- Reducing or eliminating the paid-in minimum capital requirement
- Creating or improving one-stop shops and simplifying registration processes
- Using electronic services (information and communication technology)
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
In recent years substantial regulatory reform efforts have been undertaken by the 17 members of the Organization for the Harmonization of Business Law in Africa, known by its French acronym OHADA. Among other things, the organization has encouraged its members to lower their paid-in minimum capital requirements. National legislation to this effect was passed by seven OHADA members in 2014/15 and four in 2015/16, resulting in substantial decreases in paid-in minimum capital requirements. Two more economies followed suit in 2017/18—the Central African Republic reduced the required minimum paid-in capital by 10 times, while Togo reduced it by 75%.
Other economies also reformed in this area. In 2018, Guatemala reduced the minimum capital requirement for a corporation from 5,000 quetzales ($650) to 200 quetzales ($26). Similarly, Timor-Leste enforced a new Companies Law in September 2017, replacing the minimum $5,000 paid-in capital requirement with a fee of $1. Kuwait abolished its paid-in minimum capital requirement in July 2017.
These reforms significantly reduce financial barriers to entry for aspiring entrepreneurs seeking to formalize, allowing their startup 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 115 economies around the world have some kind of one-stop shop for business registration, including the 25 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.(1) Research 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 registration is possible 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 2018, Tanzania’s Business Registrations and Licensing Agency launched online company registration, which is conducted through the Online Registration System (ORS). The ORS platform can be used to verify the availability of the company name and to submit an application for company registration. Upon review of an application, at the end of the process an electronic version of the registration certificate is provided to the applicant. In 2017 Vietnam’s Business Registration Office began publishing the notice of incorporation online as soon as an application for business registration is submitted.
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.