Starting a business In 1850 Isaac Merritt Singer invested $40 Why does formal business company may matter when entrepreneurs and 11 days of work to come up with a revo- registration matter? choose the legal form for their new com- lutionary approach to sewing—a needle that The legal registration of businesses is ben- pany. In 2009 Rwanda revamped its busi- moved up and down, interlacing thread as it eficial for various reasons. Legal entities can ness start-up process, making it easier and punctured the cloth.1 A year later he formed outlive their founders. Resources are pulled cheaper to set up a limited liability company together as shareholders join forces to es- by establishing a one-stop shop and cutting I.M. Singer & Company, a general partner- tablish a company’s capital. Formally regis- the cost from about $350 to only $45. The ship with New York lawyer Edward C. Clark. tered companies have access to services and impact of these reforms showed in the share Singer and Clark quickly became wealthy institutions from courts to banks as well as to of limited liability companies among new new markets—benefits that are not available start-ups. In 2008 the number of newly reg- from the business. Singer also became to unregistered firms. And where firms are istered limited liability companies was about wealthy in another way: he is thought to formally registered, their employees can also the same as the number of newly registered have had more than 20 children. Wishing benefit from protections provided by the law. sole proprietorships. By 2010 almost 4 of to protect the business and its assets from every 5 newly registered enterprises were protracted court battles between Singer’s The legal form under which a company is limited liability companies. heirs, Clark persuaded Singer to dissolve the registered also matters. Limited liability partnership and form a limited liability cor- companies—the type of company that Doing Making the process of business incorpora- poration, Singer Manufacturing Company, Business focuses on—limit the financial tion easy also has broader benefits for the in 1863. The company continues to produce liability of company owners to their invest- economy. A growing body of empirical ments, giving entrepreneurs more freedom research has explored the links between sewing machines today that are widely used to innovate because their personal assets business entry regulation and social and around the world. are not put at risk. Sole proprietorships do economic outcomes. Using data collected Rich or poor, men and women around the not provide this kind of protection but can from company registries in 100 economies world seek to run and profit from their own usually be set up with fewer procedures and over 8 years, analysis found that simple busi- at lower cost.2 ness start-up is critical for fostering formal businesses. But these entrepreneurs will not entrepreneurship.3 Cumbersome regulations all have the same experience in establishing Evidence from Rwanda suggests that the and administrative procedures for starting a a new company. Regulations governing busi- costs for incorporating a limited liability business are found to be associated with a ness start-up vary greatly across economies, in some cases making the cost of formal Figure 1 What are the time, cost, paid-in minimum capital and number of procedures to get a local business registration nearly prohibitive. limited liability company up and running? Doing Business measures the procedures, Cost (% of income per capita) time and cost for a small to medium-size Formal limited liability company to start up and operation operate formally (figure 1). To make the data Paid-in Number of $ comparable across 183 economies, Doing minimum procedures capital Business uses a standardized business that is 100% domestically owned, has start-up capital equivalent to 10 times income per Entrepreneur capita, engages in general industrial or com- Time (days) Preregistration Registration, Postregistration mercial activities and employs between 10 incorporation and 50 people. Doing Business 2012 STARTING A BUSINESS 2 smaller number of legally registered firms, Figure 2 Sub-Saharan africa, eastern europe & Central asia still lead in start-up reforms greater informality (a finding particularly Number of Doing business reforms making it easier to start a business by Doing business report year relevant for many developing economies), a Total smaller tax base and more opportunities for number of Db2005 Db2006 Db2007 Db2008 Db2009 Db2010 Db2011 Db2012 reforms corruption.4 Sub-Saharan africa 80 A recent study finds that barriers to starting (46 economies) a business are significantly and negatively eastern europe correlated with business density, calculated & Central asia 72 (24 economies) as the total number of businesses registered OeCD as a percentage of the economically ac- high income 55 tive population (ages 15–64) that year. For (31 economies) example, the fewer the procedures required latin america & Caribbean 51 to start a business, the greater the number (32 economies) of registered firms. There is also a significant Middle east relationship between the cost of starting a & North africa 41 (18 economies) business (as a percentage of gross national east asia income, or GNI) and business density. For & Pacific 38 every 10 percentage point decrease in entry (24 economies) costs, density increased by about 1 percent- South asia 12 (8 economies) age point.5 ■ 1–5 reforms ■ 6–10 reforms ■ 11–15 reforms ■ 16–20 reforms Regulatory reforms can have an impressive note: an economy can be considered to have only 1 Doing Business reform per topic and year. The data sample for DB2005 (2004) impact when they tackle the right bottleneck. includes 155 economies. Twenty-eight more were added in subsequent years. After a reform simplifying business registra- Source: Doing Business database. tion in different municipalities at different points in time across Mexico, a study found Sub-Saharan Africa has seen accelerating limited to the administrative cost of provid- that the number of registered businesses change. In 2004/05 only 2 economies in the ing the registration services. Those making increased by 5% and employment by 2.8%.6 region made it easier to start a business. In it easiest to start a business also use stan- 2010/11, 15 did so. Today 2 low- or lower- dard registration forms. And they require a Who reformed business middle-income economies rank among the top 10 on the ease of starting a business nominal paid-in minimum capital or none at registration—and What (table 1). How did they do it? By adopting all. Other good practices include assigning has Worked? practices developed and proven in other unique company identification (ID) num- Doing Business has been tracking reforms economies around the world. bers and adopting technology to facilitate in business registration since 2003. At that time European and other OECD high- Over the past 8 years Doing Business re- the delivery of a range of business start-up income economies were the most active in corded 349 business registration reforms services. Another good practice is simply to making business entry easier. Much action in 146 economies. Many opted for low-cost Table 1 Where is starting a business was inspired by competition across the administrative reforms requiring little or no easy—and where not? European Union. Denmark, Estonia, Hungary change in regulation. Others went further, in- easiest Rank Most difficult Rank and Ireland are among the economies that troducing or amending legislation. Globally, new Zealand 1 Togo 174 reformed business entry between 2003 and the average time to start a business fell from australia 2 Congo, Rep. 175 2005. Many continue to move forward, par- 50 days to 31, and the average cost from Canada 3 Iraq 176 ticularly in response to EU directives relating 89% of income per capita to 36% (figure 3). Singapore 4 West Bank and 177 to electronic company registration or a uni- Gaza In 2010/11, 53 economies made it easier to fied EU company registry. Hong kong SaR, 5 Equatorial 178 start a business, with streamlining registra- China Guinea tion formalities the most common feature of Macedonia, FYR 6 Djibouti 179 Since 2008 regulatory reforms making entry business registration reforms (table 2). Georgia 7 Haiti 180 easier have picked up among low- and low- er-middle-income economies, particularly Rwanda 8 Guinea 181 Many good practices have emerged over in Sub-Saharan Africa and Eastern Europe Belarus 9 Eritrea 182 time. Some are common among the 10 and Central Asia (figure 2). Several have economies making it easiest to start a busi- Puerto Rico (U.S.) 10 Chad 183 note: Rankings are the average of the economy’s rankings on been supported by international and bilateral ness, such as offering one-stop shops. Most the procedures, time, cost and paid-in minimum capital for donors—including the introduction of of the top 10 charge only a fixed registration starting a business. See the data notes for details. one-stop shops in Belarus and Rwanda. fee—regardless of company size—that is Source: Doing Business database. Doing Business 2012 STARTING A BUSINESS 3 review formalities to ensure that they still Figure 3 Worldwide, big cuts in the cost of starting a business fulfill their intended purpose (box 1). regional averages in starting a business DB2006 Using online services and standard registra- Procedures (number) DB2012 tion and company documents goes a long OECD high income 7 Global average way in facilitating swift and legally sound 5 Eastern Europe 10 incorporation. Canada and New Zealand & Central Asia 6 reduced the number of interactions that an East Asia & Pacific 8 7 entrepreneur starting a business must have 8 South Asia 7 with outside agencies to 1. They did so not Middle East 10 by cutting out necessary regulation but by & North Africa 8 Sub-Saharan Africa 11 linking all agencies involved through a single 8 Latin America 10 online interface. Germany, Japan and Puerto & Caribbean 9 Rico (territory of the United States) created 0 2 4 6 7 8 10 12 new company types with simpler entry re- Time (days) quirements to encourage entrepreneurship. OECD high income 23 12 reducing or eliminating the Eastern Europe 37 & Central Asia 16 minimum capital requirement 52 East Asia & Pacific 37 Today 101 economies still require entre- South Asia 23 37 preneurs to put up a set amount of capital Middle East 40 before even starting registration formali- & North Africa 20 62 ties. The minimum capital requirement Sub-Saharan Africa 37 has its origins in the 18th century, initially Latin America 74 & Caribbean 54 intended to protect investors and creditors. 0 10 20 30 31 40 50 60 70 80 In economies around the world, the depos- Cost (% of income per capita) ited capital is often withdrawn immediately after registration—hardly of any value in OECD high income 8.1 4.7 insolvency. It is also not clear that minimum Eastern Europe 17.7 & Central Asia 8.3 capital requirements have much value in East Asia & Pacific 49.1 other ways. Fixed amounts of capital do not 22.7 South Asia 39.0 take into account differences in commercial 21.6 Middle East risks. Recovery rates in bankruptcy are no 67.1 & North Africa 35.0 higher in economies with minimum capital 232.9 Sub-Saharan Africa 81.2 requirements than in those without.7 And Latin America 58.2 & Caribbean 37.3 the requirements can have counterproduc- 0 25 36.2 50 100 200 250 tive effects on entrepreneurship.8 Paid-in minimum capital (% of income per capita) Not surprisingly, the economies that OECD high income 45.9 originally introduced the minimum capital 14.1 Eastern Europe 59.0 requirement have long since removed it. And & Central Asia 10.0 since 2005, 57 economies have reduced or East Asia & Pacific 51.2 19.1 eliminated their requirement, lowering the 107.4 South Asia 20.1 797.1 average paid-in minimum capital require- Middle East ment globally from 184% of income per & North Africa 86.7 Sub-Saharan Africa 280.5 capita to 49%. 129.8 Latin America 15.0 & Caribbean 4.3 Madagascar is among them. After the coun- 0 49.1 50 100 150 200 250 300 700 800 try reduced its minimum capital requirement by more than 80% in 2006, the number of newly registered companies as a share note: The data sample for DB2006 (2005) includes 174 economies. The sample for DB2012 (2011) also includes The Bahamas, of existing ones grew from 13% to 26%. In Bahrain, Brunei Darussalam, Cyprus, kosovo, Liberia, Luxembourg, Montenegro and Qatar, for a total of 183 economies. DB2006 data are adjusted for any data revisions and changes in methodology and regional classifications of economies. 2010/11 Madagascar abolished the mini- Source: Doing Business database. mum capital requirement altogether. Doing Business 2012 STARTING A BUSINESS 4 Table 2 Who made starting a business easier in 2010/11—and what did they do? Feature economies Some highlights Simplified registration Benin; Bhutan; Burkina Faso; Cameroon; Central african Republic; Chad; Chile allowed free online publication for new companies, ended the formalities (seal, publi- Chile; Colombia; Democratic Republic of Congo; Côte d’Ivoire; Dominican requirement for an inspection of premises by the tax authority before cation, notarization, Republic; Georgia; Greece; Guyana; Indonesia; Panama; Peru; Puerto Rico new companies can start operations and started granting an immediate inspection, other (U.S.); Rwanda; Senegal; Solomon Islands; South africa; Spain; Tajikistan; temporary operating license to new companies. This cut procedures by 1, requirements) Timor-Leste; Tonga; Turkey; United arab Emirates; Uzbekistan; Vanuatu time by 15 days and cost by 23%. Created or improved armenia; Guinea-Bissau; Liberia; Malaysia; Mali; Moldova; Montenegro; Liberia introduced a one-stop shop bringing together the agencies one-stop shop Oman; Saudi arabia; Taiwan, China; Thailand; Uruguay involved in registration under a single roof. This eliminated 1 procedure and reduced start-up time by 14 days. Uruguay launched a one-stop shop for registering with the commercial registry, tax authorities and social security. This cut procedures by 6, time by 58 days and cost by 33%. abolished or reduced Jordan; Latvia; Madagascar; Portugal; Syrian arab Republic Portugal eliminated its paid-in minimum capital requirement. Jordan minimum capital reduced its requirement from 1,000 Jordanian dinars to 1. requirement Cut or simplified Bosnia and Herzegovina; Qatar; São Tomé and Príncipe; Ukraine São Tomé and Príncipe eliminated the requirement for an operating postregistration license for general commercial companies, reducing start-up time by 134 procedures (tax days. registration, social security registration, licensing) Introduced or Hong kong SaR, China; Republic of korea; Solomon Islands The Solomon Islands introduced a paperless registration system allowing improved online users to register a company, update company details and make a com- procedures pany name search online. This reduced start-up time by 14 days. korea introduced a new online system for business registration and postregistra- tion, cutting 3 procedures and 7 days from the start-up process. Source: Doing Business database. Another example is Germany. When bOx 1 OHaDa TakeS FirST STeP TOWarD eaSiNg buSiNeSS eNTry Germany pioneered a form of private lim- Economies often have outdated formalities that fail to achieve their intended purpose— ited liability company in 1892, it required such as requiring a company seal or extracts of criminal records and medical certificates be- minimum capital equivalent to €25,000. The fore registration. Even at the regional level economies are reviewing whether requirements are amount was based on the price of a luxury up to date. Among these are the 16 members of the Organization for the Harmonization of home or the cost of employing 10 teachers Business Law in Africa (OHADA), which share laws regulating company incorporation.1 Under for a year. In 2008 Germany introduced the Uniform Act on General Commercial Law that was adopted in April 1997, the founders of a company had to provide a copy of their criminal records before they could incorporate. a new type of limited liability company, Obtaining criminal records was no easy task. It required traveling to the city of birth of each the Unternehmergesellschaft, or UG, with a founder and took several weeks in some economies. minimum capital requirement of €1, similar This changed in December 2010, when the OHADA Council of Ministers adopted a new to that in France. The aim was to foster the Uniform Act on General Commercial Law. Now founders have 75 days after incorporating economic activity of small entrepreneurs. their company to submit copies of their criminal records. They can start operations after sim- ply providing a sworn declaration that they have committed no crime and are subject to no While many still opt for the traditional form, restrictions on commercial activity. Several countries, including Benin and Guinea-Bissau, have 12,000 new UGs were created between already started implementing the revised OHADA law. November 2008 and January 2010.9 1. The members of OHADA are Benin, Burkina Faso, Cameroon, the Central African Republic, Chad, the Comoros, the Republic of Congo, Côte d’Ivoire, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Mali, Creating a single interface Niger, Senegal and Togo. Single interfaces for business start-up not only save time and money. They also can electronic interface for entrepreneurs, as in more than twice as fast as in those without make procedural requirements more trans- Denmark, New Zealand and Norway. such services. parent and easier to access. While some one-stop shops are solely for business reg- Today 83 economies around the world have A recent study in Portugal shows that istration, others carry out many integrated some kind of one-stop shop for business reg- introducing a one-stop shop for business functions, including postregistration formali- istration, including the 53 that established registration led to a 17% increase in new firm ties with tax authorities or municipalities. or improved one in the past 8 years (table registrations and 7 new jobs per 100,000 Some one-stop shops are virtual; others are 3). Not all reforms creating one-stop shops inhabitants.10 Research in Colombia shows physical, with one or more windows. Models have been successful. Some resulted in “one that establishing a one-stop shop led to a vary. Some one-stop shops automatically more stop” shops that added to procedures 5.2% increase in new firm registrations.11 forward information from the company reg- rather than simplifying them. Others saw istry to the license authority, as in Ethiopia. benefits delayed because of lack of publicity. introducing a unique company id Others include separate desks with rep- Nonetheless, in the 83 economies that have Single-access points function best when a resentatives from different agencies, as in one-stop shops offering at least one service centralized database is in place linking all Zambia. And still others provide a single besides business registration, start-up is agencies. To make interagency coordination Doing Business 2012 STARTING A BUSINESS 5 Table 3 good practices around the world in making it easy to start a business Zealand launched the first online registration Practice economiesa examples system in 1996. Its use has been mandatory Putting procedures online 110 Hong kong SaR, China; kuwait; FYR Macedonia; new Zealand; Peru; since 2008. Canada’s registration process Puerto Rico (U.S.); Singapore has been entirely paperless since 2006. And Having a one-stop shop 83 Bahrain; Burkina Faso; Georgia; Republic of korea; Uruguay; Vietnam online services are increasingly being offered Having no minimum 82 kenya; Madagascar; Portugal; Rwanda; United arab Emirates; United in developing economies. capital requirement kingdom a. among 183 economies surveyed. What drives the automation of registries? Source: Doing Business database. The motivation to reduce the time and cost even more effective, many economies assign numbers. The aim was mainly to save time for business registration as well as to im- unique company ID numbers. This allows all prove access for smaller firms operating at a and reduce errors caused by companies’ use government services to easily identify new distance from the registrar’s offices (in many of different ID numbers. and existing companies and to cross-check economies entrepreneurs still must travel information. using information and to the capital city to register a business). Growing demands for company information communication technology Malaysia introduced its first smart ID card within government for regulatory oversight Electronic registration is possible in more and audit purposes—and the consequent for companies, Mykad, in 2001, and its latest one, an automated version called MyCoID, than 80% of high-income economies but need for government databases to share in 2010. India uses a unique company only about 30% of low-income ones. Several information. And revenue opportunities aris- ID number for multiple tax registrations. economies with the fastest business start-up ing as businesses and financial institutions Singapore introduced a single ID number offer electronic registration—New Zealand, seek company information to inform their for all company interactions with govern- Australia, Singapore, Canada, Portugal, risk analysis of potential trading partners and ment in January 2009, replacing multiple ID Denmark and Estonia (table 4). New borrowers. Table 4 Who makes starting a business easy—and who does not? Table 4 Who makes starting a business easy— Software applications for company registries range from simple databases and back-office Procedures (number) Cost (% of income per capita) Fewest Most least Most workflow applications using generic software Canada 1 Suriname 13 Denmark 0.0 Zimbabwe 148.9 tools, to sophisticated web-based systems new Zealand 1 algeria 14 Slovenia 0.0 Benin 149.9 that enable customers and intermediaries to australia 2 argentina 14 South africa 0.3 Djibouti 169.8 conduct business with the registrar entirely Georgia 2 China 14 Ireland 0.4 Central african 175.5 online. Many registrars begin their automa- kyrgyz Republic 2 Bolivia 15 Republic tion efforts by focusing on the back office, to Rwanda 2 Brunei 15 new Zealand 0.4 Comoros 176.2 build internal capacity before exposing their Darussalam Canada 0.4 Togo 177.2 staff to the greater demands of delivering Slovenia 2 Philippines 15 Sweden 0.6 Gambia, The 206.1 services online. armenia 3 Uganda 16 Puerto Rico (U.S.) 0.6 Chad 208.5 Belgium 3 Venezuela, RB 17 australia 0.7 Haiti 314.2 According to a 2010/11 survey of 34 com- Finland 3 Equatorial Guinea 21 Singapore 0.7 Congo, Dem. Rep. 551.4 pany registries that implemented technology solutions, nearly all the systems allowed on- line name search and back-office processing Time (days) Paid-in minimum capital of registration applications.12 About half % of income per Fastest Slowest Most capita uS$ supported online company registration and new Zealand 1 Zimbabwe 90 São Tomé and Príncipe 336 4,032 filing of annual accounts. More than two- australia 2 Lao PDR 93 Chad 345 2,070 thirds allowed electronic data sharing with Georgia 2 Brunei Darussalam 101 Mali 348 2,090 other government agencies as well as the Hong kong SaR, 3 Timor-Leste 103 Burkina Faso 373 2,053 dissemination of company information to China the private sector. Within the government, Macedonia, FYR 3 Haiti 105 Guinea-Bissau 399 2,153 information was typically shared with the tax Rwanda 3 Brazil 119 Guinea 407 1,548 authority (59% of systems) and to a lesser Singapore 3 Equatorial Guinea 137 Djibouti 434 6,002 extent with the collateral registry (26%) and Belgium 4 Venezuela, RB 141 Central african Republic 453 2,083 the social security agency (18%). Experience Hungary 4 Congo, Rep. 160 Togo 484 2,132 shows that establishing a virtual one-stop Canada 5 Suriname 694 niger 584 2,103 shop that collects all required information note: Eighty-two economies have no paid-in minimum capital requirement. through a single online interface and shares Source: Doing Business database. it within government can reduce registration Doing Business 2012 STARTING A BUSINESS 6 time and eliminate redundant requirements Figure 4 information on start-up fees is easy to find in most OeCD high-income economies for information. Share of economies where fee schedules are easily accessible (%) Today 110 economies use information and communication technology for services 97 ranging from name search to full online busi- ness registration. More than 40 offer elec- tronic registration services. Fifty-eight economies introduced informa- 63 58 57 tion and communication technology in their 55 50 business start-up processes in the past 8 years, saving time and effort for businesses 36 and governments alike. A first step is always to make registration records electronic. This not only improves security and prevents potential losses of data; it also aids transpar- ency and information sharing. And it makes OECD high income South Asia Eastern Europe Latin America East Asia Middle East Sub-Saharan Africa & Central Asia & Caribbean & Pacific & North Africa it easier to introduce new online services later on. note: Fee schedules are considered easily accessible if they can be obtained through the website of a government agency or through public notices, without a need for an appointment with an official. The data sample includes 174 economies. Mauritius has registered all new businesses Source: Doing Business database. through an integrated, computerized system since October 2006. The new system re- or through public notices such as notice boards duced total registration time from 46 days and brochures (figure 4). Figure 5 The cost to start a business is in 2006 to less than a week in 2008, as lower where information on the fees is easily accessible measured by Doing Business. Easy access to fee schedules and low fees average cost to start a business often go hand in hand. Globally, the cost to (% of income per capita) After Slovenia introduced its e-Vem auto- start a business averages a substantial 36% mated system, administrative costs were of income per capita. Entrepreneurs in lower- 66 reduced by 71.3%. The savings amount to income economies face even higher costs— €10.2 million a year, according to Slovenia’s an average of 81% of income per capita in Ministry of Public Administration. Sub-Saharan Africa, for example. Regardless of income levels, incorporation fees tend to making access to forms and fee be lower in economies where fee schedules schedules easy are easily accessible (figure 5). The cost to Regardless of the level of automation, the start a business averages 18% of income per easier it is for businesses to access fee capita in economies where fee schedules are schedules and documentation requirements 18 easily accessible, 66% in economies where for a regulatory process, the easier it is to they are not. comply with the regulations. Easy access not Economies where Economies where only saves businesses time; it also increases fee schedules are fee schedules are not predictability in the application of regulations easily accessible easily accessible and fee schedules. This year Doing Business collected additional information in a sample note: Relationships are significant at the 5% level after controlling for income per capita. Fee schedules are of 174 economies on the different ways in considered easily accessible if they can be obtained through which governments and agencies make such the website of a government agency or through public notices, without a need for an appointment with an official. regulatory information accessible. It found The data sample includes 174 economies. that obtaining information on incorporation Source: Doing Business database. fees required scheduling an appointment with an official in the majority of economies in Sub- Saharan Africa and in the Middle East and North Africa. In contrast, in more than 90% of OECD high-income economies fee schedules for company incorporation could be obtained directly through the relevant agency’s website Doing Business 2012 STARTING A BUSINESS 7 data notes on starting a To make the data comparable across econo- mies, several assumptions about the busi- Table a.1 What do the starting a business business indicators measure? Doing Business records all procedures that ness and the procedures are used. Procedures to legally start and operate a company are officially required for an entrepreneur to (number) assumptions about the business Preregistration (for example, name verification or start up and formally operate an industrial The business: reservation, notarization) or commercial business. These include ob- Registration in the economy’s largest business city taining all necessary licenses and permits • Is a limited liability company (or its legal equivalent). If there is more than one Postregistration (for example, social security registra- and completing any required notifications, tion, company seal) verifications or inscriptions for the company type of limited liability company in the Time required to complete each procedure and employees with relevant authorities. The economy, the limited liability form most (calendar days) ranking on the ease of starting a business is popular among domestic firms is chosen. Does not include time spent gathering information the simple average of the percentile rankings Information on the most popular form is Each procedure starts on a separate day on its component indicators (figure A.1). obtained from incorporation lawyers or Procedure completed once final document is received the statistical office. no prior contact with officials • Operates in the economy’s largest busi- Cost required to complete each procedure ness city. (% of income per capita) Figure a.1 Starting a business: getting a local limited liability company up and Official costs only, no bribes • Is 100% domestically owned and has 5 running no professional fees unless services required by law owners, none of whom is a legal entity. based on 4 based on 4 indicators Rankings arerankings aresubindicators • Has start-up capital of 10 times income Paid-in minimum capital (% of income per capita) Funds deposited in a bank or with a notary before Preregistration, As % of income per capita at the end of 2010, paid in cash. registration (or within 3 months), as a % of income registration and per capita, no per capita postregistration bribes included • Performs general industrial or commercial (in calendar days) activities, such as the production or sale accountants or lawyers, unless the use of to the public of products or services. The such a third party is mandated by law. If 25% 25% business does not perform foreign trade the services of professionals are required, Time Cost activities and does not handle products procedures conducted by such professionals subject to a special tax regime, for ex- 25% 25% on behalf of the company are counted sepa- Procedures Paid-in ample, liquor or tobacco. It is not using minimum rately. Each electronic procedure is counted capital heavily polluting production processes. separately. If 2 procedures can be completed • Leases the commercial plant and offices Procedure is Funds deposited in a bank or through the same website but require sepa- completed when and is not a proprietor of real estate. with a notary before registration rate filings, they are counted as 2 procedures. final document is received and up to three months • Does not qualify for investment incentives following registration, as % of income per capita or any special benefits. Both pre- and postincorporation procedures • Has at least 10 and up to 50 employees 1 that are officially required for an entrepreneur After a study of laws, regulations and pub- to formally operate a business are recorded month after the commencement of opera- licly available information on business entry, (table A.1). tions, all of them nationals. a detailed list of procedures is developed, along with the time and cost of complying • Has a turnover of at least 100 times in- Procedures required for official correspon- with each procedure under normal circum- come per capita. dence or transactions with public agencies stances and the paid-in minimum capital • Has a company deed 10 pages long. are also included. For example, if a company requirements. Subsequently, local incorpo- seal or stamp is required on official docu- Procedures ments, such as tax declarations, obtaining ration lawyers, notaries and government officials complete and verify the data. A procedure is defined as any interaction of the seal or stamp is counted. Similarly, if a the company founders with external parties company must open a bank account before Information is also collected on the sequence (for example, government agencies, lawyers, registering for sales tax or value added tax, in which procedures are to be completed auditors or notaries). Interactions between this transaction is included as a procedure. and whether procedures may be carried company founders or company officers and Shortcuts are counted only if they fulfill 4 out simultaneously. It is assumed that any employees are not counted as procedures. criteria: they are legal, they are available required information is readily available and Procedures that must be completed in the to the general public, they are used by the that all agencies involved in the start-up pro- same building but in different offices are majority of companies, and avoiding them cess function without corruption. If answers counted as separate procedures. If founders causes substantial delays. by local experts differ, inquiries continue have to visit the same office several times until the data are reconciled. for different sequential procedures, each Only procedures required of all businesses is counted separately. The founders are are covered. Industry-specific procedures assumed to complete all procedures them- are excluded. For example, procedures to selves, without middlemen, facilitators, comply with environmental regulations are Doing Business 2012 STARTING A BUSINESS 8 included only when they apply to all busi- spends on gathering information is ignored. It needs to deposit in a bank or with a notary nesses conducting general commercial or is assumed that the entrepreneur is aware of before registration and up to 3 months fol- industrial activities. Procedures that the all entry requirements and their sequence from lowing incorporation and is recorded as a company undergoes to connect to electric- the beginning but has had no prior contact with percentage of the economy’s income per ity, water, gas and waste disposal services any of the officials. capita. The amount is typically specified in are not included. the commercial code or the company law. Cost Many economies require minimum capital time Cost is recorded as a percentage of the econ- but allow businesses to pay only a part of it Time is recorded in calendar days. The measure omy’s income per capita. It includes all official before registration, with the rest to be paid captures the median duration that incorpora- fees and fees for legal or professional services after the first year of operation. In Italy in tion lawyers indicate is necessary in practice to if such services are required by law. Fees for June 2011 the minimum capital requirement complete a procedure with minimum follow-up purchasing and legalizing company books are for limited liability companies was €10,000, with government agencies and no extra pay- included if these transactions are required by of which at least €2,500 was payable before registration. The paid-in minimum capital ments. It is assumed that the minimum time law. The company law, the commercial code recorded for Italy is therefore €2,500, or required for each procedure is 1 day. Although and specific regulations and fee schedules 9.9% of income per capita. In Mexico the procedures may take place simultaneously, are used as sources for calculating costs. In minimum capital requirement was 50,000 they cannot start on the same day (that is, the absence of fee schedules, a government pesos, of which one-fifth needed to be paid simultaneous procedures start on consecutive officer’s estimate is taken as an official source. before registration. The paid-in minimum days). A procedure is considered completed In the absence of a government officer’s esti- capital recorded for Mexico is therefore once the company has received the final docu- mate, estimates of incorporation lawyers are 10,000 pesos, or 8.4% of income per capita. ment, such as the company registration cer- used. If several incorporation lawyers provide tificate or tax number. If a procedure can be different estimates, the median reported value The data details on starting a business can accelerated for an additional cost, the fastest is applied. In all cases the cost excludes bribes. be found for each economy at http://www procedure is chosen. It is assumed that the .doingbusiness.org by selecting the economy entrepreneur does not waste time and com- Paid-in minimum capital in the drop-down list. This methodology was mits to completing each remaining procedure The paid-in minimum capital requirement developed in Djankov and others (2002) and is without delay. The time that the entrepreneur reflects the amount that the entrepreneur adopted here with minor changes. Notes RefeReNces 1. Brandon 1977. Audretsch, David, Max Keilbach and Erik Djankov, Simeon, Rafael La Porta, Florencio 2. According to a survey conducted by Doing Lehmann. 2006. Entrepreneurship and López-de-Silanes and Andrei Shleifer. 2002. Business in 2011 covering 183 economies, the Economic Growth. New York: Oxford “The Regulation of Entry.” Quarterly Journal of process of establishing a sole proprietorship University Press. Economics 117 (1): 1–37. requires fewer procedures and is cheaper Brandon, Ruth. 1977. A Capitalist Romance: Klapper, Leora, Raphael Amit and Mauro than establishing a limited liability company Singer and the Sewing Machine. New York: Guillen. 2010. “Entrepreneurship and Firm in over 90% of economies. Kodansha International. Formation across Countries.” In International 3. Klapper, Lewin and Quesada Delgado 2009. Branstetter, Lee G., Francisco Lima, Lowell J. Differences in Entrepreneurship, ed. Joshua Taylor and Ana Venâncio. 2010. “Do Entry Lerner and Antoinette Shoar. Chicago: 4. Audretsch, Keilbach and Lehmann 2006. Regulations Deter Entrepreneurship and Job University of Chicago Press. 5. Klapper, Amit and Guillen 2010. Creation? Evidence from Recent Reforms Klapper, Leora, Anat Lewin and Juan Manuel 6. Bruhn 2008. in Portugal.” NBER Working Paper 16473, Quesada Delgado. 2009. “The Impact of 7. Djankov and others 2008. National Bureau of Economic Research, the Business Environment on the Business 8. Van Stel, Storey and Thurik 2007. Cambridge, MA. Creation Process.” Policy Research Working 9. Common Register Portal of Bruhn, Miriam. 2008. “License to Sell: The Paper 4937, World Bank, Washington, DC. the German Federal States, Effect of Business Registration Reform on Van Stel, Andre, David Storey and Roy https://www.handelsregister.de/. Entrepreneurial Activity in Mexico.” Policy Thurik. 2007. “The Effect of Business 10. Branstetter and others 2010. Research Working Paper 4538, World Bank, Regulations on Nascent and Young Business Washington, DC. Entrepreneurship.” Small Business Economics 11. Cardenas and Rozo 2009. Cardenas, Mauricio, and Sandra Rozo. 2009. 28 (2–3): 171–86. 12. Wille and others 2011. The survey, conducted “Firm Informality in Colombia: Problems Wille, John, Karim Ouled Belayachi, Numa by Doing Business and the World Bank and Solutions.” Desarrollo y Sociedad, no. 63: De Magalhaes and Frederic Meunier. 2011. Group’s Investment Climate Advisory 211–43. “Leveraging Technology to Support Business Services, received responses on experience in Djankov, Simeon, Oliver Hart, Caralee Registration Reform.” Investment Climate implementing new or upgraded technology McLiesh and Andrei Shleifer. 2008. “Debt In Practice Note 17, Investment Climate solutions from 26 company registrars (or their Enforcement around the World.” Journal of Advisory Services, World Bank Group, advisers or information and communication Political Economy 116 (6): 1105–49. Washington, DC. technology vendors) in low- or middle-income economies and 8 in high-income economies.