Table of Contents
6. What are the Necessary Elements of a “Good” Business Registration Process?
7. How to Improve and Simplify Business Registration?
8. How to Best Provide Business Start-up Services?
6. What are the Necessary Elements of a “Good” Business Registration Process?
The flowchart below shows the universe of possible institutions and bodies and the most common procedures involved in developing and developing countries’ business registration/start-up mechanisms.22 The flowchart is a reduced sort of a posh start-up process which will entail even more institutions and procedures counting on the individual country and its particular requirements.
* In streamlined models among developed countries, the registration/start-up process takes but five days, and in some cases, just one Registrant must:
* interact with only one or two institutions; during one of them, the central registration body automatically forwards necessary company information to the other relevant institutions
* complete only 3 or 4 procedures, all of which can be accomplished online or electronically (email or fax) in one or two days
* within the more cumbersome and inefficient systems, as depicted by 1-17 above, the business registration/start-up process can take over three months, and in some cases, years Registrants must:
* personally visit up to 17 different offices o manually complete over 25 procedures
* submit numerous forms containing duplicate information to different offices
* perform many procedures sequentially, rather than in parallel
The main difference between these two systems is the ex-post verification (=administrative process and primarily associated with common law) vs. ex-ante verification (often judicial process and mainly related to civil law) of information, in which case we compare, of course, two different things.
As depicted below, in a model Casey, three procedures must be completed sequentially, requiring no judicial process: 1) check for uniqueness of the name, 2) file for incorporation, and 3) register for taxes. The tax administration won’t recognize a business until it’s been incorporated. The registration body won’t register a business name until it’s been checked for uniqueness. The rest of the procedures can be done in parallel and independent of each other.
The ideal streamlined process as depicted above works as follows:
Registrant checks the online searchable database containing all existing business names to make sure uniqueness. If the same name exists, a different name must be proposed. Registrant reserves a name.
• Registrant fills out and submits to the one-stop-shop (online or via fax/mail) a single registration form that captures the entire data set needed by every government institution requiring company information.
• Registration body issues to the business one number for all interactions with the govt henceforth.
• Registration body sends relevant data to every government body on behalf of the registrant. The e-government network is meant to guard confidential data against reaching publicly exposed databases (e.g., financial data required by the Tax Administration wouldn’t be routed to the Statistics Office).
• The registrant is formed conscious of their legal obligations as a business operator, like purchasing worker’s compensation insurance and unemployment insurance and arranging for withdrawal from employees’ paychecks for pension. Instructions are provided for a way to satisfy necessary obligations. Owners sign, under penalties of perjury and as self-identified authorized authorities, the registration application and thereby assume responsibility for conducting business according to the legal obligations set forth by the government.
• If local authorities have partnered with the registration body, the one-stop-shop will complete local registrations or provide necessary application forms to be submitted directly by the registrant. Otherwise, registrants are merely instructed by the OSS to ascertain what registrations and general approvals/licenses are necessary, if any, to start up a business.
The following aspects reduce costs and enhance the efficiency of the generic streamlined model:
• No or notional minimum capital requirement
• No notarizations required
• Silence is consent (e.g., if entrepreneurs have not heard from the government agency within a given number of days, approval is automatic, and they may start their business operations or continue with subsequent procedures)
• Electronic signatures are legally endorsed
7. How to Improve and Simplify Business Registration
The Doing Business Report 2006 data suggests that reform to scale back the number of procedures and, therefore, the time to start a business would have the very best payoff. Simplified procedures will significantly benefit small businesses. In Canada, for instance, a government survey found in 1994 that tiny firms spend eight percent of revenues complying with government paperwork, while larger firms spend only two percent.
Governments that plan to simplify and streamline their business start-up procedures typically find themselves browsing a series of practical reform steps:
1) Examine the overall flow of processes and documents within the regulatory framework and eliminate the non-value-added steps, which are sometimes only in situ to get additional fees, starting with those requiring no legal changes25. Examples are the abolition of company seals or unnecessary diploma requirements, indeed categories of professions with no correlation with the standard of product/service provision. This was a finished example within the Netherlands. Before 2001, it had been obligatory to use for a business license under the Establishment Law of 1996, indeed activities including retail trade and services. To get a permit, entrepreneurs needed to attend a 6-12 month course which gave them the relevant diploma. However, an evaluation of the Establishment Law informed the govt that there was no relationship between the qualifications held by entrepreneurs and, therefore, the quality level of products and services.
2) Overlapping licenses and procedures are often merged. In Vietnam, a corporation working within the field of extraction of stone for construction had to get five different permits before it could operate (certification of eligibility to work during a particular business, certification of fireside and explosive safety, mining license, license to use explosives, certificate of eligibility to figure with explosives). Furthermore, the various assignments had to be obtained from different offices with different fees27. An improvement would be to merge requests to hide broader areas and to be ready to get them in one place.
3) Simplify the forms required to be submitted by a corporation by using plain language to form regulations clearer and easier to know for the layman.28 Complex forms are often a source for mistakes resulting in the rejection of an application. For example, in Canada, the Alberta Department of Agriculture revised various forms, cutting half the error rate within the three-year period29. Also, forms got to be readily available to companies.
4) Create one access point for a business that is centrally located. In 1999, Italy introduced a one-stop-shop (“Sportelli Unici”) issuing authorization for the following administrative services: location, establishment, restructuring, enlargement, winding-up, re-starting, transformation, execution of internal works, and relocation of production sites. The one-stop shops are hosted by each municipality and are the foremost comprehensive of that kind in Europe. Two years after introducing one-stop-shops in terms of building a replacement company, this has resulted in a reduction of your time from 22 to six weeks, from 21 to 12 procedures and, from 7,700 euros to three,516 euros. Cooperative agreements between municipal authorities and native chambers of commerce provide for fixing and running the front offices of the one-stop shops. Information technology, including the internet, facilitates document exchange and review and makes decision-making more transparent. A one-stop-shop concept was introduced within the framework of a more comprehensive government reform initiated by the Prodi Cabinet in Italy (Prime Minister’s Office, Department for the Civil Service). These more comprehensive reforms are shifting power far away from central government to regions and native government, reducing the dimensions of state, streamlining administrative decision-making processes, reviewing regulations of all sorts, and improving the government’s internal management systems. Two aspects of the reforms are central: Limiting the number of state bodies participating in decisions, giving functions and tasks concerning industrial plants from central authorities to regions and city governments, and deregulating and simplifying administrative procedures involved, consistent with specific principles given to the chief by the Parliament.
An important aspect when establishing a one-stone-stop-shop country where “unofficial” payments are the norm is the layout of such an office. It must be centrally located, in an open and transparent office without backup offices to limit the chance for “bribes.”
5) Create electronic filing and make the registration information available to different government offices like the tax administration, customs, and statistical office. Additionally, the knowledge might also be shared with the municipalities/provinces/states during which the corporate intends to move, thus avoiding the filing of separate registrations. this will be wiped out as a primary step via mail (as it had been the case in Turkey) and may then be shared electronically once the interlinked computer systems are in situ, which could take longer. this enables having simultaneous registration procedures ongoing in parallel.
6) Introduce a “silence-is-consent” rule. this suggests that if entrepreneurs haven’t heard from the govt agency within a given number of days, approval is automatic and may start their business operations or continue with subsequent procedures. Portugal, for instance, sets precise and binding deadlines for all actions permitting authorities with the introduction of the unified legal framework for industrial plan establishment (called REAI).
7) Reduce the extent of minimum paid-up share capital (or eliminate at all) because it is often a crucial barrier to the formation of an Ltd. . While there are different arguments for maintaining the minimum capital requirement like protecting potential claims of investors and creditors, cross-country comparison reveals no correlative link between business failure and therefore the level of minimum capital31. But this typically requires changes within the company legislation.
8) Introduce one business registration form and one number as in Canada32. However, this needs honest coordination between the various government agencies to agree on the specified information-sharing mechanisms. If not done voluntarily, this needs legal changes. It also requires an information technology solution that will generate and assign one number.
9) Abolish direct court involvement. In a sizable amount of nations, registration procedures are done directly by the court system by judges. This typically results in lengthy procedures while tying up scarce resources. Therefore, increasingly countries choose an administrative treatment of registration with dedicated administrative staff liable for the registration process. This will require substantial legal changes.
10) Make registration electronic. Electronic submission of registration documentation and supporting documentation are often effective ways to save time during the registration process. However, to be fully effective, this requires an advanced computerized system and a digital signature, which needs a legal basis33. But there also are intermediary solutions: In Ireland, e.g., the incorporation process is often done by transferring the info via diskette (can only be used when incorporating via a Company Formation Agency). It usually takes three days to include a corporation, and five days are guaranteed. While Ireland is preparing for online registration, the incentives for companies to settle on the new solution seem limited: a private first must apply for an identification card and to provide personal data to government agencies; at the same time, the person can incorporate the company in three to five days34. Also, because the Kosovo example showed, even without online registration, the incorporation process can take but at some point.
8. How to Best Provide Business Start-up Services?
Some proposals are listed that have worked elsewhere:
1) It is essential that staff involved in business registration is adequately trained to deal in a competent, efficient, and friendly manner with private sector representatives. In Indonesia, for instance, the local Government of Sragen in Central Java introduced a one-stop-shop. The office manager emphasized accountability by introducing a tracking time sheet to find out who was processing a specific document at each stage and how long the person took to process it. The result was a faster turnover of documents35. It might be equally important to set performance targets and to award staff that achieves them. But this requires more flexibility in the salary structure (see next point).
2) This might involve an adjustment in salary to recruit professional staff. In the case of Pakistan, the establishment of the Securities and Exchange Commission (SECP) was established as an autonomous and independent regulatory body. SECP recruited professionally qualified staff from the market, paying them market-based salaries that upgraded the capacity and efficiency of the institutions.
3) Rotation of staff: Corruption is a real problem in many countries. By regularly rotating staff that interacts with the private sector to set a new business, the opportunity for bribes is being reduced.
4) Fees: In best practice cases, the registration fees will be limited to the cost of maintaining the register (e.g., Ireland, Bosnia, and Herzegovina37). Furthermore, in the case of the local government of Sragen/Indonesia, the Mayor promotes free licensing for young entrepreneurs or new businesses. Since put in place, demand for business licensing has increased. Another incentive for first-time companies is to link them to local business development services.
5) Establish a transparent communication policy by the Government, also considering feedback by the private sector, ,e.g., etablishestablishingce39. This, among others, will allow for regularly reviewing and improving the regulations. Changes of laws/regulations should be widely published (through the internet or other means) to the private sector and the current legal basis with required procedures/fees/time for business registration. Finally, there is a strong rationale for publishing information on registered companies. Making the information public supports a fair and efficient marketplace. The private sector and people are interested in knowing who the directors of a corporation are and where a company’s registered office is located. Investors may want to see a corpseeion’s articles, mainly if they include share transfer or voting restrictions.
To measure success, one should monitor the following data: time, cost, and steps to establish a business, as well as several business registrations prior and after reforms – additional exciting information would be to have this number sex-disaggregated. In Canada, the Advisory Committee on Paperwork Burden Reduction was established in 2004. The success of reducing paperwork burden for small businesses will be measured with a survey designed to provide a baseline measurement of the regulatory burden by firm size, including on business registration. The survey will be repeated every three years to track the government’s progress in reducing the cost of compliance over time. Other indicators could be a percentage of rejection of registration, several terminated businesses (often referred to a “paper enterprises”), and several failed businesses in one given year. Governments should know if business registration reforms lead to more and better jobs.
There is not necessarily a “one-size-fits-all” approach for the registration process, as improvements depend on the legal system in place, as well as on human, technical and financial capacities. The first task should be to examine the current flow of processes and documents in the regulatory framework and eliminate non-value-added steps. Good practice examples show that only a minimum of information is required for the registration, such as the address of the company, a description of the company and its activities, including its start-up capital, and the company’s ownership structure. The founders or authorized representative of the company must submit this information and be held accountable for its accuracy. This avoids ex-ante verification, including inspections before the registration takes place. For this, a team of lawyers and economists, possibly IT specialists, is required. The computerization of the business registration can be vital in automating and streamlining the registration process and thus cutting time. It will also allow the sharing of information between the various government authorities.
Furthermore, to improve the registration system, you need political leadership and a genuinely committed partner (e.g., IT consulting company) for implementing the technical requirements. Sometimes, countries prefer to look at the experience of their neighbors, while in other countries, it is easier to induce reforms by bringing external advice to the country. Finally, many OECD countries have established specialized mechanisms for overseeing reform activities across the government. These seem most effective when regulatory reform is at the ministerial l level or higher if they are independent of the regulators and initiate reforms (e.g., the minister-level Economic Deregulation Board in Mexico). To gain political support and sustain reforms, advocacy efforts are needed by the private sector and donor partners.