Legal Framework for Due Diligence
Core Statutory Requirements
The objective of due diligence is to verify the legal existence, financial health, and regulatory standing of a target entity. This involves scrutinizing filings at the Registrar of Joint Stock Companies and Firms (RJSC), the National Board of Revenue (NBR), and the Bangladesh Investment Development Authority (BIDA).
| Domain | Primary Statute | Key Regulatory Authority |
|---|---|---|
| Corporate Status | Companies Act 1994 | RJSC |
| Tax Compliance | Income Tax Act 2023 | National Board of Revenue (NBR) |
| Foreign Investment | Foreign Exchange Regulation Act 1947 | Bangladesh Bank / BIDA |
| Labor Compliance | Bangladesh Labour Act 2006 | DIFE |
| Environmental | Environment Conservation Act 1995 | Department of Environment (DoE) |
The Due Diligence Roadmap
Essential Checklist Items
- Corporate Constitution: Verification of Memorandum and Articles of Association (MAA) under Section 6 and 17 of the Companies Act 1994.
- Shareholding Structure: Review of Form XII and Annual Returns (Section 36) to confirm legal ownership and encumbrances.
- Financial Liabilities: Search for registered charges at RJSC under Section 159 to identify secured debts.
- Taxation: Verification of Tax Clearance Certificates and VAT filings under the Value Added Tax and Supplementary Duty Act 2012.
- Employment: Audit of Service Rules and Gratuity/Provident Fund compliance under Section 232 of the Bangladesh Labour Act 2006.
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Schedule Scoping SessionFrequently Asked Questions
What is the statutory requirement for verifying company charges?
Under Section 159 of the Companies Act 1994, all mortgages and charges created by a company must be registered with the RJSC. A due diligence exercise must include a 'Search Report' from RJSC to verify these encumbrances.
How is foreign equity verified in Bangladesh?
Foreign equity is verified through the 'Encashment Certificate' issued by a scheduled bank and subsequent reporting to Bangladesh Bank under the Foreign Exchange Regulation Act 1947 and BIDA registration guidelines.
Which law governs the audit of employee benefits during due diligence?
The Bangladesh Labour Act 2006 (as amended in 2013 and 2018) governs employee benefits. Specifically, Section 232 requires companies to establish a Workers' Profits Participation Fund (WPPF) if they meet the statutory threshold.
◆ Related Statutory Guides & Practice Insights
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