Starting a Business Methodology

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Figure 1 - What are the time, cost, paid-in minimum capital and number of procedures to get a local limited liability company up and running?

Doing Business records all procedures officially required, or commonly done in practice, for an entrepreneur to start up and formally operate an industrial or commercial business, as well as the time and cost to complete these procedures and the paid-in minimum capital requirement (figure 1). These procedures include the processes entrepreneurs undergo when obtaining all necessary approvals, licenses, permits and completing any required notifications, verifications or inscriptions for the company and employees with relevant authorities. The ranking of economies on the ease of starting a business is determined by sorting their distance to frontier scores for starting a business. These scores are the simple average of the distance to frontier scores for each of the component indicators (figure 2). The distance to frontier score shows the distance of an economy to the "frontier," which is derived from the most efficient practice or highest score achieved on each indicator.

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Figure 2 - Starting a business: getting a local limited liability company up and running

Two types of local limited liability companies are considered under the starting a business methodology. They are identical in all aspects, except that one company is owned by five married women and other by five married men. The distance to frontier score for each indicator is the average of the scores obtained for each of the component indicators for both of these standardized companies.

After a study of laws, regulations and publicly available information on business entry, a detailed list of procedures is developed, along with the time and cost to comply with each procedure under normal circumstances and the paid-in minimum capital requirement. Subsequently, local incorporation lawyers, notaries and government officials review and verify the data.

Information is also collected on the sequence in which procedures are to be completed and whether procedures may be carried out simultaneously. It is assumed that any required information is readily available and that the entrepreneur will pay no bribes. If answers by local experts differ, inquiries continue until the data are reconciled.

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Table 1 - What do the starting a business indicators measure?

To make the data comparable across economies, several assumptions about the businesses and the procedures are used.

Assumptions about the business

The business:

  • Is a limited liability company (or its legal equivalent). If there is more than one type of limited liability company in the economy, the limited liability form most common among domestic firms is chosen. Information on the most common form is obtained from incorporation lawyers or the statistical office.
  • Operates in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city.
  • Is 100% domestically owned and has five owners, none of whom is a legal entity.
  • Has start-up capital of 10 times income per capita.
  • Performs general industrial or commercial activities, such as the production or sale to the public of goods or services. The business 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.
  • The amount of the annual lease for the office space is equivalent to one income per capita.
  • The size of the entire office space is approximately 929 square meters (10,000 square feet).
  • Does not qualify for investment incentives or any special benefits.
  • Has at least 10 and up to 50 employees one 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 that is 10 pages long.