To cut time and costs, entrepreneurs are now preferring to buy out existing sick or underperforming companies rather than start from the ground up.
Many such acquisitions in the recent past have been in the sectors of RMG, textile, leather and packaging and processing.
Last year, Alif Group took over Chattogram-based C&A Textiles, listed on the capital market, which had been out of production for a long time. In less than a year after the change of ownership, the factory returned to production following necessary repairs and installation of new machinery.
Another company, Emerald Oil Industries Ltd, also resumed production of its rice bran edible oil in 2021 after a hiatus of four years, thanks to a fresh investment by Minori Bangladesh Limited that acquired the factory.
Around 8,000 such companies went through change in ownerships in the last three years. In FY22, company acquisition rose 12% year-on-year, according to the Registrar of Joint Stock Companies and Firms (RJSC).
Avoiding bureaucratic tussle is one of the overriding reasons for the Entrepreneurs to go for acquisition of companies as it allows them to start business operations faster, they say.
To start a company from the ground up, they have to go through many hassles and extra costs in obtaining permission from different regulatory bodies owing to bureaucratic tangles, they point out.
Entrepreneurs say they need to secure dozens of permissions prior to forming a new company, notable among them–securing business approval and a name clearance certificate from the RJSC, getting certificates from regulatory authorities, and registering for a business identification number and VAT with the National Board of Revenue. That is why many big companies are taking over companies that are out of operation for a long time or in poor financial health.
Rizwan Rahman, president of Dhaka Chamber of Commerce and Industries (DCCI), told The Business Standard, "This acquisitions trend has been evident largely in RMG, textile, leather and packaging and processing sectors."
Md Azimul Islam, managing director of Alif Group that acquired C&A Textiles, told TBS, "We have been able to start business in a very short time after having acquired the company. It would have taken at least three years to build up a new company."
They repaired the factory, procured new machines and began operation, he explained.
Building a new company from the ground up means securing permission from various regulatory authorities, erecting structures and importing machinery, then starting its operation, which is very costly and time-consuming.
In a survey titled "Removing time, cost and process related bottlenecks in company registration in Bangladesh" Business Initiative Leading Development (BUILD) said to complete all time-consuming, complicated company registration processes, an entrepreneur resorts to third-party services, forcing them to spend 43% extra on opening a new business.
The study found that RJSC registration requires 89% of third-party engagement, leading to a 49% cost hike. In the case of obtaining a trade licence, 67% of third-party engagement is required, costing them an additional 32%.
The post-registration process is more difficult than pre-registration as more offline interaction is required, it noted.
Rizwan Rahman said, "Conventional business licensing and registration process is hectic as multiple agencies, such as RJSC, city corporation and the NBR, are involved in it. And the number of agencies vary depending on the nature of business and investment."
Demanding a full-fledged automation for business registration and licence renewal for business merger and take-over, he said, to avoid all hassles in starting a business, a National OSS service platform is needed integrating all sorts of businesses from industry and service sectors for rapid and close monitoring.
The BUILD suggested that a fully automated registration service need be introduced to reduce the overall time for company registration.
One-stop service for all stages of company registration, capacity development of applicants, embedding mobile financial services for payments, ensuring a mobile-friendly website, simplification in amending online application, introduction of express services for foreign investors are among the recommendations made by the BUILD in the study.
Corporate law expert Tanjib-ul Alam told TBS that company registration is a complicated matter. If a foreign person or organisation wants to become a partner of a company in Bangladesh, they have to physically go to the RJSC office for a signature, which is done digitally in other countries.
For company registration, an application and necessary documents are submitted online. The company registration process is done online. But there still exists manual intervention as an entrepreneur needs to visit the RJSC office to submit pay receipts, he also said, questioning, "How will we call it automation."
DCCI President Rizwan Rahman, said the business incorporation process has been recently improved with some reforms, but it still needs greater improvement in reducing the process, documentation and other unnecessary costs.
Sheikh Shoebul Alam, registrar, (additional secretary), of the RJSC, told TBS that one of the reasons for complexities in the company registration process is that most individuals and organisations seek help from third parties to complete the registration.
Commerce Secretary Tapan Kanti Ghosh said a number of reforms have been made in the company registration process. But more needs to be done. The officials must work hard to reduce the number of days for the procedure.