Since 2015, the sociopolitical momentum driven by Guatemala’s fight against corruption has channeled multisectoral efforts toward structural reform of the country’s legal framework. In this context, the Economic and Foreign Trade Commission of Congress, the Ministry of Economy, and support from the business sector have focused on promoting an economic competitiveness agenda essential for driving national development under the government’s 2016-2020 general policy.
Guatemala’s poverty levels remain alarming, reflected in the country’s annual GDP growth rate, which has failed to reach even a modest 4% average over the past two decades. The projected growth for 2017 was only 3.4%. According to FUNDESA projections, without substantial improvement in this growth rate, it would take approximately 60 years to reduce overall poverty from 51% to 31%.
Therefore, it has become necessary to seek alternatives to stimulate wealth generation and the formation of new businesses to accelerate economic growth, improve competitiveness indicators, and reduce poverty.
Competitiveness and Ease of Doing Business
Analyzing key economic indicators reveals that the ease of doing business under a country’s regulatory framework and its ranking in the economic freedom index significantly impact its position in the global competitiveness index.
As a first step toward economic growth and enhanced competitiveness, there is a clear need to eliminate unnecessary regulatory barriers and streamline processes for establishing new businesses. According to the Global Entrepreneurship Monitor (2016), registering a business in Guatemala requires seven bureaucratic procedures, compared to an OECD country average of 4.8 procedures. Additionally, while it takes an average of 8.2 days to register a business in an OECD country, the process takes 19.5 days in Guatemala.
The 2017 Reforms to the Commercial Code
Decree 18-2017, recently approved by Congress, introduces several reforms to the Commercial Code aimed at making the regulatory framework more efficient. These reforms facilitate access to the formal economy, reduce costs and procedures for registering commercial entities, and align the Code with the current context of constant technological transformation.
Key highlights of the reform include:
• Reduction of Minimum Paid-In Capital: The minimum paid-in capital requirement has been reduced from Q5,000 to Q200, significantly lowering the cost of establishing a business.
• Flexibility in Contributions: Contributions of up to Q10,000 can be entrusted to administrators instead of being deposited in a bank.
• Remote Communication: The reforms allow for shareholder participation and decision-making in assemblies, boards, and meetings via remote communication methods, as specified in the company’s articles of incorporation.
• Simplified Registration Processes: The reforms eliminate provisional registration for commercial entities, requiring the Registrar to grant definitive registration once all legal requirements are met. Additionally, publications are now electronic, and the opposition period has been reduced to three days.
These measures also include the electronic registration of individual merchants, streamlining commercial operations and modernizing the regulatory framework to meet current technological needs.
Next Steps for Economic Growth and Competitiveness
To further drive economic development and competitiveness, a new wave of reforms to the Commercial Code is recommended. These could include:
• Introducing new corporate structures such as simplified or variable capital companies.
• Enabling the incorporation of any commercial entity through electronic forms.
• Simplifying and shortening the process for liquidating businesses.
Conclusion
A more prosperous Guatemala is achievable through continuous efforts to strengthen the economy and consolidate a true rule of law. Recent reforms represent a crucial step in facilitating the creation and operation of commercial entities, but further advancements are essential for sustained progress.
Jorge Luis Rodas
Lawyer and Notary | Founding Partner NexusLegal
Comments