B. Features of simplified and other business incorporation regimes
and their impact on MSMEs
19. The Working Group was also reminded of the main issues raised in document
A/CN.9/WG.I/WP.82 in its consideration of features of simplified and other business
incorporation regimes and how those features could be relevant to support MSMEs.
It was noted that simplified corporate forms were a relatively new type of regime
aimed at providing a more flexible and accessible business form for MSMEs, which
could also be advantageous for enterprises of a larger size. It was observed that
many different types of enterprises could benefit in several ways from the creation
of simplified corporate forms, including smaller closely-held companies, family
firms, joint ventures and professional service firms.
20. The comparison of different simplified corporate forms contained in document
A/CN.9/WG.I/WP.82 was highlighted, noting that the different regimes were
examined in respect of three main areas. First, issues of limited liability and other
aspects of formation were considered, including legal personality, issues relating to
disclosure of financial statements, formation requirements, and the number of
founders required pursuant to each legal regime examined. The second main area of
comparison focused on internal governance established in each of the legislative
schemes, in particular on internal governance itself, on financial rights among
owners, on the existence of freedom of contract in establishing the internal
governance and on the transferability of the ownership interest. Finally, each
separate regime was also examined with a view to the fiduciary duties they required
in order to protect the enterprise from abusive or excessively negligent behaviour on
the part of managers.
21. Other aspects of document A/CN.9/WG.I/WP.82 were highlighted, such as the
suggestion that concerns about the potential of simplified business forms for their
abuse in pursuit of criminal activities could be addressed through disclosure of
beneficial ownership and sharing of information domestically and internationally. In
addition, possible methods of conflict resolution for participants in simplified
business forms were noted, including through derivative actions or the existence of
exit rules for enterprise owners to withdraw or be expelled from the business.
Another approach considered for conflict resolution was the creation of specialized
business courts and procedures focused on providing faster, more flexible and
expert dispute resolution for participants in simplified corporate forms. Finally, the
attention of the Working Group was drawn to various available statistics indicating
the success of such simplified business forms in a number of different States.
General comments on the direction the work could take
22. Several general observations were made in respect of issues that could be
considered by the Working Group in addressing its mandate. The view was
expressed that the work, once completed, should include a list of best practices
drawn from country experience in this area. In addition, it was observed that SMEs
and larger enterprises were more likely to require consideration of international
issues than micro-sized enterprises, which were more likely to operate in a more
limited scope and thus be subject to the specific context of individual States. Other
views were expressed that, although ambitious, the Working Group should consider
the possible internationalization of small and micro-sized businesses, particularly in
the modern electronic business era, and in respect of craftsmen and others who may
add value in the production chain. The Working Group also noted that its work
should be undertaken with a view to enhancing the creditworthiness of MSMEs.
Finally, two intergovernmental organizations advised the Working Group of their
strong interest in, and support of, the work being undertaken.
Size of the enterprise and application to specific sectors
23. Some States shared their experience in terms of simplified business forms,
some of which were the result of ongoing legislative reforms, whether such efforts
were intended specifically to support MSMEs, or for other reasons. In one instance,
it was noted that the focus of a State’s legislative reform was not based on the size
of the business, but on providing appropriate measures for businesses to formalize
with minimal capital requirements. Later in the life cycle of such businesses, when
they became more successful, they could transition to full limited liability
corporations. Other examples were given of the creation of certain categories of
companies based on size and the types of business undertaken, but noting that the
traditional approach to corporation law had not relied on different sizes of
enterprises. In addition, it was observed that some simplified regimes have focused
directly on assisting MSMEs, while others were applied to smaller enterprises only
after the regimes had been developed for other purposes, yet the net result of both
approaches had been positive for MSMEs and larger enterprises. States also
observed that, in general, their business incorporation regime did not focus on
specific sectors of the economy. Presentations were made by two delegations
evidencing that simplified business registration and incorporation had a substantial
impact on increasing the registration and incorporation of micro and small
businesses in their countries.
24. In general, it was agreed that although a definition of MSMEs was used in
certain contexts, including in providing policy support through mechanisms such as
subsidies and taxation relief, it was not necessary to approach the simplification of
business incorporation with specific company size in mind. The main concern in
terms of size of enterprises intended for inclusion in a simplified incorporation
regime was to ensure that sole proprietors were considered for inclusion in the
regime, even those that might be engaged in relatively simple business activities. It
was also observed that some States offered a fairly extensive menu of different legal
options to enterprises wishing to formalize, while others appeared to offer fewer
alternatives, but enhanced flexibility, to entrepreneurs.
Limited liability
25. It was observed that, while limited liability was broadly available and
considered to be an important incentive to include in a simplified incorporation
regime, some States considered it useful to restrict limited liability to corporations
possessing certain features that balanced the enterprise’s obligations to stakeholders
such as employees, contracting parties, investors or banks. Support was expressed to
include mechanisms, such as piercing the corporate veil, to address situations where
limited liability might be abused. In addition to limited liability corporations, the
Working Group was encouraged to consider including a regime for cooperatives in
its discussions on simplified business forms, particularly given the importance of
cooperatives in several States.
Online registration, single point of entry and standard articles of incorporation
26. Several States noted that online registration of businesses was quite broadly
available, and that many States have dramatically reduced the time necessary for
incorporation of a business through the use of electronic means. In States that
require notarial services for valid business incorporation, special online conduits
have been established between notaries and the relevant authorities to speed the
process. A single point of entry for enterprises wishing to formalize has been
established in several States; in addition, templates containing standard articles of
incorporation are offered in many States to smaller businesses and those with
reduced business sophistication.
Intergovernmental and cross-border collaboration and information-sharing
27. It was observed that the sharing of information on the beneficial ownership of
enterprises was one method of dealing with the potential misuse of simplified
business regimes for illicit purposes. Several States reported requirements for the
sharing of such information stemming from either domestic legislation or
international commitments. In addition, it was noted that European Union (EU)
Directive 2012/17/EU (13 June 2012) required the interconnection of central,
commercial and companies registers within the EU; while the information-sharing
platform would allow public access, it would not be fully operational for several
years.