Overview

Legal and regulatory framework

• Companies Act, 1994: company formation, share classes, shareholders' rights, and formalities.
• Bangladesh Securities and Exchange Commission (BSEC) regulations and notices: public offering rules and certain investor protections may be relevant depending on the instrument and investor profile. For official regulatory material, consult the BSEC website: https://www.sec.gov.bd/. Do not rely on this guide as a substitute for the current texts or official guidance.
• Tax and incentives: corporate tax, withholding obligations and any incentive schemes may affect transaction economics; confirm current rules with tax counsel or the relevant revenue authority.
• Foreign investment rules and agency approvals: foreign investment in certain sectors or structures can trigger approvals or notifications to authorities such as the Bangladesh Investment Development Authority (BIDA) or central bank controls; confirm sector-specific requirements.

Common investment structures

• Ordinary equity: subscription for ordinary shares or paid-up capital increases the investor’s ownership and voting rights subject to the company’s articles and the Companies Act.
• Preference shares: preferred stock can provide liquidation preferences, dividend rights, and conversion features; these require careful drafting in articles and shareholders' agreements.
• Convertible instruments: convertible notes or convertible equity (SAFE-like instruments) may be used for early-stage funding; such instruments may have tax, regulatory and shareholder-rights consequences when converting.
• Structure for foreign investors: direct equity, investment via foreign SPVs, or structured instruments; exchange control and tax implications should be considered.

Pre-funding preparation

• Corporate housekeeping: ensure company records, shareholder register, articles of association, board resolutions and statutory filings are complete and up to date. Resolve any outstanding compliance matters before engaging investors.
• Financials and forecasts: prepare audited or reviewed financial statements where available, plus pro forma projections and a clear explanation of assumptions.
• Cap table and dilution scenarios: maintain a clean cap table showing authorised and issued shares, outstanding options, warrants and any convertible instruments.
• Intellectual property and employment: document ownership of key IP, assignment agreements with founders/employees and properly drafted employee option or incentive plans.
• Regulatory and sector checks: confirm licences, permits and any sectoral constraints on foreign ownership or control.
• Legal entity choice: consider whether the existing entity is the optimal vehicle for VC (e.g., share structure or investor preference). Re-domiciliation or creation of new holding entities may be considered but has legal and tax implications.

Finding and approaching investors

• Research VC funds, angel networks, corporate investors and impact investors that have relevant sector or stage mandates.
• Use networks including accelerators, incubators and industry associations to secure warm introductions.
• Prepare a concise investor pack: executive summary, pitch deck, cap table, financials and a data room checklist showing what documentation an investor can expect for due diligence.
• Be prepared for non-linear timelines: some investors have fixed investment cycles, others invest opportunistically.

Term sheet and negotiating commercial terms

• Investment amount and pre/post-money valuation;
• Type of security (ordinary shares, preference shares, convertible note, etc.);
• Board composition and observer rights;
• Protective provisions, veto rights and reserved matters;
• Liquidation preferences, dividend policies and conversion mechanics;
• Founder and employee vesting, anti-dilution protections and transfer restrictions (including tag-along and drag-along clauses);
• Conditions precedent to closing, including regulatory approvals and third-party consents.

Due diligence

• Corporate legal diligence: review of incorporation documents, contracts, licences, litigation, shareholder arrangements and board minutes.
• Financial diligence: review of financial statements, cash flow forecasts, debt arrangements and accounting policies.
• Tax diligence: assessment of tax liabilities, historical filings, transfer pricing and implications of the proposed transaction.
• IP and technology diligence: ownership, licences, third-party code, data protection compliance and cybersecurity posture.
• Regulatory and compliance diligence: sectoral licences and compliance with anti-money laundering (AML) and know-your-customer (KYC) obligations.
• Commercial diligence: market sizing, contract pipeline, customer concentration and unit economics.

Definitive documentation

• Share Subscription Agreement (SSA) or Share Purchase Agreement (SPA): sets out the mechanics of the share issue or sale, price and closing deliverables.
• Shareholders' Agreement (SHA): governs shareholder rights and obligations, governance, exit mechanics and transfer restrictions.
• Articles of Association (or amended Articles): to reflect new share classes, conversion rights and protective provisions.
• Founder agreements and option plans: to formalise vesting, IP assignment and restrictive covenants.
• Ancillary documents: director resignations/appointments, escrow agreements, escrow instructions for purchase price, and legal opinions where required.

Regulatory filings and closing mechanics

• Board and shareholder resolutions authorising the issuance or transfer of shares;
• Updating statutory registers and filing required forms under the Companies Act, 1994;
• Where relevant, filings or notifications to regulators such as the BSEC or sectoral regulators; consult those regulators’ published procedures for prescribed forms and timelines (for BSEC materials see https://www.sec.gov.bd/);
• For foreign investors, satisfying foreign exchange regulations and any pre-clearance or reporting to central banking authorities;
• Completing payment mechanics and any escrow releases.

Tax and accounting considerations

• Withholding tax on dividends, interest or sale proceeds for non-resident investors;
• Capital gains treatment on sale or liquidation;
• VAT and indirect tax consequences for certain service arrangements;
• Transfer pricing and cross-border service arrangements between related parties.

Governance and board considerations

• Appointment and removal mechanics for director seats;
• Quorum and voting thresholds for key corporate actions;
• Information and reporting rights including budgets and monthly management reports;
• Protective provisions over major transactions (incurring debt, issuing new shares, changing business);
• Dispute resolution mechanisms, often including escalation steps followed by arbitration clauses.

2026 update

• Authorities and regulators may publish new guidance that affects fundraising mechanics, disclosure obligations or foreign investment procedures. Verify the current position with the relevant regulator or a qualified adviser.
• Digital platforms and fintech intermediaries are being used more frequently for investor outreach and payment mechanics; ensure compliance with payments and data protection laws when handling investor funds or personal data.
• Tax and incentive programmes may be introduced or amended; confirm eligibility and procedures with the relevant tax authority or BIDA where applicable.

Common pitfalls and risk mitigation

• Poor corporate housekeeping: missing filings, incomplete authorisations or ambiguous share registers create delays and investor concern.
• Overly broad warranties or indemnities in documentation: these can expose the company and founders to unexpected liabilities.
• Unrealistic valuations that deter sophisticated investors or create misaligned incentives for future rounds.
• Insufficient attention to tax consequences of the chosen instrument or conversion terms.
• Neglecting data protection and employment documentation, which can surface during due diligence.

Practical checklist for entrepreneurs

1. Confirm corporate records and statutory filings are complete.
2. Prepare a clear cap table, investor materials and a data room index.
3. Obtain up-to-date audited or management-prepared financial statements.
4. Secure IP ownership documentation and employment agreements with assignment provisions.
5. Identify any sectoral licences and third-party consents required for transfer or change of control.
6. Map tax implications with a tax adviser for the proposed instrument and investor profile.
7. Discuss and agree governance and protective provisions with potential investors at the term sheet stage.
8. Plan for regulatory filings and time for approvals where necessary.

When to involve advisers

• Early-stage preparation to fix corporate housekeeping and IP assignment issues;
• Prior to signing a term sheet to identify material legal or tax issues;
• During negotiation of definitive documentation to balance commercial and legal outcomes;
• Before closing to ensure regulatory filings and foreign exchange requirements are completed.

Five frequently asked procedural questions

Selecting dispute resolution mechanisms

Exit routes

• Sale to a strategic acquirer;
• Secondary sale of shares to other investors or private buyers;
• Initial public offering (IPO) where applicable and subject to capital market regulations;
• Buy-back arrangements or redemption clauses where agreed.

Record-keeping post-investment

• Updated statutory registers and filings;
• Shareholder meeting minutes and board resolutions;
• Investor communications and reporting delivered under the SHA;
• Records of capital receipts and distributions for tax and audit purposes.

Where TRW can assist

Final observations