Current challenges for commercial companies in Venezuela
Feb 4, 2015
One quick form of verifying the little amount of respect from the Venezuelan State to private property, to freedom of enterprise and private initiative, is to review the regulatory frame involved in the incorporation of a commercial company.
The most recent date from "Doing Business" 2015 place Venezuela in rank 182 out of 189 countries evaluated on the starting a business category. Amongst other aspects, the reason therefor is that in Venezuela it takes approximately 144 days for a company to be fully operative. These figures are far from those shown by other countries in the region. Chile is ranked 41 and the term for a company to be operative is of approximately 59 days.
Venezuela’s position in recent years in "Doing Business" has been similar and we could affirm that one of the determinant factors is the inefficient and arbitrary manner according to which the Commercial Registry and their legal regime work.
As a matter of fact, since the enactment for the first time in the year 2001 of the Decree with Rank, Value and Force of Law of Public Registry Offices and Notaries, the incorporation of a commercial company in the country has become more difficult.
The latest reform made to this body of rules issued in December of 2014 could now make this situation further worse. For instance, the Autonomous Service of Registry Offices and Notaries (SAREN by its Spanish accronym), from which depend all Registries and Notaries, was formerly attached to the Ministry for Domestic Affairs, Justice and Peace. But now, with this latest reform and without any justification whatsoever, it has been established that the SAREN will be a part of the organizational structure indicated by the President of the Republic, i.e., there is no precise indication on the government entity to which it shall now be attached to.
Another significant change refers to the controlling powers of Commercial Registries at the time of preventing the incorporation of companies with insufficient capitals. Formerly, the Commercial Registries were empowered to discretionally deny the registration of a company if it was deemed, under reasonable criteria, that the amount of capital was insufficient in connection with the company’s object.
Such provision as stated back in the beginning of 2001 raised questions because (i) it superseded the will of the shareholder by the will of the State, through the Commercial Registrar; (ii) the party involved in the process who is in the best position to know what amount of capital should be invested for the purposes of starting the business is the shareholder; (iii) a conduct contrary to good faith is ultimately pressumed and (iv) other means of control may be established further ahead to address the issue concerning companies with an inssuficient amount of capital, without the need of sacrificing freedom of association and enterprising.
This controlling power brought other practical problems that obstructed and made difficult the path for the incorporation of a commercial company.
Today the regulation is much more arbitrary because the reasonable criteria is now furnished by the SAREN (not the Commercial Registry) in accordance with the legal system and "State policy", i.e., a term that is extremely vague, discretional, abstract and in the hands of the State.
Other novelties of this law decree which impose more charges and encumbrances upon private parties and individuals is the increase in the rates involved in the different stages of incorporation of companies in Registry Offices and Notaries as well as the creation of a 1% rate for the registration and increase of the the capital of companies (a payment made in favor of the SAREN).
All these changes will constitute, in our opinion, in more obstructing elements to incorporate a company in the country and, it is very likely that the figures indicated at the beginning of this report should increase. These figures should not be read out in an isolated manner. We recommend that the following data is also considered:
- Venezuela is placed 184 (out of 192) in the rank of the International Index of Quality of Institutions.
- Venezuela is placed 97 (out of 97) of the International Index of Property Rights of the Alliance on Property Rights.
- Venezuela is placed 174 (out of 177) of the International Index of Economic Freedom from The Heritage Foundation.
In all these indexes which are annually presented in Venezuela by CEDICE, a common element in all of them are the last positions held by Venezuela, thereby showing once more that over more than a decade there is a systematic policy of disregard of rights and economic freedoms.
* Member of the academic committee CEDICE Libertad