Legal Framework for Corporate Governance
Fiduciary and Statutory Duties
Directors act as agents and trustees of the company. Under the common law principles recognized in Bangladesh and codified through various sections of the Companies Act 1994, directors must act bona fide in the best interest of the company. Key duties include the duty of care, the duty to avoid conflicts of interest, and the duty to disclose personal interests in contracts.
| Duty Category | Statutory Reference | Nature of Liability |
|---|---|---|
| Disclosure of Interest | Section 130, Companies Act 1994 | Fine and potential vacation of office |
| Restriction on Loans | Section 103, Companies Act 1994 | Personal liability for repayment |
| Filing Annual Returns | Section 36, Companies Act 1994 | Penal fines for every day of default |
| Tax Compliance | Section 265, Income Tax Act 2023 | Personal liability for unpaid corporate tax |
Related Party Transactions (RPT)
Related party transactions are strictly scrutinized to prevent the siphoning of assets. Under Section 103, a company cannot, without the consent of the members in a general meeting, make any loan or give any guarantee to a director or a firm in which such director is a partner. Furthermore, Section 130 mandates that every director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company shall disclose the nature of his interest at a meeting of the directors.
Statutory Liabilities and Penalties
- Civil Liability: Directors may be held personally liable for losses resulting from ultra vires acts or breach of trust.
- Criminal Liability: Under Section 397 of the Companies Act 1994, making false statements in any return, report, certificate, or balance sheet is punishable with imprisonment and fines.
- Insolvency Liability: If a company is wound up and it is found that business was carried on with intent to defraud creditors, directors can be held personally responsible without limitation of liability under Section 330.
Consult LegalBD
Ensure your Board of Directors remains compliant with the evolving regulatory landscape in Bangladesh.
Schedule ScopingFrequently Asked Questions
Can a director be held liable for the company's unpaid taxes?
Yes. Under Section 265 of the Income Tax Act 2023, if a private company is liquidated and cannot pay its tax dues, every person who was a director at any time during the relevant income year shall be jointly and severally liable for the payment of such tax.
What is the penalty for failing to disclose a conflict of interest in a contract?
Pursuant to Section 130(2) of the Companies Act 1994, any director who fails to disclose their interest in a contract or arrangement entered into by the company shall be liable to a fine not exceeding five thousand Taka.
Are loans to directors permitted under Bangladesh law?
Generally, no. Section 103 of the Companies Act 1994 prohibits a company from making loans, providing guarantees, or providing security to its directors or directors of its holding company, unless it is a private company which is not a subsidiary of a public company, or specifically approved by the members.
◆ Related Statutory Guides & Practice Insights
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