Starting a business

1. Starting a business

2. What Starting a Business measures: time, cost, paid-in minimum capital and procedures 2

3. Where is starting a business easy? • What do many of those economies have in common? New Zealand Canada Singapore Australia Hong Kong SAR, China Armenia Macedonia FYR Georgia Rwanda Azerbaijan Global good practice • Using online platforms • Transparent data and registration processes • No or minimal minimum capital requirement • Creation of one stop shops • Standardized forms • No courts involved • Fixed registration fee 3

4. Economies advancing the most toward the frontier in starting a business over the past 5 years

5. By region, Sub-Saharan Africa has shown the greatest improvement in reducing time to start a business Time to start a business in Sub-Saharan Africa fell from 55 days to 30 days 5

6. What are the trends since 2009 • Over the past 5 years Doing Business recorded 244 business registration reforms in 135 economies • In 2012/13, 51 economies made it easier to start a business, focusing on simplifying companies registration • Among regions, Sub-Saharan Africa has improved business start-up processes the most, but still entrepreneurs continue to face significant challenges • Starting a business has become easier across all regions of the world • The number of economies with minimum capital requirement has been cut • Globally, the average time to start a business has fallen by about 13 days

7. Reforms: Introducing a Simpler Form of a Limited Liability Company In 2012–2013 alone, Greece, Lithuania, and Croatia introduced a new form of LLC. Greeceadopted a new Law which introduced the category of “Private Company” (IKE). • Compared to EPE, entrepreneurs are not required to publish the articles of association in the Government Gazette. Instead, these can be posted online through the General Electronic Commercial Registry (GENI). • The involvement of a lawyer/notary is not obligatory for preparing the articles of association and conducting the name search for IKEs. • In addition, IKEs have no minimum capital requirement, whereas the requirement for EPEs remains €4,500. • More than 2,400 new IKEs were registered between July 2012 and September 2013, compared with 1,939 EPEs.

8. Greece jumped from position 146 to position 36 in the ease of Starting a Business • In 2012, Greece introduced a simpler type of limited liability company (private company) that is cheaper to incorporate. • In 2013, Greece abolished the minimum capital requirementfor private companies. • Greece improved its ranking in Starting a Business by 110 positions. 8

9. Reforms: Introducing a Simpler Form of a Limited Liability Company • In September 2012, Lithuania introduced a new type of LLC—the “Small Partnership”. • It is a simpler form of LLC that can be founded by 1 to 10 natural persons. • Entrepreneurs need to deposit around $4,000 into a bank to form a Private LLC (the most common form of LLC previously), while there is no such requirement for a Small Partnership. • Small Partnership: 4 procedures, 6.5 days, and costs $118. As of October 22, 2013, there were 3,529 registered Small Partnerships in Lithuania.

10. Reforms: Introducing a Simpler Form of a Limited Liability Company • Croatiaamended its Companies Act on October 10, 2012, introducing a new and simpler form of LLC called a “Simple LLC” (JDOO). • It is much cheaper to set up a JDOO, as the minimum required capital is less than $2 and the lowest nominal amount of share interest is less than $1. This requirement for the older category of Private LLC is $3,571. • Has fast gained popularity among entrepreneurs. A total of 8,407 Simple LLCs (JDOOs) were established between October 2012 and September 2013, compared to 5,488 Private LLCs.

11. Reforms: Introducing or Improving Online Services Online business registration platforms make starting a business faster and cheaper

12. Reforms: Introducing or Improving Online Services Singapore:the Singapore Accounting and Corporate Regulatory Authority (ACRA) introduced a one-stop business services portal (Bizfile) in 2009. Entrepreneurs complete name search and business incorporation in about 15 minutes, as well as register with the Inland Revenue Authority of Singapore (IRAS) for the Goods and Services Tax (GST). New Zealand:the online business registration system provided by the New Zealand Companies Office is comprised into a single online interaction: • Reserving the business name, • Completing the incorporation application, and • Returning the signed consent forms to the Companies Office. Once consent has been given by the Companies Office, the certificate of incorporation is issued via e-mail in just a few minutes.

13. Reforms: Introducing or Improving Online Services • In February 2012, Costa Rica launched CrearEmpresa, an online platform for registering incorporation charters and submitting related documents. Previously, the incorporation charter was registered by a notary public, and the standard approval time was usually up to 25 days. The online platform reduced this approval time to just 2 days. • Guatemala launched its first online service for company name search in May 2006. Later, in March 2013, it established a new online portal, allowing registration of a new company with the Commercial Registry, the Tax Authority, the Social Security Institute, and the Ministry of Labor through a single electronic form. Result: he time to start a business was reduced by 35.5 days in Costa Rica and by 20.5 days in Guatemala.

14. Reforms: Introducing or Improving Online Services • Chile:in February 2011, established an obligation for the Internal Revenue Service to authorize the use of electronic invoicing, which eliminated the 16-day inspection period and allowed businesses to commence operations upon the receipt of the revenue identification number. • Finally, in February 2013, Chile implemented a free online portal for specific types of companies. Entrepreneurs can now complete 3 of 7 business registration procedures online. Result: the time required to start up a business in Chile was reduced from 22 to 5.5 days.

15. Availability of One-Stop Shops for Starting a Business

16. Reforms: Creating or Improving “One-Stop Shops” Côte d’Ivoire: launched a One Stop Center for business registration (CEPICI) in December 2012, enabling entrepreneurs to register with the commercial registrar, the tax authority, and the social security institute at the same time. Result: halved the number of interactions between entrepreneurs and the government agencies, cut the total time of business registration by 24 days and reduced the total cost from $1,430 to $542. Guinea: in December 2011launched a one-stop shop. It combined company incorporation, obtaining a tax identification number, registering with social security and paying related fees in 1 step. In May 2012, the OSS was enabled to publish notices of incorporation of new companies on its website. Result: the time it takes to register a business was cut nearly in half.

17. Minimum Capital Requirements by Region In 2012/13, 8 economies either lowered or eliminated the minimum capital requirement: Cape Verde, Croatia, Djibouti, Greece, Lithuania, the Netherlands, Uzbekistan and West Bank and Gaza.

18. Minimum Capital Requirements and Access to Finance

19. Minimum Capital Requirements and Informality

20. Starting a Business Global Trends • Globally, it requires 7 procedures, 25 days and $1,067 on average to start a business. • According to Doing Business, 109 economies have introduced online platforms for business registration over the past 10 years—more than 50% of the economies measured. • As of June 2013, 96 economies had some type of one-stop shop, and more than 50% of economies in ECA, OECD high-income and SSA now operate one-stop shops to incorporate businesses. • Of the 189 economies profiled in Doing Business 2014, 99 do not impose any minimum capital requirements on entrepreneurs.

21. Actionable Recommendations – challenges remain • Online systems still not fully functional: • Name Search only (Nepal) • Sometimes, online payment is not offered and entrepreneurs have to pay on-site (Philippines) • Online systems crash or servers are down • Low internet penetration and power cuts (Sierra Leone) • Document pick-up is still done on-site, despite online registration • One-Stop Shops still not fully functional or efficient: • Egypt: entrepreneurs still have to visit many windows within the one-stop shop • Lack of integration among systems • One stop shop is only a name…

22. Entrepreneurship Database 1. Introduction & Methodology

23. 1.1 Why a dataset on entrepreneurship? • To meet the demand of governments and policymakers for: • Diagnosis of private sector development and growth • Monitoring and evaluation of policy reforms • Data to motivate reforms to increase participation in the formal sector • Baseline information for evaluating the impact of business registration reforms • To evaluate the impact of macroeconomic and financial shocks on new firm registration

24. 1.2 What is Measured by the Entrepreneurship database? • How is entrepreneurship defined for the purpose of data collection? • The activities of an individual or a group aimed at carrying out commercial activities in the formal sector under a legal form of business • Units of Measurement • Private companies with limited liability. Notably, this is the same definition used by the World Bank’s Doing Business report. It is also one of the most prevalent business forms in most economies around the world. • Variable of interest • Entry Density, isdefined as the number of newly registered limited liability companies per 1,000 working-age people (those ages 15–64) • Source • Business registries and statistical offices

25. 1.3 Questionnaire & Data collection • Questionnaires: • Number of newly registered limited liability firms, by year • Questions about registration processes • Translated into four languages (English, Spanish, French, Russian). • Data collection: • Sent directly to data sources by email and fax • Follow-up phone calls • Data checking from outside sources, previous versions of WBGES • Sent to over 150 countries and received 139 responses • Comparable data for 139 countries.

26. 1.4 Final Data • Final Data Excludes: • Informal Sector • Data not gathered, despite relevance • Sole proprietorships, partnerships • Data not gathered, not uniform across countries • Measures of active & closed firms • Data gathered but excluded because of reliability issues due to different definitions / procedures • Countries classified as offshore financial centers by the IMF • Data gathered but excluded because some firms not representative of entrepreneurship 

27. 2.Summary Statistics

28. 2.1 Summary Statistics, by region 2004-2012 averages

29. 2.2 Summary Statistics, by region Entry rate over time

30. 2.3 Summary Statistics, by income group Entry rate over time

31. 2.4 Firm registration

32. 2.5 Internet Registration

33. 2.5 Ease of Starting a Business and entry density Panel A: Number of Procedures Panel B: Time (in days) Panel C: Cost of starting a business Panel D: Ease of Business rank

34. 2.6Impact of reforms

35. Thankyou! Questions www.doingbusiness.org

36. ANNEX

37. Startup Trends by Income

38. Startup Trends by Region

39. Where is Starting a Business Easiest and where Most Difficult?

40. Why does formal business registration matter? For the economy For the company • Legal entities can outlive their founders. • Formally registered companies have access to services and institutions from courts to banks as well as to new markets. • Employees can also benefit from protections provided by the law. Simpler start-up procedures are associated with a greater number of legally registered companies Simpler business registration associated with greater employment opportunities in the formal sector (e.g. Masatlioglu and Rigolini, 2008) Lower costs for business registration encourage entrepreneurship and enhance firm productivity (e.g. Klapper, Laeven and Rajan, 2006; Klapper and Love 2011; Barseghyan 2008)

41. Case Study Assumptions • A limited liability company or its legal equivalent. • If there is more than one type of limited liability company in the economy, the most popular form among domestic firms is chosen. • Operates in the economy’s largest business city. • Is 100% domestically owned and has 5 owners, none of whom is a legal entity. • Has start-up capital of 10 times income per capita, paid in cash. • Performs general industrial or commercial activities, such as the production or sale to the public of products or services. • It does not perform foreign trade activities and does not handle products subject to a special tax regime, for example, liquor or tobacco. It is not using heavily polluting production processes. • Leases the commercial plant or offices and is not a proprietor of real estate. • Does not qualify for investment incentives or any special benefits. • Has at least 10 and up to 50 employees 1 month after the commencement of operations, all of them domestic nationals. • Has a turnover of at least 100 times income per capita. • Has a company deed 10 pages long.

42. What Starting a Business measures • Preregistration • Checking the availability of the proposed company name • Having a notary draft and notarize statutes • Depositing minimum capital in a bank account • Registration • Application for incorporation • Payment of fees • Other procedures under the mandate of the commercial registry • Postregistration • Registering with tax authorities • Obtaining a business license • Enrolling employees in Social Security • Buying and legalizing company books • Obtaining a company seal The Starting a Business indicator records every procedure required by law (de jure). Procedures that are commonly done in practice are also recorded (de facto).

43. Methodology – Procedures (number) • Pre-registration, Registration, and • Post-registration procedures officially required, or commonly done in practice. • Shortcutsare counted only if they are: • - Legal • Available to the general public, • Used by the majority of companies, and • Avoiding them causes substantial delays. • Founders are assumed to complete all procedures themselves, unless the use of a third party is mandated by law, or solicited by the majority of entrepreneurs. • Procedures that must be completed in the same building but in different offices or counters are counted separately. • If founders have to visit the same office several times for different sequential procedures, each is counted separately. • Each electronic procedure is counted separately. If 2 procedures can be completed through the same website but require separate filings, they are counted as 2 separate procedures. • Procedures required for official correspondence or transactions with public agencies (e.g. company seal, bank account) are also included.

44. Methodology – Time (calendar days) • Although procedures may take place simultaneously, they cannot start on the same day (that is, simultaneous procedures start on consecutive days), except if they can be fully completed online. • A procedure is considered completed once the company receives the final incorporation document, such as the company registration certificate or tax number. • It is assumed that the entrepreneur is aware of all entry requirements and completes them without delay. • The minimum time required for each procedure is 1 day. • For procedures that can be fully completed online, the minimum time recorded is half a day. • If a procedure can be accelerated for an additional cost, the fastest procedure is chosen if that option is more beneficial to the economy’s ranking. The measure captures the median duration that incorporation lawyers indicate is necessary in practice to complete a procedure with minimum follow-up with government agencies and no extra payments.

45. Methodology – Cost (% GNI pc) • In the absence of fee schedules, a government officer’s estimate is taken as an official source. • In the absence of a government officer’s estimate, estimates of incorporation lawyers are used. • If several incorporation lawyers provide different estimates, the median reported value is applied. • Fees for purchasing and legalizing company books are included if these transactions are required by law. Cost includes all official fees and fees for legal or professional services if such services are required by law. The company law, the commercial code and specific regulations and fee schedules are used as sources for calculating costs. In all cases, the cost excludes bribes.

46. Methodology – Paid-in Minimum Capital • (% GNIpc) The paid-in minimum capital requirement reflects the amount that an entrepreneur needs to deposit in a bank or with a notary before registration and up to 3 months following incorporation. • The amount is typically specified in the commercial code or the company law. • Some economies require minimum capital but allow businesses to pay only a part of it before registration, with the rest to be paid after or within the first year of operation.