Regulation of Business Organizations in a Socialist Market Economy
Chapter 4: Formation of companies and the rules of capital maintenance
The purpose of incorporation is to create a corporate entity - with legal personality - distinct from its members. Doing Business in 2004, the first issue in the World Bank's annual reports investigating the regulations that affect business activities, points out that incorporation has four advantages. 'First, legal entities can outlive their founders. Second, resources are pulled together, as shareholders join forces in establishing the company's capital. Third, the formal introduction of limited liability … reduces the risks of doing business … Fourth, registered businesses have access to services - provided by public courts or private commercial banks - that are not available to unregistered firms. 'Djankov, La Porta, Lopez-de-Silanes, and Shleifer (2002) examined regulation of entry for start-up firms in 85 countries. The authors focused on procedures, and the time and cost that a start-up must spend before it could operate legally. They observed that: Countries differ significantly in the way in which they regulate the entry of new businesses. To meet government requirements for starting to operate a business in Mozambique, an entrepreneur must complete 19 procedures taking at least 149 business days and pay US$256 in fees. To do the same, an entrepreneur in Italy needs to follow 16 different procedures, pay US$3946 in fees, and wait at least 62 business days acquire the necessary permits. In contrast, an entrepreneur in Canada can finish the process in two days by paying US$280 in fees and completing only two procedures.
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