Doing Business 2018 Starting a Business Transparency of information at business registries Governments and civil society have come together in recent years to increase the ƒƒ Transparent information provided to transparency of business information. New regulations have been adopted to improve the public by business registries can transparency, particularly regarding the dissemination of company data. These reduce transactions costs and facilitate changes have been made in the wake of a series of revelations—such as the Panama investment decisions. papers and the Bahamas leaks—that showed the extent to which individuals take ƒƒ The most common types of information advantage of obscure company ownership structures to illicitly move money around shared by business registries include the globe. There is now strong momentum behind expanding access to corporate the company’s name, its legal address information, including company ownership. and the names of its directors. ƒƒ Information on beneficial ownership, One way to increase transparency Providing public access to company corporate structure and annual in the business environment is to information through business registries financial returns is less commonly disclose beneficial ownership information strengthens confidence in businesses collected and made available to the publicly—that is, to reveal the identity and institutions, but it also helps to public. of individuals who ultimately enjoy the manage financial exposure and increase benefits of property rights in equity, even market stability, thereby reducing the ƒƒ Technological advances have greatly if they are not legal owners. Disclosure risks associated with doing business. enhanced access to information. of beneficial ownership is useful in iden- Improving transparency necessitates ƒƒ There is a strong association between tifying suspected money laundering and the drafting of laws that expand public a transparent business registry and potential terrorist financing. access to additional corporate data, such higher efficiency, as well as a lower as the identities of the company direc- incidence of bribery. To make ownership more transparent, tors, shareholders and beneficial owners. Singapore amended its Companies Act to require locally-incorporated compa- This year, Doing Business has collected nies and foreign companies registered in preliminary data on the information gath- Singapore to maintain beneficial owner- ered and shared by business registries in ship information and to make the data 190 economies. Doing Business collects public upon request. Ghana amended data on the public availability of both its Companies Act in 2016 to regulate detailed corporate information (such as disclosure of information on beneficial company name, directors, shareholders, ownership. In May 2017 Germany’s par- beneficial owners and so on) and the liament passed a law requiring that the information needed to start a business owners of all German enterprises (includ- (for example, a documents list, fee ing offshore entities) be identified in an schedule, services standards and official electronic beneficial ownership registry. statistics on firm creation). Each type of Access to corporate information is vital for information obtained without the need individuals and institutions looking to make for any personal interaction is assigned sound investment decisions. It is crucial points to reflect greater transparency. The for investors to know who they are doing features of transparency of information business with in the global economy. range from 0 (least transparent) to 18 40 DOING BUSINESS 2018 (most transparent). The aim is to capture predictability of transactions, transpar- 2011 alone it is estimated that develop- new and actionable aspects related to the ency can also benefit financial institu- ing economies suffered nearly $1 trillion business incorporation framework and to tions and company services providers as in illicit financial outflows.6 Transparent understand how transparency of informa- it becomes easier for them to obtain the data on company ownership are vital in tion in business registration varies across information they need to comply effec- combating money laundering, tax evasion, regions and how it is associated with other tively with due diligence requirements.2 corruption and other illegal activities. institutional and economic outcomes. Registries with clearly-stipulated requirements facilitate the process of registering and verifying information. WHAT KIND OF BUSINESS HOW IMPORTANT IS There tends to be a culture of greater INFORMATION IS AVAILABLE TRANSPARENCY IN competition and economic growth in TO THE PUBLIC? BUSINESS REGISTRIES? economies where it is easier for compa- nies to enter the market.3 Most business registries share some As the principal agency responsible for data with the public about the companies registering firms, business registries allow Transparency of information can broaden registered with them. The types of infor- companies to acquire a legal identity. This the pool of potential investors by reduc- mation that are most commonly made legal status enables a firm to enter into ing the need for personal connections. It public by the business registry are the contracts with other firms, access formal can level the playing field for a budding company’s name, legal address, year of financial systems and bid on public-sector entrepreneur who may lack the necessary incorporation, type of business activity contracts.1 Business registries play a vital connections to formally launch his or her and the names of its directors.7 role by ensuring that the information they company. By reducing the risk associated collect from these companies is not only with an investment, transparency can help Information regarding a firm’s corporate captured within their systems but is also investors determine the viability of a structure, annual returns and beneficial available to the public. Sharing information transaction.4 Revealing public informa- ownership is less commonly made publicly makes it easier to ensure that the tion to curb information asymmetry can available to the public. It is possible information is accurate. also reduce a firm’s cost of capital by to access information on a company’s attracting increased demand from large corporate structure—that is, whether it Business registry transparency can investors (due to increased liquidity of its has subsidiaries or belongs to a holding increase the accountability of firms securities).5 The financial cost of a lack of company—and its beneficial ownership and public officials. By improving the data transparency can be significant: in in only a few economies (figure 4.1). FIGURE 4.1  Data on shareholders and directors are more accessible than data on beneficial owners Type of information publicly available (economies per region, %) 100 80 60 40 20 0 Directors Shareholders Beneficial owners Directors Shareholders Beneficial owners Directors Shareholders Beneficial owners Directors Shareholders Beneficial owners Directors Shareholders Beneficial owners Directors Shareholders Beneficial owners Directors Shareholders Beneficial owners OECD Europe East Asia Middle East Latin America South Sub-Saharan high income & Central Asia & Pacific & North Africa & Caribbean Asia Africa Online In person Not available Source: Doing Business database. STARTING A BUSINESS 41 Data on a firm’s corporate structure, for may prefer not to disclose their annual economies publish most of the informa- example, is readily available in less than returns or annual accounts. tion collected on their websites. one-third of economies worldwide. Furthermore, the identity of a com- The business registry information most pany’s beneficial owners is made public HOW IS INFORMATION widely available online includes the name in fewer than one-quarter of economies MADE AVAILABLE TO THE of the company, its identification number, globally; only 8% of economies in East PUBLIC? its legal address and the year the com- Asia and the Pacific and 15% of OECD pany was incorporated. The most basic high-income economies collect data During the past decade government information—the company name—is on beneficial ownership and make it agencies around the world have explored the information most commonly made publicly available. ways to increase business registry trans- available online. The names of existing parency. The need for access to corpo- companies are available online in 62% In general, the types of business regis- rate information in the name of greater of economies covered by Doing Business, try information made available to the transparency pushed many economies primarily because a company name must public vary little across economies. to digitize their business registries and be verified before it can be registered as The names of a company’s directors, publish data online. By allowing around- a new business. The business registries for example, are publicly available the-clock, online access to registry infor- in all OECD high-income economies in 92% of high-income economies mation, the need for personal visits has offer online company name search. In covered by Doing Business; this figure been reduced, significantly enhancing contrast, business registries in fewer than is only slightly lower in low-income the utility of these registries. 10 economies in Sub-Saharan Africa— economies (84%). For other cat- including Nigeria and Rwanda—offer egories of information, however, public Where company details can be searched this service (figure 4.2). More detailed access is not equally provided across remotely, information and transaction information—such as information on a economies. In 75% of high-income costs are reduced. Basic information firm’s shareholders, directors or benefi- economies, for example, one can ver- underlying potential trade or business cial ownership—is less commonly made ify the number and type of company dealings—for example, whether an available online. shares. This information can be pub- entity has the legal authority to com- licly accessed at business registries mit to an export contract or whether a Information on a company’s directors, in fewer than half of low-income particular company is in good financial shareholders and beneficial owners is economies. Similarly, while busi- standing—can be obtained quickly. The particularly important because it allows nesses’ annual accounts are avail- majority of the business registries in the both business representatives and pri- able for public consultation in most economies covered by Doing Business vate individuals to identify the owner- high-income economies, these are share some company information online. ship of companies with which they may available in only 10% of low-income Business registries in OECD high-income choose to do business or invest. In some economies. Registries in many developing economies either do not FIGURE 4.2  Company name search is mostly done in person in Sub-Saharan Africa require companies to file annual accounts with the business registry or OECD high income provide limited access to businesses‘ annual accounts. As a result, the Europe & Central Asia economy may be negatively impacted South Asia as poor quality corporate governance regimes can restrict access to informa- East Asia & Pacific tion and reduce investment returns.8 Middle East & North Africa Some kinds of business data are more Latin America & Caribbean accessible than others. In general, public access is greater when the information Sub-Saharan Africa available is considered less sensitive. 0 20 40 60 80 100 Basic data such as a company’s type Share of economies offering name search, by method (%) of activity or year of incorporation can Online In person Not available be found easily in most economies, but for business reasons some companies Source: Doing Business database. 42 DOING BUSINESS 2018 regions, however, this information is either FIGURE 4.3  Higher levels of transparency at the business registry are associated with not available or can only be obtained in higher overall levels of transparency in an economy person. In South Asia, for example, busi- ness registries in 75% of economies only Control of corruption estimate allow information about shareholders to 2.5 be made available in person. In contrast, 2.0 less than 20% of economies in Europe 1.5 and Central Asia require that those seek- 1.0 ing this information appear in person at 0.5 0.0 the business registry; in the vast majority -0.5 of economies in this region, shareholder -1.0 information can be obtained online. In -1.5 Sub-Saharan Africa, business registries -2.0 in 77% of economies do not make the -2.5 names of registered companies available 0 3 6 9 12 15 18 Features of transparency of information online. In East Asia and the Pacific, one- third of economies do not publish the legal address or the names of company Sources: Doing Business database; Worldwide Governance Indicators (https://www.govindicators.org), World Bank. directors online. This type of information Note: The Worldwide Governance Indicators control of corruption indicator captures perceptions of the extent to which would allow a company, before doing public power is exercised for private gain, including both petty and grand forms of corruption, as well as “capture” of the state by elites and private interests. Estimate gives the economy’s score on the aggregate indicator in units of a standard business with an individual, to verify, for normal distribution, ranging from approximately -2.5 to 2.5, with higher values representing lower corruption perceptions. example, whether that person is a legiti- The features of transparency of information range from 0 (not transparent) to 18 (transparent). The sample includes 189 economies covered by both Doing Business and the control of corruption estimate (data on control of corruption estimate mate company representative. not available for San Marino).The relationship is significant at the 1% level after controlling for income per capita. Even when business registry informa- United Kingdom publish their entire busi- tion is published online, it is not always ness registry database free of charge.9 HOW IS TRANSPARENCY OF provided free of charge or made easily The presentation of the information can INFORMATION ASSOCIATED searchable. In many economies, online also be a barrier. If data are available WITH EFFICIENCY AND access to company information is only only through record-by-record searches, CORRUPTION? available after preregistration or the for example, a person must begin their payment of a subscription fee, limiting search with the company name or iden- Business registries facilitate the opera- the information to those people who can tification number to access information tion of firms in the formal economy and pay for it. In contrast, Denmark and the about it. they are often the first public institution FIGURE 4.4  The time and cost to start a business tend to be lower in economies with higher transparency of information at the business registry Cost to start a business (% of GNI per capita) Time to start a business (days) 200 80 150 60 100 40 50 20 0 0 0 3 6 9 12 15 18 0 3 6 9 12 15 18 Features of transparency of information Features of transparency of information Source: Doing Business database. Note: The cost of starting a business is recorded as percentage of GNI per capita. The time required to start a business is recorded in calendar days. The features of transparency of information range from 0 (not transparent) to 18 (transparent). Samples include 185 and 184 economies after the five highest cost estimates and the six highest time estimates are removed as outliers, respectively. The relationship between the cost of starting a business and the features of transparency of information is significant at the 1% level after controlling for income per capita. The same applies when the analysis is done using the time to start a business. STARTING A BUSINESS 43 with which entrepreneurs interact. This Transparency can be approached from registries), particularly when transpar- first interaction can have a formative multiple aspects. Beyond providing ency is conveyed on multiple levels (such impact on the entrepreneur’s perception readily available and reliable information as clearly stating business registration of the efficacy of the public administra- about existing companies, it is important fees and the expected time to receive tion. Indeed, the level of transparency that entrepreneurs can openly access incorporation documents). and trust in an economy has been shown information about the requirements to to be highly correlated with the level establish a business (such as a list of of transparency of information at the required documents, fee schedules and CONCLUSION business registry (figure 4.3). When services standards). When public access business registry information is easily to information on company incorporation The transparency of the information accessible and can be searched remotely, requirements is limited, it can represent provided by the business registry plays it can facilitate business transactions by a substantial obstacle to entrepreneurs a vital role in an economy. Transparent removing unnecessary steps and reduc- who want to start a business. However, business registries reduce information ing transactions costs. when transparency is a priority for busi- asymmetry among entrepreneurs and ness registries and all requirements are broaden the pool of potential investors The level of transparency of information made public, more firms are able to enter by reducing the need for personal con- at business registries is also associated the formal sector. If anyone can easily nections. Transparency can also raise with the time and cost to start a business. obtain transparent information before a the accountability of public officials and Data show that, on average, economies business transaction, it can increase the strengthen trust in public agencies. In with greater transparency of information ability of companies to conduct proper the past decade, government agencies tend to have faster and less costly pro- Know-Your-Client procedures, raising the around the world have used technology cesses for starting a business (figure 4.4). level of trust in transactions and counter- to increase the transparency of public In economies where official information parts. Easy access to relevant information services. Technology can be utilized by on how to incorporate a business is not is also correlated with increased transpar- governments to improve transparency of made readily available, entrepreneurs ency of interactions with public officials. company ownership and the procedures may have to seek legal advice from third Doing Business data show that economies to start a business. This case study has parties or visit various government offices with transparent business registries tend shown that the public availability of to find reliable information. In contrast, to have lower incidences of bribery, both information on company ownership and when the information is consolidated asked and given (figure 4.5). Transparent starting a business is associated with an and easily obtained, entrepreneurs can information provides citizens with the increase in an economy’s overall level of spend less time and money finding it; data they need to hold their counter- transparency, an increase in the efficiency they can dedicate more time to running parts accountable and improves trust of business registration and a decrease their business. in public agencies (including business in bribery. FIGURE 4.5  Levels of bribery tend to be lower in economies with higher transparency of information at the business registry Share of people who have been asked to pay a bribe (%) Share of people who paid a bribe (%) 100 100 80 80 60 60 40 40 20 20 0 0 0 3 6 9 12 15 18 0 3 6 9 12 15 18 Features of transparency of information Features of transparency of information Sources: Doing Business database; Transparency International database (https://www.transparency.org). Note: The features of the transparency of information range from 0 (not transparent) to 18 (transparent). The samples include 100 and 89 economies covered by both the Doing Business database and the Transparency International database. The relationships are significant at the 1% level after controlling for income per capita. 44 DOING BUSINESS 2018 NOTES This case study was written by Cyriane Coste, Frederic Meunier, Nadia Novik, Morgann Reeves and Erick Tjong. 1. ASORLAC, CRF, ECRF and IACA 2016. 2. De Simone and Fagan 2014. 3. Klapper, Laeven and Rajan 2006. 4. Malesky, McCulloch and Duc Nhat 2015. 5. Diamond and Verrecchia 1991. 6. Palstra 2014. 7. Accessibility to 14 types of business information is included in this case study. These are the following: name of company, name of directors, name of shareholders, name of beneficial owners, articles of association, year of incorporation, company identification number, legal address, physical address, type of activity, annual accounts, annual returns, capital structure and corporate structure. In addition, the documents to start a business, fees, service standards and statistics are also included. 8. Bradley 2003. 9. Quintanilla and Darbishire 2016.