- Reducing or eliminating the minimum capital requirement
- Creating or improving one-stop shops and simplifying registration processes
- Using electronic services (information and communication technology)
Many good practices have emerged over time. Some are common among economies making it easiest to start a business, such as offering one-stop shops. Most of the best-practice economies only charge a fixed registration fee—regardless of company size—that is limited to the administrative cost of providing registration services. Those making it easiest to start a business also use standard registration forms and stipulate nominal paid-in minimum capital where such requirements even apply. Other good practices include assigning unique company identification (ID) numbers and adopting technology to facilitate the delivery of a range of business start-up services. Using online services and standard registration and company documents goes a long way in facilitating swift and legally sound incorporation. New Zealand reduced the number of interactions that an entrepreneur starting a business must have with outside agencies to just 1. It did so not by cutting out necessary regulation but by linking all agencies involved through a single online interface. To encourage entrepreneurship, Croatia, Greece and Germany created new company types with simpler entry requirements.
REDUCING OR ELIMINATING THE MINIMUM CAPITAL REQUIREMENT
In recent years substantial regulatory reform efforts have been undertaken by the 17 member states of the Organization for the Harmonization of Business Law in Africa, known by its French acronym OHADA. Among other things, the organization has encouraged member states to reduce their minimum capital requirements. Seven member states passed national legislation to this effect in 2014/15. Six did so in 2015/16, resulting in substantial decreases in the capital required. Mali reduced its minimum capital requirement by 40 times and Chad reduced it by 10 times, while Burkina Faso reduced its requirement for a second consecutive year.
OHADA also recommends that national governments eliminate the requirement for the use of notaries in company registration. The majority of member states have followed this recommendation, allowing companies to register at a one-stop shop either online or in person without resorting to the use of notaries. But many entrepreneurs in OHADA economies still prefer to solicit notary services both out of habit and to ensure that the registration process runs smoothly. As experience in other economies shows, the practice of using notaries can be deeply rooted in the start-up process and business habits can take time to change (for more on this, see the case study on starting a business).
In 2016, the government of Indonesia passed Government Regulation No. 7 of 2016, which, abolished the formerly imposed minimum capital requirement for small and medium sized enterprises previously amounting to 31% income per capita. Similarly, Bosnia and Herzegovina adopted a new Company Law, which reduced the paid-in minimum capital. Angola, in addition, eliminated the paid-in minimum capital requirement equivalent to –18.87% of per capita income. These reforms significantly reduce financial barriers to entry for aspiring entrepreneurs seeking to formalize, allowing their available startup capital to be more productively invested in lucrative activities.
CREATING OR IMPROVING ONE-STOP SHOPS AND SIMPLIFYING REGISTRATION PROCESSES
One-stop shops for business start-up not only save time and money, but also can make procedural requirements more transparent and easier to access. While some one-stop shops are solely for business registration, others carry out many integrated functions, including post-registration formalities with tax authorities or municipalities. Some one-stop shops are virtual; others are physical, with one or more windows. Models vary. In 2016, Niger streamlined the procedures of company registration by allowing applicants file documents with the Commercial Registry at the Greffe du Tribunal (RCCM) at the one stop shop (CFE) while simultaneously registering with the tax authorities’ representatives, the social security and the labor agency. Malta’s Registrar of Companies and the Inland Revenue Department merged their operations to allow Tax Identification Number to be automatically generated. In Middle East and North Africa, the Arab Republic of Egypt created a unit inside their one-stop shop that facilitates and streamlines interactions between entrepreneurs and various governmental agencies. Due to the establishment of this unit, Egyptian entrepreneurs have fewer direct interactions with regulatory agencies when completing registration and post-registration procedures.
Some one-stop shops are connected to a central database shared by other government agencies to facilitate post-registration procedures, as in Mauritius. Others provide a single electronic interface for entrepreneurs, as in Azerbaijan, Denmark, New Zealand, Norway and Singapore.
Today around 115 economies around the world have some kind of one-stop shop for business registration, including the 41 that established or improved one in the past 6 years. Not all reforms creating one-stop shops have been successful. Some resulted in “one-more-stop” shops that added procedures instead of simplifying them. Others yielded delayed benefits because of lack of publicity.
Nonetheless, in the economies that have one-stop shops offering at least one service besides business registration, the time it takes to register a business is more than twice as fast as in those without such services.
A recent study in Portugal shows that introducing a one-stop shop for business registration led to a 17% increase in new firm registrations and 7 new jobs per 100,000 inhabitants (3). Research in Colombia shows that establishing a one-stop shop led to a 5.2% increase in new firm registrations (4).
USING ELECTRONIC SERVICES (INFORMATION AND COMMUNICATION TECHNOLOGY)
Electronic registration is possible in more than 80% of high-income economies in contrast to only about 13% of low-income ones. Several economies with the fastest business start-up offer electronic registration—including New Zealand, Australia, Singapore, Canada, Portugal, Denmark and Estonia. New Zealand launched the first online registration system in 1996. Its use has been mandatory since 2008. Canada’s registration process has been entirely paperless since 2006. Online services are increasingly being offered elsewhere. In 2015/16, as part of the action plan for the restructuring of the Department of the Registrar of Companies and Official Receiver (D.R.C.O.R.), the government of Cyprus has enhanced the online portal for name reservation. Now the system is able to process requests within one day. . The Government of Ecuador passed a law that established an online portal at the Superintendence of Companies. As of January 1, 2016, the publication of new companies' charters is done through the web portal automatically as part of the company registration. After introducing electronic registration in 2013/14, the Former Yugoslav Republic of Macedonia made e-registration mandatory through a certified agent, thereby completely eliminating the need for notarization of documents.
What drives the automation of registries? The motivation is to reduce the time and cost for business registration as well as to improve access for smaller firms operating at a distance from the registrar’s offices (in some economies entrepreneurs must still travel to the capital city to register a business). There are growing demands for company information within government for regulatory oversight and audit purposes—and a consequent need for government databases to share information.
Software applications for company registries range from simple databases and back-office workflow applications using generic software tools, to sophisticated web-based systems that enable customers and intermediaries to conduct business with the registrar entirely online. Many registrars begin their automation efforts by focusing on the back office, to build internal capacity before exposing their staff to the greater demands of delivering services online.
Today more than 120 economies use information and communication technology for services ranging from name search to full online business registration. Eighty-two economies offer electronic registration services. A first step is always to make registration records electronic. This not only improves security and prevents potential losses of data, it also aids transparency and information sharing and makes it easier to introduce new online services later on.
1. Djankov, Simeon, Rafael La Porta, Florencio López-de-Silanes and Andrei Shleifer. 2002. "The Regulation of Entry." Quarterly Journal of Economics 117 (1): 1–37.
2. Van Stel, Andre, David Storey and Roy Thurik. 2007. "The Effect of Business Regulations on Nascent and Young Business Entrepreneurship." Small Business Economics 28 (2–3): 171–86.
3. Branstetter, Lee G., Francisco Lima, Lowell J. Taylor and Ana Venâncio. 2010. "Do Entry Regulations Deter Entrepreneurship and Job Creation? Evidence from Recent Reforms in Portugal." NBER Working Paper 16473, National Bureau of Economic Research, Cambridge, MA.
4. Cardenas, Mauricio, and Sandra Rozo. 2009. "Firm Informality in Colombia: Problems and Solutions." Desarrollo y Sociedad, no. 63: 2011–43.