTI which in other words means that marketing of any of these items needs conformity certificate of Bangladesh Standard from the BSTI. Among those 71 items are food and agricultural products from number (Number 1-71 in the product list of BSTI). BSTI also provided a list of Imported 55 Products brought under mandatory certification before customs clearance among those 23 items are food products from number (Number 1-23 in the list of imported products)
Application of The Food (Special Courts) Act, 1956
The Food (Special Courts) Act, 1956 is an act to provide for setting up of Courts for speedy trial of offences in relation to foodstuffs. A Special Magistrate may take cognizance of any offence punishable under this Act. If any person commits an offence punishable under this Act, he shall be punishable with an imprisonment for a term which may extend to three years or with fine or with any one or both of them and the Court of Special Magistrate trying such offence may direct that any foodstuffs in respect of which the said Court is satisfied that a notified order has been contravened shall be forfeited to the Government.
Application of Fish and Fish Products (Inspection and Quality Control) Ordinance, 1983
The inspection and quality control of fish and fish products are regulated by the Fish and Fish Products (Inspection and Quality Control) Ordinance, 1983. Fish products which is decomposed, unwholesome or contaminated with pathogenic organisms should not be exported or sold for export or have in possession for export for human consumption. Any person who is suffering from leprosy, tuberculosis or such other contagious disease as the Government may, by notification in the official Gazette, specify, shall not catch, handle, carry or, process or cause to catch, handle, carry or process fish or, as the case may be, fish products or work in fish processing and fish packing plant and establishment. The punishment for contravening these provisions shall be imprisonment for a term which may extend to six months, or with fine which may extend to Taka five thousand, or with both.
Application of The Food Safety Act, 2013
Food Safety act, 2013 deals with vast area to ensure the rights toward access to safe food for the protection of human health and life. There are some prohibitions related to Food Safety Management System.
Such as -
• Use of poisonous elements, substance or ingredient, insecticides or, or intoxicated food colour of flavouring matter, or any other intoxicated additives or processing aids, which may cause injury or toxicity to human health,
• Use of radioactive, heavy metals etc. in excess of acceptable limit.
• Production of adulterated article of food or food ingredient, etc
• Uses of food additives or processing aids
• Keeping of used industrial oil, industrial waste, adulterants, pollutants, etc. in food establishment.
• Expired article of food or food ingredients
• Uses of growth promoters, insecticides, pesticides or drug residues, microbes, etc.
• Sale of diseased or decomposed fish, meat, milk, egg etc. or any food products made of such thing.
• Keeping and exhibiting the name, address and receipt or challan of the concerned parties.
If any person breaches any act and is convicted and thereby punished with fine by a Food Court, the concerned complainant shall be entitled to get 25 (twenty five) percent of the said amount as incentive : Provided that if the complainant is an officer or employee of the Authority, he shall not be eligible to get such incentive.
Application of The Bangladesh Hotel and Restaurant Ordinance 2014
“Restaurant” means a commercial institution where customers can have standard food on monetary consideration which conforms to the minimum prescribed criteria having seating arrangements for thirty persons and above. Under this act no one can run a restaurant business without having the registration certificate and license. Owner of the restaurant can transfer their ownership by informing the controller. The previous owner shall have to surrender the registration certificate and license to the controller and the new owner of restaurant shall have a new licnese by following the procedure and providing the fees. If any person or owner breaches any law under this act the punishment will be 6 months simple imprisonment or fine not more than 2 lakhs BDT or both. If any company breaches law under this act, the person who is directly connected with the offence will be liable.
Application of Consumers’ Right Protection Act
The provisions for the protection of the rights of the consumers, prevention of anti-consumer right practices and for matters connected therewith are regulated by The Consumers’ Right Protection Act, 2009 (Act No. 26 of 2009) [ 6 th April, 2009 ] . If anyone breaches any law of this act he will be punished for the breaches.
• For not using cover of goods etc inscribing weight, amount, ingredients, instructions for use, maximum, retail; price, date of manufacture, date of packaging and date of expiry of that goods on the label, the punishment shall be imprisonment for a term not exceeding 1 (one) year, or with fine not exceeding Taka 50 (fifty) thousands, or with both.
• For not showing price-list the punishment shall be imprisonment for a term not exceeding 1 (one) year, or with fine not exceeding Taka 50 (fifty) thousands, or with both.
• For not preserving and displaying price-list of services the punishment shall be imprisonment for a term not exceeding 1 (one) year or with fine not exceeding Taka 50 (fifty) thousands, or with both.
• For mixing prohibited materials in foodstuff which is injurious to human life or health the punishment shall be imprisonment for a term not exceeding 3 (three) years, or with fine not exceeding Taka 2 (two) lacs, or with both.
• For deceiving buyers by false advertisement, the punishment shall be imprisonment for a term not exceeding 1 (one) year, or with fine not exceeding Taka 2 (two) lacs, or with both.
• For selling any date expired goods, the punishment shall be imprisonment for a term not exceeding 1 (one) year, or with fine not exceeding Taka 50 (fifty) thousands, or with both.
Mobile application-based food delivery service – There is no particular regulation yet to regulate the service of mobile application-based food delivery service from restaurants. However, they shall require to take a license from the licensing authority under the Ministry of Posts, Telecommunications and Information Technology as per the Mailing Operator and Courier Service Rules, 2013 as they fall under the definition of courier services as per the above Rule and Post Office Act, 1898.
Trademark ------ In order to protect trademark and other IP related matters, after the registration of the entity, it can apply to the Department of Patents, Designs and Trademarks (DPDT) for registering its trademarks and/or any other Intellectual Property. An applicant has to file application for the registration of a trademark 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.
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
Breakout of COVID- 19 pandemic is wrecking the whole economy of Bangladesh; restaurants industry is not indifferent from this affect. Border closures, restrictions of movement, closures of restaurants, community quarantines, and market, supply chain and trade disruptions have been significantly affected the restaurant business.
Usually, when reduced income and uncertainty make people spend less and result in shrinking demand. In the period of lockdown, the government asked the restaurant owners to follow the lockdown procedure for the safety of the restaurant employees as well as customers. All the restaurants are closed for any people gathering. However, some restaurants are providing delivery service of food in this time of emergency. Still customers are not feeling much safe of ordering food from restaurants in this situation.
Bengali New year celebration and Ramadan month are the two major seasonal business time for all the restaurants business. Bengali New Year has already passed without any celebration and due to lockdown, the restaurants stayed closed which hampered the restaurant business very much. In addition, the month of Ramadan already started, every year restaurants do huge business in this holy month. They offer different platters for iftar, seheri and some of the restaurants arranges cart to sell iftar items. Government allowed restaurants to sell their items, however, the restriction is still on dine in.
The whole situation is affecting the income of mass people. People are already struggling to have regular food. The people who are still in a better position to afford the food from restaurants are cautious about the safety of their health and they are hardly having anything cooked at the kitchen of any restaurant.
Companies should get themselves prepared for the pandemic and circumstances where the outbreak brings an adverse impact on business generally and, more significantly, on the performance of commercial contracts. In particular, companies should consider whether they are entitled to invoke force majeure under the contracts, and thereby defer the performance of their contractual obligations without penalty.
A force majeure event is an extraordinary event or circumstance which is beyond the control of the contracting parties. These events include an act of God (like a natural calamity) or events such as a war, strike, riots etc. 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.
Its reliance is based primarily on the parties' agreement and the respective terms of the contract entered into between the contracting parties, since the doctrine of force majeure does not have any direct statutory basis under the laws of Bangladesh.
All contracts are regulated by the Contract Act 1872 (the "Act of 1872") which are governed by Bangladeshi law. 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.
It is intermittent that, to attract the doctrine of frustration, the performance of the contract must become absolutely impossible due to the happening of some unforeseen event such as Corona Virus pandemic.
It can be summarized that in the absence of an appropriately worded force majeure clause in a contract, the parties in Bangladesh may have the option of relying on the existing provisions of Bangladeshi law - particularly, Section 56 of the Act of 1872 - in order to excuse itself from the timely performance of their respective obligations under the contract.
Furthermore, government of Bangladesh has announced package of BDT 50000 million to revive the economy from recession which may follow due to the effect of pandemic. The business entities are hopeful that if this sector provide its fair share from the above package, then this sector can provide a boost to the local economy and play its part in overcoming the recession.
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.
Bangladeshi restaurant industry is getting huge day be day. The business is getting more competitive and everyone is coming up with new ideas to stay in this industry. The customers demand is still on the rise; however, the demand is not exhausted yet. The market needs more investors to meet this increased demand.
The Restaurant market in Bangladesh has a huge potential as the demand of the local market is continuously growing. The continuous urge to experiment with different cuisines increasing the demand of restaurants.
To become a part of this Restaurant industry there are various options of entities, Sole Proprietorship, Partnership Business and Private Limited Company are available for investors. To create a business-friendly environment, BIDA has now open up a one stop services center for investors where all the services from incorporation of entities to post incorporation licenses are available.
FM Associates as a full-service law firm 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.
Corona Virus Pandemic has hit this industry to the maximum due to lockdown imitative taken by the government before the festive occasion of Eid and Ramadan (i.e. the two pick period of restaurant business in Bangladesh). Due to continuing lockdown all the restaurants are closed to ensure the safety of their employees and customers and as a result business as whole is severely hampered. However, government announced recently restaurants can sell and delivery foods following required safety measure and online food services are operating on full swing.
Nonetheless, it is expected that, as the epidemic starts to decline, business shall resume and find its steady growth in a short period of time.