This topic measures the number of procedures, time, cost and paid-in minimum capital requirement for a small- to medium-size limited liability company to start up and formally operate in each economy’s largest business city. To make the data comparable across 190 economies, Doing Business uses a standardized business that is 100% domestically owned, has a start-up capital equivalent to 10 times the income per capita, engages in general industrial or commercial activities and employs between 10 and 50 people one month after the commencement of operations, all of whom are domestic nationals. The starting a business indicators consider two cases of local limited liability companies that are identical in all aspects, except that one company is owned by five married women and the other by five married men. The overall score for starting a business is the average of the scores obtained for each of the component indicators. The most recent round of data collection for the project was completed in May 2019. See the methodology and webinar for more information.
In the area of company incorporation, many good practices have emerged over time. Some—offering one-stop shops, for example—are common in those economies where it is easiest to start a business. Most good 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 have a nominal paid-in minimum capital requirement (if required at all). Other good practices include assigning unique company identification numbers and adopting technology to facilitate the delivery of a range of business start-up services. Using online services for standard registration and company documents goes a long way in facilitating swift and legally-sound incorporation.
Reducing or eliminating the paid-in minimum capital requirement
Since the inception of Doing Business in 2003, 55 economies eliminated the requirement for paid-in minimum capital at the time of business start-up, while 62 others reduced its amount.
As of May 2019, entrepreneurs can start a business without any paid-in minimum capital requirement in 120 economies around the world. Some of the most recent examples are found among OECD high-income economies. In May 2019, for example, Belgium amended its Commercial Code to abolish the paid-in minimum contribution requirement for limited liability companies. Following the reform, company founders were only required to prove sufficient equity to carry out operations in their financial plans.
In terms of reductions, Sub-Saharan Africa was the region implementing the greatest number of changes. Many of these cuts were made by the 17 member states of the Organization for the Harmonization of Business Law in Africa. The revised Uniform Act regarding the Law of Commercial Companies and Interest Economics Associations simplified the rules for the creation of companies and allowed member states to set paid-in minimum requirements nationally, with a minimum of 5,000 CFA francs per share. The Central African Republic, for example, reduced its paid-in minimum capital requirement from 527% of income per capita in Doing Business 2004 to 35% of income per capita in Doing Business 2020. Similarly, 20 OECD high-income economies introduced at least one reduction. In April 2019, Denmark lowered its paid-in minimum capital requirement from 50,000 kroner ($7,470) to 40,000 kroner ($5,975) for domestic limited liability companies. In the Europe and Central Asia region, paid-in minimum capital requirements were reduced 16 times during the last 17 years. For example, Croatia reduced its paid-in minimum capital requirement by half in April 2019, from 10,000 kunas ($1,505) to 5,000 kunas ($752).
These reforms significantly reduce financial barriers to entry for aspiring entrepreneurs seeking to formalize, allowing their start-up capital to be invested in productive activities. And, in the case of Kuwait, this reform went beyond merely monetary matters—it also had implications for time. Previously, entrepreneurs had to retrieve a letter addressed to the bank from the Department of Companies, deposit the capital at the bank and then wait for the bank to issue a deposit certificate addressed to the Ministry of Commerce and Industry. This is no longer the case.
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 accessible. While some one-stop shops are designated solely for business registration, others carry out various integrated functions, including postregistration formalities with tax authorities or municipalities. Some one-stop shops are virtual; others are physical, with one or more windows. Models vary. Djibouti opened a one-stop shop for business start-up in 2017. At the one-stop shop’s front desk entrepreneurs can register the company’s articles of association, obtain the reservation of the company name, register with the Companies Registry and obtain a professional license. One-stop shops can also evolve to meet current needs. Although Moldova established the State Registration Chamber, its one-stop shop for business registration, in 2010/11, starting in 2017 the institution became the single contact point for company registration and began notifying the Tax Authority, the Social Security Fund, the Health Insurance Fund and the Statistical Agency about the registration of new legal entities. In 2018, the one-stop shop service was further improved based on the agreement between the National Bureau of Statistics and the State Tax Service. It now also includes registration with the national statistics bureau.
Some one-stop shops are connected to a central database shared by other government agencies to facilitate postregistration procedures, as in Mauritius. Others provide a single electronic interface for entrepreneurs, as in Azerbaijan, Denmark, New Zealand, Norway and Singapore.
Today more than two third of economies around the world have some kind of one-stop shop for business registration, including the 26 economies that established or improved one in the past five years. Not all reforms creating one-stop shops have been successful, however. Some resulted in adding procedures instead of simplifying them while others yielded delayed benefits owing to of lack of publicity. Nonetheless, in the economies that have one-stop shops offering at least one service in addition to business registration, the time it takes to register a business is more than twice as fast as in those without such services.
A study in Portugal shows that the introduction of a one-stop shop for business registration led to a 17% increase in new firm registrations and seven new jobs per 100,000 inhabitants.1Research in Colombia shows that establishing a one-stop shop led to a 5.2% increase in new firm registrations.2
Using electronic services (information and communication technology)
Electronic services are available in more than 90% of high-income economies, in contrast to only about 40% of low-income ones. Several economies with the fastest business start-up offer electronic registration—including Australia, Canada, Denmark, Estonia, New Zealand, Portugal and Singapore. New Zealand launched the first online registration system in 1996 and its use has been mandatory since 2008. Canada’s registration process has been entirely paperless since 2006.
More and more economies are offering online services. In January 2019, Myanmar made starting a business easier by introducing an online platform “MyCO” for company registration and reducing incorporation fees. As a result, several procedures were merged including company name search, requesting business incorporation certificate, payment of the registration fees and stamp duty, obtaining certificate of incorporation and submitting certificate of registration documents (Figure 2). In September 2018, Malta introduced an online platform that enabled entrepreneurs to apply online to several registration procedures. Entrepreneurs are now able to obtain their VAT and employer numbers electronically.
Source: Doing Business database
What drives the automation of registries? The primary 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 majority of economies use information and communication technology for services ranging from name search to full online business registration. Many economies offer electronic registration services. A first step is always to make registration records electronic. In addition to improving security and preventing potential losses of data, this also aids transparency and information sharing and makes it easier to introduce new online services later on.
1 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. 2 Cardenas, Mauricio, and Sandra Rozo. 2009. "Firm Informality in Colombia: Problems and Solutions." Desarrollo y Sociedad 63: 2011–43.