84352
DECEMBER 2013
ABOUT THE AUTHORS
VALENTINA SALTANE
Getting Down to Business:
joined the Doing Business team
in March 2011 and currently
leads the Starting a Business
Strengthening Economies through
Business Registration Reforms
indicator. She has also held
positions with the Financial
Access team at the World Bank,
at the Law and Economic
Consulting Group, and the World
Resources Institute.
Business registration remains a complicated and costly process in many countries,
hampering entrepreneurial activity and the creation of formal employment. In
JIAWEN PAN
joined the Doing Business team Bolivia and Uganda, for example, entrepreneurs need to complete 15 procedures
in January 2013 and works on
the Starting a Business indicator.
Previously she conducted
to incorporate a limited liability company. In the Gambia and Djibouti, the cost
research for the Russian Higher
School of Economics–National
of incorporation is about 180 percent of per capita income, and the average time
Research University, analyzing
barriers to higher education. needed to start up a business in São Paulo, Brazil, is more than 100 days. Rampant
bureaucracy and systemic inefficiencies should not pose obstacles for business
APPROVING MANAGER
Rita Ramalho, Program Manager, development and growth. Several research studies find that simpler business
Doing Business Unit, Development
Economics Vice Presidency. start-up processes are associated with higher rates of formal entrepreneurship,
lesser development of shadow economies, increased tax revenues, and decreased
corruption. It is clear that easy and straightforward business incorporation
practices have multiple spillover benefits for the entire economy.
Background pre-registration, registration, and post-
registration. Pre-registration commonly
The Doing Business project studies business involves checking the availability of the
regulations and their enforcement across proposed company name, drafting and
189 economies. Specifically, the project notarizing company statutes, and depositing
looks at domestic small and medium-size paid-in minimum capital in a bank account.
companies and uses indicators to measure The registration stage includes carrying
the regulations applying to them through out procedures at the commercial/business
their life cycle, publishing its findings in a registry. Post-registration includes registering
range of detailed reports. Starting a Business, with the tax authorities, obtaining a business
which is one of the indicators comprising license, buying and legalizing company
the Doing Business project, measures the books, and obtaining a company seal.
number of procedures, the time, and the cost
required for a small or medium-size limited Governments of many countries actively use
liability company to start up and begin to Doing Business data to adopt best practices in
operate. To make the data comparable the area of business incorporation, and many
across economies, Doing Business uses a of them have achieved impressive results. In
standardized business that is 100 percent 2012–2013 alone, of 189 economies studied
domestically owned, has start-up capital by Doing Business, 51 have substantially
equivalent to 10 times the per capita income, reformed their business start-up processes,
engages in general industrial or commercial making it easier for entrepreneurs to set up
activities, and employs between 10 and 50 and legally operate their businesses. Here we
people within the first month of operations. review some of the most successful reforms
and their positive impact on the growth
Starting a Business measures the main and development of small and medium
stages of a company’s incorporation process: enterprises.
SMARTLESSONS — DECEMBER 2013 1
Lesson 1: Promote entrepreneurship by introducing a Similarly, in September 2012, Lithuania introduced a new
simpler form of a limited liability company. type of LLC—the “Small Partnership.” The Small Partnership
is a simpler form of LLC that can be founded by one to ten
The Starting a Business indicator collected data on the natural persons. The most prominent difference between a
most common type of limited liability company, or its legal Small Partnership and the previously most common form of
equivalent, in 189 countries. In many countries, the process LLC (the Private LLC) is the minimum capital requirement.
of starting up an LLC remains complex and costly. Globally, Entrepreneurs have to deposit around $4,000 into a bank
it requires seven procedures over a period of 25 days and to form a Private LLC, while there is no such requirement
costs $1,067 on average to start a business. Governments use for a Small Partnership. Incorporating a Small Partnership
Doing Business data to improve their processes of company requires only four procedures, a period of 6.5 days, and
incorporation. To boost levels of entrepreneurship, some costs $118. In contrast, seven procedures, 19.5 days, and a
governments have even created a completely new and cost of $130 are required to form a Private LLC (Figure 2).
simpler form of LLC to allow more entrepreneurs to open As of October 22, 2013, there were 3,529 registered Small
businesses and participate in the formal economy. Such Partnerships in Lithuania.3
endeavors have already yielded successful results.
Following the trend, Croatia amended its Companies Act
In 2012–2013 alone, Greece, Lithuania, and Croatia all on October 10, 2012, introducing a new and simpler form
introduced a new form of LLC. Greece adopted the new of LLC called a “Simple LLC” (JDOO). It is much cheaper
Law 4072/2012 on April 1, 2012, which introduced the to set up a JDOO, as the minimum required capital is less
category of “Private Company” (IKE). Compared to the than $2 and the lowest nominal amount of share interest
previously most common Greek LLC, EPE, the business is less than $1. On the other hand, the minimum capital
registration process for IKE is much simpler. With the new requirement for the older category of Private LLC is $3,5714.
company form, entrepreneurs are not required to publish The new company form has fast gained popularity among
the articles of association in the Government Gazette; entrepreneurs. A total of 8,407 Simple LLCs (JDOOs) were
instead, these can be posted online through the General established between October 2012 and September 20135,
Electronic Commercial Registry (GENI).The involvement of compared to 5,488 Private LLCs.6
a lawyer/notary is not obligatory for preparing the articles
of association and conducting the name search for IKEs. In The experiences of these countries provide valuable insight
addition, Law 4155/2013 abolished the minimum capital into the remarkable benefits of establishing simpler
requirement for IKEs as of May 29, 2013, whereas the company forms. The opportunity to register as a simpler
requirement for EPEs remains €4,500. company type allows entrepreneurs to save on both cost
and time of business incorporation. On a broader scale, it
The Private Company, or IKE, has rapidly become the most helps to increase the levels of formal entrepreneurship in
popular legal form of corporation in Greece (Figure 1): the economy.
more than 2,400 new IKEs were registered between July 3 http://www.registrucentras.lt/jar/stat/for.php?for=960 [the Lithuanian
2012 and September 2013,1 compared with 1,939 EPEs.2 State Enterprise Center of Registers].
4 20,000 Croatian kunas.
1 General Electronic Commercial Registry–G.E.M.I., http://www.busi- 5 Government of Croatia Financial Agency website, http://www.hitro.hr/
nessportal.gr/english/. Default.aspx.
2 Ibid. 6 Ibid.
Figure 1. Number of new registered IKEs and EPEs in Greece, 2012–2013.
2 SMARTLESSONS — DECEMBER 2013
Figure 2. Lithuania has made starting a business faster and easier.
Lesson 2: Improve the efficiency and accessibility of the developed electronic company registration services in
business registration process by implementing online 2012–2013. Chile, for instance, has substantially simplified
platforms. the process of company registration through the use of
electronic services. In 2009–2010, Chile first introduced an
According to Doing Business, 109 economies have online portal that allowed notaries to send an excerpt of
introduced online platforms for business registration over the public deed for publication in the Official Gazette. Then,
the past 10 years—more than 50 percent of the economies in February 2011, Chile established an obligation for the
studied by Doing Business. These online platforms allow Internal Revenue Service to authorize the use of electronic
entrepreneurs to carry out various business registration invoicing, which eliminated the 16-day inspection period
procedures online, including name search and registration and allowed businesses to commence operations upon
with social security and the tax authorities. In some the receipt of the revenue identification number. Finally,
cases, the entire registration process can be completed in February 2013, Chile implemented a free online portal
electronically7; for instance, the Singapore Accounting and for specific types of companies. Entrepreneurs can now
Corporate Regulatory Authority (ACRA) introduced a one- complete three of seven business registration procedures
stop business services portal (Bizfile) in 2009. This electronic online.9 As a result of the introduction of e-services, the time
platform allows entrepreneurs to complete name search required to start up a business in Chile was reduced from
and business incorporation in about 15 minutes. The Goods 22 to 5.5 days between 2009 and 2013. More important,
and Services tax (GST) registration with the Inland Revenue business registration via the online portal is free of charge;
Authority of Singapore (IRAS) can also be done through the this has largely decreased the overall cost of business start-
same system at the time of registration.8 In New Zealand, up from $647 to $103.
the online business registration system provided by the
New Zealand Companies Office compresses the entire Similarly, Costa Rica and Guatemala have introduced
business registration process into a single online interaction: online systems into their business registration processes.
reserving the business name, completing the incorporation In February 2012, Costa Rica launched Crear Empresa, an
application, and returning the signed consent forms to the online platform for registering incorporation charters and
Companies Office. Once consent has been given by the submitting related documents. Previously, the incorporation
Companies Office, the certificate of incorporation is issued charter was registered by a notary public, and the standard
via e-mail in just a few minutes. approval time was usually up to 25 days. The online platform
reduced this approval time to just two days. Guatemala
In 2012–2013, nine countries introduced new online launched its first online service for company name search in
platforms or further promoted their existing e-services. May 2006. Later, in March 2013, it established a new online
Several countries in Latin America and the Caribbean portal, allowing registration of a new company with the
Commercial Registry, the Tax Authority, the Social Security
7 John Wille et al., “Leveraging Technology to Support Business Regis-
tration Reform,” (Washington, DC: Investment Climate Services/World 9 These include drafting the statutes of the company; obtaining an
Bank, 2011). authentication number; having a notary certify the statutes with a digital
8 If the annual turnover of a company exceeds 1 million Singapore dol- signature; and giving notice of initiation of activities to the Internal
lars. Revenue Service.
SMARTLESSONS — DECEMBER 2013 3
Mr. Félix de Vicente, Minister of Economy of Chile, and Mr. Tomás Flores, Undersecretary of Economy, celebrate receiving an
Avonni award for the portal “Your Company in One Day.”
Institute, and the Ministry of Labor through a single Lesson 3: Streamline business incorporation procedures
electronic form. Overall, the implementation of the online by creating or strengthening “one-stop shops.”
platform has reduced the time needed to start a business
in Costa Rica by 35.5 days and in Guatemala by 20.5 days. A one-stop shop is an establishment that receives business
registration documents and performs at least one type of
As these examples show, online business registration business registration procedure, such as tax registration.10
platforms make the entire process of company incorporation Given this broad definition, there are multiple ways in
faster and cheaper (Figure 3). They significantly reduce which a one-stop shop can be set up, but the two most
the room for corruption and cut down on red tape. common types are a one-door shop and a one-window
Entrepreneurs also benefit from the use of standardized shop. The one-door shop is a single location that integrates
forms and better access to information. To promote the use several business registration procedures.11 In the one-
of these online platforms, some governments even offer window shop, the representative at the window usually
fee reductions for company incorporation. For example, has the authority to collect all related documents on behalf
in Taiwan, on January 16, 2013, the Ministry of Economic of different government agencies. Documents may later
Affairs announced that companies filing and submitting be sent electronically or by post to corresponding offices
required documents via online registration would benefit for further processing.12 No matter which shape the one-
from a savings of 300 Taiwan new dollars in registration stop shop takes, its objective is to simplify the business
fees, which otherwise total 1,708 Taiwan new dollars. registration process and lower the cost and time needed to
start up a business.
Figure 3. Online business registration platforms make As of June 2013, 96 countries had some type of one-stop
starting a business faster and cheaper. shop, and more than 50 percent of economies in Europe
and Central Asia, as well as Organisation of Economic Co-
operation and Development (high-income) states and Sub-
Saharan African countries, now operate one-stop shops to
incorporate businesses (Figure 4). In 2012–2013 alone, six
countries in Sub-Saharan Africa created one-stop shops.
For example, Côte d’Ivoire launched a One Stop Center for
business registration (CEPICI) in December 2012, enabling
10 Investment Climate Advisory Services/World Bank, “How Many Stops
in a One-Stop Shop? A Review of Recent Developments in Business
Registration” (Washington, DC: World Bank, 2009).
11 Commonly, representatives from different government agencies are
working at the same office or building, but have their own separate
counters. Agency representatives usually have the authority to review
and approve the documents, or they may simply transfer the received
documents to the main agencies for approval.
12 Ibid.
4 SMARTLESSONS — DECEMBER 2013
Figure 4. Business registration available through one-stop shops.
entrepreneurs to register with the commercial registrar, the the one-stop shop in Guinea have generated a successful
tax authority, and the social security institute at the same result by cutting the time it takes to register a business
time. As a result, Côte d’Ivoire has halved the number of nearly in half.
interactions between entrepreneurs and the government
agencies, as well as cut the total time of business registration The impact of the one-stop shops on the ease of starting
by 24 days and reduced the total cost from $1,430 to $542. up a business is widely felt by business communities. In
each country that has a one-stop shop, entrepreneurs
Beginning in 2010, Benin has also gradually developed greatly benefit from a limited number of interactions
a one-stop shop.13 It serves as a single access point that with government officials, which consequently reduces
allows entrepreneurs to complete key business registration the instances of corruption and bribery.14 One-stop shops
activities after their registration with the Companies also offer significant savings in time and cost for business
Registry. These post-registration procedures include incorporation.
tax declaration, application for the import license and
tradesman’s card, registration with the Ministry of Trade, Lesson 4: Encourage entrepreneurship by reducing or
and affiliation with the social security office. In March 2012, eliminating the minimum capital requirement.
a representative of the Commercial Registry joined the one-
stop shop to facilitate the approval of the incorporation Minimum capital is the share capital that must be deposited
documents. This eliminated the need to visit a court to by shareholders before starting business operations.
obtain approvals for company incorporation. On March For the Doing Business Starting a Business indicator, the
26, 2012, the one-stop shop became fully operational; paid-in minimum capital is usually the amount that an
now entrepreneurs can complete the entire registration entrepreneur needs to deposit in a commercial bank or
process with the Commercial Registry at one location. The with a notary when incorporating a business, even if the
implementation of the one-stop shop in Benin has reduced deposited amount can be withdrawn soon after a company
the time needed for business registration from 31 days to is created.15
15 days and cut the number of business registration steps
from seven to four. For many countries, minimum capital requirements are now
ancient history. In recent years, many governments have
Other countries, such as Guinea, improved the capacity preferred to take various other steps to protect investors
of the existing one-stop shops in 2012–2013. Guinea first and creditors, minimize risks of bankruptcy, and safeguard
opened a one-stop shop in December 2011, combining the consumers from potentially hazardous products. Moreover,
following four procedures into one: registering a business, analysis shows that higher levels of paid-in minimum capital
obtaining a tax identification number, registering with the requirements are associated with a greater prevalence of a
social security office, and paying related fees. Then in May shadow economy (Figure 5). A widely used good practice,
2012, the Guinean government enabled the one-stop shop especially among high-income OECD economies, is to let the
to publish notices of incorporation of new companies on its
14 “Investment Climate Advisory Services/World Bank, 2009.
website. The establishment and ongoing development of 15 The paid-in minimum capital requirement measured by the Starting
13 On October 20, 2009, Benin issued decree No. 2009-542, creating a a Business indicator represents the amount an entrepreneur needs to
one-stop shop, the Centre des Formalités des Entreprises (CFE). deposit within three months of business incorporation.
SMARTLESSONS — DECEMBER 2013 5
entrepreneurs themselves decide how much have to deposit the initial capital in a bank
capital they need to put aside for company and obtain a proof of payment to complete
incorporation. business registration.
Of the 189 economies profiled in Doing Instead of imposing high minimum capital
Business 2014, 99 do not impose any minimum requirements, a better way to make markets
capital requirements on entrepreneurs. more efficient and enhance creditor protection
is through enforcing mandatory disclosure
Figure 5. Higher levels of minimum capital of information, including obligatory filings
requirements are associated with more of annual financial accounts in company
activity in the informal economy. registries, and increasing the supervisory role
of company registries. Corporate governance
monitoring, fixing of interest rates, and
introduction of specific contractual provisions
such as loan agreements are just a few
examples of different ways of protecting
creditors that are already being widely
used in many economies. In the United
States, for instance, creditors rely primarily
on negotiated contractual protections, as
stipulated in statutory and incorporation
agreements.
Conclusion
In the period from June 1, 2012, to June
1, 2013, eight countries either lowered or The experiences of the aforementioned
eliminated the minimum capital requirement. economies show numerous ways that
For example, the government of Cape Verde governments can lower barriers to
adopted Administrative Law (Portaria) business incorporation, thus encouraging
17/2013, which eliminated the minimum entrepreneurship and new firm creation.
capital requirement for limited liability Formation of one-stop shops has proven to be
companies. This new administrative law came a successful way of facilitating business start-
into effect on March 14, 2013. ups and cutting both bureaucracy and costs.
The leverage of modern technology, such
The government of Croatia introduced as the introduction of online systems, has
a new company form with a much lower also allowed many countries to improve the
minimum capital requirement, while the efficiency of firm incorporation. In addition,
governments of Greece and Lithuania have more and more economies are eliminating
completely eliminated this requirement for minimum capital requirements, allowing
the simpler, newly established forms of LLCs. entrepreneurs to have greater liquidity.
The government of the Netherlands also Some governments have even developed
eliminated the minimum capital requirement creative solutions to further boost the levels
for limited liability companies. This new of entrepreneurship by introducing simpler
amendment came into effect on October company forms with simpler registration DISCLAIMER
1, 2012. On February 17, 2013, the Ministry procedures. Even though barriers to business SmartLessons is an awards
of National Economy in the West Bank and entry remain high in a significant number of program to share lessons learned
in development-oriented
Gaza abolished the paid-in minimum capital less developed economies, these countries
advisory services and investment
requirement for company incorporation. As have plenty of examples to follow to promote operations. The findings,
a result, limited liability companies no longer much-needed SME growth. interpretations, and conclusions
expressed in this paper are those
of the author(s) and do not
necessarily reflect the views of
IFC or its partner organizations,
the Executive Directors of The
World Bank or the governments
they represent. IFC does not
assume any responsibility for the
completeness or accuracy of the
information contained in this
document. Please see the terms
and conditions at www.ifc.org/
smartlessons or contact the
program at smartlessons@ifc.org.
6 SMARTLESSONS — DECEMBER 2013