Minimum capital requirements significantly slow entrepreneurship. Such requirements also fail to serve their intended purpose of protecting consumers and creditors from hastily established and potentially insolvent firms.
Paid in minimum capital is often a fixed amount that does not take into account firms’ economic activities, size or risks. Better ways to make markets more efficient and protect creditors include enforcement of mandatory disclosure of information, corporate governance monitoring, setting of interest rates, and contractual provisions such as bond indentures and loan agreements. Of the 189 economies studied in Doing Business 2014, 99 have no minimum capital requirements and 39 of those have eliminated such requirements in the past seven years.