ESOP in Bangladesh: No Dedicated Law, Three Routes Founders Actually Use

Bangladesh has no ESOP statute. Section 58(1) of the Companies Act, 1994 bars any company — public or private — from buying back its own shares except through a High Court-sanctioned capital reduction, which breaks the one thing a standard option pool needs to do routinely: recycle an unvested or forfeited grant. Founders who want to run an ESOP anyway structure around that gap with an employee trust, a direct share subscription, or a cash-settled phantom plan — not a buyback copied from a US or Indian template.

Search "ESOP Bangladesh" and you get two kinds of result: op-eds arguing the country should pass an ESOP law because talent is leaving for markets that have one, and cap table marketing pages that mention "South Asia" without ever naming the Companies Act. Neither tells a founder what to do this quarter. Here's the mechanism, the three routes people actually use, and where the real risk sits.

The capital maintenance problem, specifically

Section 58(1) bars a company limited by shares from purchasing its own shares, full stop. The only way around that is sections 59 through 70 — a formal capital reduction, which needs High Court sanction. That's a multi-month restructuring process, not something a company can run every time a two-year employee leaves with half their options unvested.

Section 58(2) is narrower: a company can't give financial assistance — a loan, a guarantee, anything funding the purchase — to someone buying its own shares. This subsection is commonly read as binding public companies only, with private companies (and ordinary-course lenders like banks) carved out. That carve-out is the hinge the most common Bangladeshi ESOP structure swings on: a private limited company — almost every startup here — can finance an employee vehicle to hold shares under Section 58(2), even though Section 58(1) still stops the company itself from buying its own shares back directly.

Neither provision has been meaningfully tested in Bangladeshi courts in an ESOP context. Everything below is best-available practice, not settled law — what a company secretary or corporate lawyer in Dhaka will call "how it's done," not "what the Act says."

Route one: the employee welfare trust

This is the structure most commonly cited for private Bangladeshi companies. The company forms an irrevocable trust under the Trusts Act, 1882, and extends it an inter-company loan financed under the Section 58(2) carve-out. The trust uses that loan to subscribe for or buy shares, and holds them for employees. When options vest, the trust transfers shares using the standard mechanics any Bangladeshi private company uses: board notice, approval, Form 117, stamp duty on face value. When someone leaves before vesting, the trust — not the company — deals with the unvested shares, because the trust was always the legal owner.

Section 58(1)'s purchase ban binds the company, not a separate legal person doing the buying on its behalf. That's also why this route has no case law behind it — it's an inference from what the Act doesn't prohibit, not a mechanism the Act describes.

Route two: direct subscription, no trust at all

Simpler, and more common for a small team with no HR function to administer a trust: the company issues new shares straight to the employee. Because existing shareholders typically have pre-emption rights over new issuances, this needs a special resolution under Section 155 waiving those rights for the specific allotment, then a Form XV return of allotment filed with the Registrar of Joint Stock Companies and Firms (RJSC).

This sidesteps Section 58 entirely, since nothing is ever bought back — the shares simply belong to the employee from issuance. The tradeoff: there's no built-in forfeiture mechanism the way a trust-held unvested grant has one. If the employee leaves in year two of a four-year vest holding fully-issued stock, getting those shares back depends entirely on what founders negotiated into the subscription or shareholders' agreement — typically a repurchase option at a formula price, which itself risks looking like a Section 58(1) buyback. Founders on this route need that forfeiture mechanic right in the agreement, because the Act won't bail them out if it isn't.

Route three: phantom shares, the route that avoids Section 58 altogether

A phantom share or stock appreciation right plan pays cash tied to the company's share value — no share issuance, no buyback, no RJSC filing, no pre-emption waiver. Because no equity changes hands, Section 58 simply doesn't apply. The payout is treated as cash compensation and taxed like one, subject to the standard deduction-at-source rules that apply to salary and bonuses.

That tax treatment is the whole appeal: a phantom plan is the one route where you don't need a trust deed, a Section 155 resolution, or an untested Section 58(2) reading before granting anything. The tradeoff is the one every phantom plan carries everywhere: the employee never becomes a shareholder, never appears on the register, and has no claim beyond a cash payout triggered by whatever event the plan defines — an exit, an anniversary, a liquidity round. For a founder trying to win a senior hire away from a company offering actual equity, that's a real cost.

The IPO-only door that isn't a pre-IPO answer

The Bangladesh Securities and Exchange Commission's Public Issue Rules, 2015 — Rule 4(1)(l) — lets a company allocate up to 15% of its IPO shares to employees, at par or fair value. That's a real, regulator-sanctioned ESOP mechanism, but it only fires at the moment of an IPO. It says nothing about a pre-IPO company wanting to grant options to its tenth employee, and BSEC has reportedly floated narrowing or repealing the rule over transparency concerns — shrinking it further, not extending it downstream to private companies.

Where the cross-border layer comes in

A fast-growing Bangladeshi startup taking institutional capital runs into a second, separate problem: the private limited company has no native instrument equivalent to a SAFE or a US-style preferred share, and cross-border investors generally want one. The common pattern is a Singapore or Delaware holding company above the Bangladeshi operating entity, issuing the convertibles and preferred shares investors expect, while the local entity keeps running operations, payroll, and its share register underneath. Foreign acquisition of its shares separately needs Bangladesh Bank involvement on the foreign-exchange side.

This sits alongside a new incentive to stay registered locally regardless: under SRO No. 147-Ain/2026/352-Mushak, NBR-registered startups meeting Bangladesh's statutory startup definition get a VAT exemption on local supplies, imported services, and premises rent, running July 1, 2026 through June 30, 2035. A holding-company flip doesn't mean abandoning that registration — the Bangladeshi entity keeps its own compliance obligations, ESOP structure, and cap table, with the offshore layer sitting on top rather than replacing it.

Where this lands on the cap table

Put together, a Bangladeshi startup's ownership record has to hold several things that don't fit one column: a trust's shareholding if that's the ESOP route chosen, a repurchase right embedded in a contract rather than the Act itself, a phantom plan that's a cash liability with no share component, and — once cross-border capital shows up — a second entity's share register sitting above the Bangladeshi one. We cover the broader version of this fragmentation, and how phantom shares compare to real stock options when a founder is choosing between them, in our wider coverage of cap table software for South Asian startups. Bangladesh's version is sharper, because its Companies Act has no dedicated ESOP provision to anchor any of it.

Where Govy fits — and where it honestly doesn't yet

Govy's ESOP module supports multiple instrument types in one ledger — stock options, RSUs, SARs, and phantom shares — which matters here because phantom equity isn't a workaround bolted onto a tool built for buybacks; it's a first-class instrument type with its own grant tracking. The treasury module's buy-back, reissue, and retire lifecycle assumes share repurchase is routine, which Bangladesh, under Section 58, structurally isn't — so a trust-held pool's transfers and a phantom plan's cash liability are the pieces worth tracking, not a buyback workflow that doesn't match how Bangladeshi companies can legally operate. We cover deciding what needs a lawyer's judgment versus what's repeatable tracking work in our piece on running an ESOP without lawyers — in Bangladesh that line sits earlier than most jurisdictions, since even which route to use is unsettled enough to need a lawyer's sign-off first.

To be direct about the boundary: Govy's jurisdiction-aware legal template pack currently covers Saudi Arabia, the UAE, US-Delaware, and the UK. It doesn't generate a Bangladeshi trust deed, Section 155 resolution, or Form XV filing — that still needs Bangladeshi counsel. What it replaces is the fragmented tracking underneath: a trust's shareholding, a phantom plan's cash liability, and a Singapore or Delaware parent's share register, on one append-only ledger instead of a spreadsheet reconciling three structures that don't share a format.

See how Govy tracks multi-instrument equity and cross-border structures on one ledger at govy.tech.

FAQ

Can a Bangladeshi startup legally offer employee stock options?

Yes, but not through a share buyback the way a US or Indian ESOP usually works. Section 58(1) of the Companies Act, 1994 bars a company from purchasing its own shares except through a High Court-sanctioned capital reduction, so the standard ESOP mechanic — recycling shares from departed employees back into the pool — isn't available directly. Founders structure around this with a trust that holds the shares, a direct share subscription, or a cash-settled phantom plan.

Why can't a Bangladeshi company just buy back shares to run an ESOP?

Section 58(1) treats a buyback as a capital reduction, which under the Companies Act requires High Court approval — not a board or shareholder vote. That process is built for restructuring, not for routinely repurchasing a departing employee's options, which is exactly what a conventional ESOP pool needs to do every time someone leaves before vesting out.

What is the "trust route" for ESOPs in Bangladesh?

A company forms an employee welfare trust under the Trusts Act, 1882, and lends it money to subscribe for or buy shares on employees' behalf. The trust, not the company, holds the shares and deals with them when an employee leaves or exercises — which sidesteps Section 58(1) because the company itself never repurchases its own stock. It's the most commonly cited structure, though no Bangladeshi court has tested it.

Are phantom shares taxed as salary in Bangladesh?

Legal commentary treats phantom share and stock appreciation right payouts as cash compensation subject to tax deduction at source, the same as a bonus, because no actual shares change hands. That tax treatment is also why phantom plans are the cleanest route for a private company that doesn't want to touch Section 58 at all — there's no share issuance or buyback to structure around.

Do Bangladeshi startups need a Singapore or Delaware holding company to raise venture capital?

Not legally, but it's the common pattern once a startup takes institutional money, because a Bangladeshi private limited company has no native instrument equivalent to a SAFE or US-style preferred share, and cross-border investors want one. The Bangladeshi operating entity still exists, still runs its own share register and ESOP under the Companies Act, 1994 — the offshore layer sits on top of it, not instead of it.