Buying an Existing Factory in Bangladesh: The Liabilities Foreign Investors Can Inherit

Summary

Buying an operating factory is rarely a purchase of buildings, machines and a customer list. In Bangladesh, the structure of the deal determines what follows the buyer. A share purchase leaves the same company in place, with its title history, tax file, workforce, permits, contracts, charges, disputes and environmental record intact. An asset purchase can ring-fence more historical exposure, but it may trigger transfer taxes, require fresh licences, interrupt customer and utility contracts, and leave critical land or approvals behind. This article sets out a practical acquisition sequence for foreign industrial buyers as at 23 September 2026. It separates statute from administrative practice and uncertainty, and shows how diligence should change price, conditions precedent, indemnities, escrow and the walk-away decision.

The commercial problem is not the headline price

A factory can look cheap because its liabilities are off the balance sheet. The seller may describe a clean title when the land chain contains inheritance gaps. Accounts may show tax paid while an assessment, VAT audit or withholding exposure remains open. A licence may exist but be issued to a different legal entity, premises or product line. Employees may be paid on time while leave, provident-fund, participation-fund, injury or termination liabilities accumulate. An environmental clearance certificate may be current but conditioned on controls the site never installed.

The first decision is therefore not “what is the price?” It is which legal person, assets and obligations is the buyer actually taking? The second is whether the buyer needs an operating factory on day one or merely land, machinery and a platform from which to rebuild.

Bangladesh’s Companies Act 1994 remains the core company statute. The official text covers share registers, transfers, company charges, accounts, audit, investigation and winding-up. It does not convert a private acquisition into a clean slate.[1] Bangladesh Bank’s published foreign-investment guidance sets out routes for non-resident share purchases, reporting, valuation and repatriation, but it does not abolish corporate, tax, labour, land or environmental diligence.[2] Nor does the material reviewed support a proposition that a new September 2026 factory-acquisition liability regime exists. The relevant question is still the legal and factual condition of the target on signing and closing.

Choose the structure before you price the risk

Share purchase: continuity with consequences

In a share purchase, the buyer acquires shares in the existing company. The company remains the owner of its land, buildings, machinery, licences, bank accounts, employment relationships and contracts. Its historic acts remain its acts after closing. A tax demand issued after completion for an earlier period is still a demand against the company. A worker’s claim arising from pre-closing employment remains a claim against the same employer. A pollution incident does not disappear because the shareholders changed.

This continuity is often operationally attractive. The company may retain customer approvals, import and export registrations, utility connections, bonded facilities, licences, leases and institutional history. But continuity is precisely why a share deal carries latent-liability risk. The buyer is not simply buying value; it is buying the target’s legal memory.

A share purchase also requires attention to corporate authority and title to shares. Review the memorandum and articles, the register of members, share certificates, allotment and transfer forms, annual returns, board and shareholder resolutions, beneficial ownership, prior transfers and any pledge. The Companies Act’s provisions on registered charges matter because a lender’s security can follow the company and restrict an asset transaction or refinancing.[1] Obtain an up-to-date RJSC search and reconcile it to the seller’s data room. Bangladesh Bank’s published guidance states that relevant non-resident transfers require attention to formal banking channels, RJSC formalities, authorised-dealer scrutiny and Foreign Exchange Investment Department reporting, with valuation and approval treatment depending on the direction and value of the transfer.[2]

Asset purchase: more control, more execution risk

In an asset purchase, the buyer selects the land, buildings, machinery, inventory, contracts and other assets to acquire. This can reduce exposure to unrelated historic claims, but the protection is not automatic. The buyer must identify each asset, obtain transfer documents, check title and charges, allocate employees, obtain or amend approvals, novate contracts and deal with tax treatment. A factory cannot operate merely because its machines have moved across a boundary.

The Value Added Tax and Supplementary Duty Act 2012 and NBR’s registration materials make the asset deal a tax and process project, not a conveyance signed at closing.[3] [4] A buyer should verify the prescribed treatment for any going-concern transfer, change in registration information, transfer of a place of business and recovery of arrears against the actual transaction.

A buyer should assume that a permit is not freely transferable until the issuing authority confirms it. This is especially important for environmental clearance, factory and establishment licensing, fire licensing, bonded or customs permissions, utilities, local trade licences and sector-specific approvals. Where the buyer will operate through a new company, the transaction documents should make commencement conditional on the permissions that are genuinely necessary for production, not merely on delivery of an application receipt.

A useful third option: acquire shares, carve out risk, and control the cash

Sometimes the commercial answer is a share acquisition with a tight liability architecture. The buyer may require a pre-closing reorganisation, repayment of shareholder debt, release of charges, separation of excluded assets, a tax covenant, environmental indemnity, employee claims reserve, escrow and post-closing control over records. That is not a substitute for diligence. It is the mechanism by which diligence becomes enforceable economics.

Land is the asset that can invalidate the factory thesis

Prove ownership, not possession

The seller’s possession of a factory is evidence of use, not conclusive proof of title. Build a title chain from the root deed through every transfer, inheritance, partition, court order, lease, mortgage release and mutation. Check the registered deed, khatian and plot particulars, dag numbers, boundaries, area, land classification, maps, mutation, land development tax receipts, encumbrances, acquisition notices, pending litigation and physical occupation. Compare the documents to a current survey. A boundary mismatch is not a drafting defect if the missing land contains the access road, effluent route or substation.

The Transfer of Property Act 1882 contains specific rules relevant to Bangladesh immovable property, including transfer by persons competent to transfer, pending-suit transfers, contracts for sale, mortgages, leases and buyer and seller liabilities. The official text also records restrictions concerning immovable property under contract, without khatian and under mortgage, subject to the statute and applicable facts.[5] A seller’s warranty cannot manufacture title where the transfer chain is defective.

The practical distinction is between a defect that can be cured before completion and a defect that changes value. Missing tax receipts may be remediable. A competing inheritance claim, government acquisition risk, unauthorised conversion of land use or a mortgage that cannot be released may require a price reduction, a condition precedent or abandonment.

Leasehold and economic-zone land need a separate workstream

If the factory sits on leased industrial land, analyse the lessor’s consent, term, renewal, assignment, change of control, mortgage, construction deadline, permitted use, utilities, termination and compensation. A share acquisition may still trigger a change-of-control consent even though the registered lessee remains the same company. An asset acquisition may be prohibited unless the lessor signs a new lease or assignment. Do not treat a zone allotment or lease as equivalent to freehold title.

Leasehold value should be tested separately from title and operating rights. The buyer should confirm the remaining term, renewal economics, assignment and mortgage rights, and whether the lease interest can support the proposed financing and any foreign share-transfer valuation under the current Bangladesh Bank process.[2] That is not a title rule. It is a warning that a claimed asset value may not support the price the seller expects.

Search the risk outside the deed

Land litigation can sit in civil courts, land tribunals, revenue offices or administrative files. Search the seller, target, directors, lessors and adjoining plots. Inspect possession on the ground. Interview the local land office process without treating an informal assurance as a legal opinion. Require certified copies where possible. Record unresolved points in a title exceptions schedule and link each exception to price, escrow, indemnity or a closing condition.

Tax and customs liabilities survive optimistic accounts

Income tax is a diligence item, not a closing certificate

Obtain returns, assessments, orders, appeals, audit correspondence, tax deducted at source records, withholding certificates, advance tax, disputed demands, tax holidays and incentive approvals. Reconcile tax ledgers to audited accounts, bank statements, payroll, imports, related-party payments and major contracts. Review whether the company treated management fees, royalties, technical services, interest, dividends and payments to non-residents correctly. Test transfer pricing and beneficial ownership where the group has related-party transactions.

The Income-tax Act 2023 is operative primary legislation. NBR publishes the Act and related rules and forms through its official portal.[6] A purchaser should not infer from the existence of a tax incentive that every historic filing complied with its conditions. Confirm the incentive period, qualifying activity, minimum investment, employment and reporting requirements, and whether a change of ownership or business activity affects it.

A share buyer normally inherits the target’s tax history. An asset buyer may avoid some historic corporate tax exposure, but the transaction itself may produce tax and withholding consequences. Purchase price allocation can affect depreciation, capital gains, VAT and stamp treatment. The agreement should not simply say “all taxes before closing are the seller’s responsibility”. It should define tax periods, transaction taxes, filing control, cooperation, refunds, audits, assessments, interest and gross-up mechanics.

VAT is operational evidence

NBR’s VAT registration guide states that a business needs a Business Identification Number for normal operations including banking and export or import, and explains the registration and turnover-tax context.[4] For a factory, test VAT at the level where the business actually operates: sales invoices, input credit, export documentation, bond or customs records, withholding entities, stock movement and intercompany supplies.

The VAT Act gives the authority powers over audits, searches, seizure, arrears, government lien and recovery. It also contains provisions on a business sold as a going concern and liability of representatives.[3] A buyer should therefore obtain a tax status letter where available, but should not treat it as a release from every possible assessment. Obtain an indemnity for pre-closing VAT and customs exposures, require access to records, and retain enough purchase price to make the protection real.

Customs, bonded inputs and inventory can be the hidden balance sheet

If the factory imports raw materials under a bonded facility or benefits from duty exemptions, reconcile imported quantities, production consumption, wastage allowances, export records, stock registers and customs correspondence. Identify machinery imported under concessions and restrictions on sale, transfer or disposal. Confirm whether a transfer requires customs permission, duty payment or a new bond licence. Physical stock counts should occur near closing, with serial-numbered machinery schedules and photographs. A machine that exists on the ledger but is missing from the floor is not a valuation disagreement; it is a control failure.

Employees are not a line item to be reset after completion

The company may inherit every employment problem

The Bangladesh Labour Act 2006 covers employment, wages, termination, compensation for workplace injury, trade unions, health, safety, welfare and working conditions. The official text includes provisions on lay-off, retrenchment, termination, final dues, maternity benefits, safety, accidents, compensation, minimum wages, provident and participation funds, labour courts and inspection.[7] A factory acquisition must examine the workforce as a legal constituency, not merely as headcount.

Obtain employee registers, contracts, appointment letters, wage and overtime records, attendance, leave balances, bonuses, maternity records, disciplinary files, accident reports, injury claims, social and statutory contributions, provident or participation-fund records, trade-union correspondence, collective bargaining arrangements, labour-court cases and inspection notices. Reconcile the payroll to bank payments and the actual workforce. Include contractors, security, cleaners, drivers, canteen staff and apprentices. Misclassification can shift liability but does not remove it.

In a share purchase, the employer does not change. The buyer inherits the same employer with the same service histories and obligations. In an asset purchase, the legal answer depends on the transfer structure, employee arrangements and facts. Do not assume that terminating all workers and rehiring selected workers is costless or risk-free. The Labour Act contains protections around termination, final dues, compensation and unfair labour practices.[7]

Safety liabilities can become production liabilities

Inspect buildings, machinery guards, electrical systems, boilers, fire exits, emergency plans, personal protective equipment, training, incident logs and medical arrangements. DIFE’s official licensing portal allows verification of an establishment’s licence or registration number and displays current-status information.[8] Use it, but verify the underlying licence, premises, activity and expiry. A database entry is a starting point, not an engineering inspection.

Fire-safety approval should be verified with the Department of Fire Service and Civil Defence, including the current licence, premises, occupancy classification, inspection status and any reassessment or renewal requirement. Do not assume that an old paper licence answers the current authority’s requirements. Make fire reassessment, evacuation capacity and the authority’s current position explicit closing workstreams.

Price workforce liabilities like a real cost

Calculate unpaid wages, overtime, leave, gratuity or other contractual benefits, injury exposure, redundancy or closure costs, disputed disciplinary claims and the cost of bringing the site to legal safety standards. Require a workforce schedule signed by management. If a union or collective bargaining representative exists, seek the relevant documents and plan communications. A buyer that treats labour as “replaceable” may discover that production continuity, court exposure and reputation are not.

Environmental exposure is physical, regulatory and financial

An ECC is not a warranty against contamination

The Bangladesh Environment Conservation Act 1995 gives the Director General powers concerning environmental protection and includes provisions on ecologically critical areas, hazardous waste, water bodies, pollution, samples, seizure and offences by companies.[9] The Department of Environment’s online clearance system and official rules page confirm that clearance is an active administrative workstream.[10] [11] The Environment Conservation Rules 2023 should be checked for the relevant classification and current requirements. The absence of an easily found English page is not evidence that the obligations do not apply.

Request the site clearance and environmental clearance certificates, renewals, approved layout, environmental management plan, effluent and emission test reports, waste manifests, laboratory reports, groundwater and soil data, notices, inspection reports, consent conditions, complaints, remediation records and correspondence with the Department of Environment. Compare permitted production capacity and raw materials to actual operations. Check wastewater discharge, sludge, chemical storage, air emissions, noise, hazardous materials, boilers, fuel tanks, asbestos, buried waste and neighbouring land.

Past pollution can become today’s negotiating leverage

A share buyer keeps the target that caused or received the pollution. An asset buyer may still acquire the contaminated land and the duty to comply with conditions attached to the site or permit. The transaction should allocate investigation rights, access, sampling, remediation standards, regulator engagement, cost control and third-party claims. Environmental indemnities need a survival period long enough for the risk to emerge and should not be capped at the same low level as ordinary business warranties.

If the seller resists intrusive testing, treat the refusal as information. Price uncertainty, not optimism. Use a holdback linked to objective remediation milestones where the site can operate safely. If the factory cannot legally operate without a new clearance, make that approval a condition precedent rather than a post-closing aspiration.

Licences and contracts determine whether the “business” is transferable

Create a permit matrix with the issuing authority, holder, premises, activity, capacity, expiry, renewal status, transfer or change-of-control rule, non-compliance and closing action. Include RJSC filings, trade licence, TIN and BIN, import and export registrations, factory licence, fire licence, environmental clearance, electricity and gas connections, water and sewerage, boilers, weights and measures, product approvals, customs or bonded permissions and any zone-specific permission.

For every material contract, identify assignment, change of control, termination, exclusivity, minimum purchase, price adjustment, force majeure, security, disputes and data or technical know-how. Confirm that key customers will recognise the buyer and that suppliers will continue credit. Verify utilities against bills, sanctioned load, arrears, security deposits, illegal connections, outages and access rights. A factory that cannot receive gas or discharge effluent is not an operating asset at the agreed enterprise value.

A share purchase may preserve contracts but still trigger consent. An asset purchase requires assignment or novation and may lose licences that were personal to the seller or target. The legal review must map the commercial chain rather than produce a generic “assignable/not assignable” column.

Turn diligence into price and closing mechanics

Use a risk register with a financial owner

For each finding, record the legal proposition, evidence, probability, worst credible cost, operational consequence, remedy, owner and status. Classify it as (1) deal-breaker, (2) pre-closing cure, (3) quantified price adjustment, (4) indemnity and escrow, or (5) accepted operating risk. This forces the investment committee to decide rather than hide uncertainty in a long report.

A clean title defect might be a condition precedent. A tax audit may justify a specific indemnity and retention. Unverified environmental history may require testing and a remediation escrow. A missing fire reassessment may mean no production until approval. The answer should appear in the SPA, not only in counsel’s report.

Draft the share purchase agreement around evidence

The agreement should include warranties on title to shares, authority, accounts, tax, land, assets, employees, permits, environment, sanctions, anti-bribery, litigation, related parties, IP, data, insurance and undisclosed liabilities. Warranties should be disclosure-qualified against a properly indexed data room, not against a bundle of vague documents. The seller should identify specific exceptions. “Fairly disclosed” should not mean that a 400-page folder was uploaded with no description.

Add standalone indemnities for known risks: land claims, pre-closing taxes and VAT, customs and bonded liabilities, employee claims, pollution and remediation, permit breaches, fraud and identified litigation. Set caps, baskets, de minimis thresholds, survival periods, mitigation rules, control of claims, insurance interaction and payment currency. A tax covenant is usually more useful than a general warranty because it states the intended allocation precisely.

Make conditions precedent operational

Typical conditions include corporate approvals, foreign-exchange and bank documentation where required, RJSC filings, release of charges, landlord or zone consent, regulatory approvals, tax and customs status, environmental and fire steps, key contract consents, no material adverse change, no injunction, delivery of original title documents and a satisfactory physical inspection. Avoid conditions drafted as “seller will use best efforts” with no long-stop, evidence standard or buyer remedy.

Bangladesh Bank’s published guidance requires attention to fair value, authorised-dealer handling, banking channels, documentary support and post-facto reporting for relevant non-resident share transfers.[2] Foreign buyers should confirm the current route and timetable with the authorised dealer and build the required steps into signing, valuation, funding and closing rather than discovering them after the SPA is signed.

Escrow is not a substitute for a solvent seller

Use escrow or retention when the risk is measurable and the seller’s future credit is uncertain. Define release events, evidence, dispute procedures and whether the buyer may set off. Consider a parent guarantee, bank guarantee or deferred consideration if the seller is a thinly capitalised local vehicle. For a serious environmental, title or tax risk, the amount should reflect the credible downside, not the seller’s preferred cap.

A disciplined transaction sequence

Phase one — scope. Decide share or asset route, operating objective, foreign-investment structure, financing, required approvals and walk-away risks. Sign confidentiality and obtain a complete information request list.

Phase two — verify. Run corporate, land, tax, VAT, customs, labour, safety, environment, permits, contracts, finance, insurance, sanctions and litigation workstreams. Visit the site with legal, technical, environmental and financial specialists. Preserve copies of primary records.

Phase three — price. Convert findings into debt-like items, working-capital adjustments, capex, remediation, tax exposure, replacement cost and lost-production risk. Obtain independent valuation where the foreign exchange rules require it. Do not double-count an indemnity as value if it is not collectible.

Phase four — paper. Draft the SPA, asset schedules, disclosure letter, tax covenant, indemnities, escrow, conditions precedent, transition services and post-closing covenants. Agree who controls regulatory filings and claims.

Phase five — close and integrate. Complete funds flow, share transfer or asset conveyance, RJSC and bank reporting, releases, consents, licence amendments, employee communications, utility handover, insurance, books and records delivery, and the first 100-day compliance plan. The first post-closing board meeting should review every open exception.

What to do next

Do not sign an acquisition agreement because the factory is productive today. Sign only when the legal person, land, workforce, permits and historic exposures are understood well enough to price and allocate them. A share deal may be the fastest route to continuity, but it is also the clearest route to inherited liability. An asset deal may narrow the perimeter, but it can fail operationally if title, licences, contracts and employees are not transferred together.

TRW can advise in a general capability sense on the legal architecture of an acquisition, including corporate and business matters in Bangladesh and a source-led corporate transaction due-diligence framework. To discuss a proposed acquisition, use TRW’s verified contact route. Do not send confidential, privileged or time-sensitive information through an initial enquiry.

Frequently asked questions

Is a share purchase or asset purchase safer in Bangladesh?

Neither is automatically safer. A share purchase preserves the operating company but leaves historic liabilities inside it. An asset purchase may narrow historic exposure but requires title transfer, contract novation, licence work and employee planning. The safer structure is the one that matches the buyer’s operational objective and allocates identified risks through price, conditions, indemnities and security.

Does changing the shareholders remove the factory’s old tax liabilities?

No. In a share purchase, the same company remains liable for its tax history. A later assessment, VAT demand or withholding dispute can still affect the company after closing. Obtain returns, assessments, audits, appeals and payment evidence, then use a tax covenant, specific indemnities and retention where appropriate.

Can a buyer rely on the seller’s land deed and possession?

No. Verify the chain of title, registration, khatian, mutation, tax, boundaries, mortgages, pending suits, acquisition risk, land use and physical occupation. The Transfer of Property Act contains rules relevant to mortgages, pending litigation, contracts for sale and buyer and seller liabilities. A deed and possession are evidence to test, not a substitute for title diligence.

Can factory licences and environmental clearance simply be transferred?

Do not assume so. Check the issuing authority, licence holder, premises, capacity, expiry and rules on transfer or change of control. Environmental clearance and fire licensing require particular attention. The Department of Environment lists clearance and enforcement services, while Fire Service states that e-fire licensing and reassessment are being implemented from 2026. Obtain written confirmation or make the required approval a closing condition.

What employee liabilities can a foreign buyer inherit?

Potential exposure includes unpaid wages and overtime, leave, termination and final dues, maternity benefits, injury compensation, minimum-wage issues, provident or participation funds, trade-union disputes, inspection findings and unsafe conditions. A share buyer keeps the existing employer. An asset buyer must analyse the transfer and any termination or rehiring plan under the Bangladesh Labour Act and the transaction facts.

Is there a new September 2026 rule changing factory acquisitions?

This research did not identify an authoritative primary source confirming a general September 2026 rule that changes the share-versus-asset analysis, nor should a supposed 2026 data-protection law be treated as operative without official confirmation. Bangladesh Bank and Invest Bangladesh publish current foreign-investment and share-transfer procedures, but the buyer should verify the live rule, authorised-dealer requirements and authority practice for the transaction date.