The aim of this unit is to know the social and economic background in which the new economic initiatives are being developed nowadays and to analyse the procedures to set up a company legally.
The entrepreneur must be acquainted with the present socio-economic background, the current information society demands and the consequences that the globalisation of the economy and the new currency have for the new entrepreneurs.
Everyone who wishes to start a business must know the different available legal forms to set up a company, in order to be able to choose the one that best fits the particular needs.
Once the constitution of the company has been decided, it is necessary to clarify all the indispensable proceedings that have to be performed.
The election of the legal form and especially the administrative procedure are some of the main obstacles pointed out by entrepreneurs to set up a company.
Avoiding the fear of the procedures, getting familiar with the administrative language, and knowing guidelines in order to choose the most suitable legal form for their companies, will greatly facilitate the first steps in setting up the business.
Naisbitts (1990) considers the cultural and economic tendencies in these days and puts forwards the following considerations:
This evolution can be observed in the change of the workforce composition in many countries. Increasingly, there are less people employed in the primary and secondary sectors and more in the tertiary one. This one is undergoing a mobility that runs from the commercial sector to the service one.
The knowledge and inventions produced during the last 20 years by mankind are much bigger than those produced during the former 200 or 300 years. Therefore, we must prepare ourselves so that all the knowledge and information that we get today is updated and modernized in a short period.
According to Drucker (1988), theses fact have produced the following changes:
- Knowledge, which has been considered for long as a social ornament and a luxurious article, has become the actual capital of any economic system.
- Knowledge productivity is the key for the productivity of the companies, for their competitive force and economic success.
- Knowledge has become the basic industry, which offers to economic systems the essential and main resources for production.
This is the present tendency and the distance factors, which were the great competitive advantages in the past, have become irrelevant nowadays. We can see how those countries that are a long distance from the major world markets, are present in their transactions, and in their products. Therefore, we have to forget the obsolete notion of protected and subsidized local markets, and begin to consider the global ones, since the global world has become the market.
Supporting this concept, Bonanno (1998) affirms that those countries, which deregulate their trade and learn how to compete in the global market have economic systems that grow and develop much faster than those belonging to countries that prefer to protect their internal markets.
Besides, according to Howard (1998), this view known as “global economy” is moulded in the realization of numerous international agreements. The Free Trade market of North America, the European Union and several regional alliances, signed among different countries in America, southern Africa, south-eastern Asia, the Middle East,and even the former Soviet Union, represent a growing commitment on the part of governments in favour of deregulation in international trade and investments as a way of propelling the economic growth.
The experiences and results achieved by some countries in Asia are clear instances of those changes. A very special phenomenon has been taking place during the last thirty or forty years : those countries have invaded the world market with their products.
Many countries have understood that it is not a good policy to preserve by means of subsidies the life of companies that have no future, and that it is even more absurd that the states buy and keep them on the assumption of getting a presumed social benefit, without considering the actual costs of this inefficiency. Communities are beginning to understand a basic principle which had been forgotten : resources must be assigned on economically productive investments which will generate products with a good added value.
One solution may be the companies privatisation that have a high potential to be productive with private management and the closure of organizations without that productive potential. The positive contribution of these policies on the economies of the countries that have followed this trend, is economically quantifiable and the temporary problems arising from unemployment, have been widely solved thanks to the germination of better and stronger economies.
A great number of developed countries set forward and carried out during the years 1960-1980 the idea of the state-benefactor, in which the government was responsible for everything : education, health,employment, etc. Those models were sustained thanks to the prosperity of those countries at that moment. Those patterns cannot be kept nowadays because of the crisis; the responsibilities are turning back to citizens and they have to adapt to this reality.
The growth of private education, health, insurance and leisure services all over the world, is a clear example of this trend; the governments should only care for those citizens whose life conditions and education do not allow them to defend themselves.
Something similar has been brought about in the labour world. Until a few years ago, being a wageworker was believed to be the safest and most reliable way of self-development. People adjusted their lives and those of their families to the organizations they worked for.However, the massive dismissals during the 80´s, the limitations in promotions and salaries clearly indicated to many employees that their lives could not depend on their employers, and that they had to seek for the development of independent activities which would bring upon them safety and self-satisfaction.
The big companies have stimulated their employees so that they can abandon their corporations and set up their own companies. Besides, people who were working for big companies were highly frustrated as fewer and fewer opportunities for promotion were offered to them. Besides, the fact that a great number of big companies dismissed a lot of people in middle management positions, has provoked an increasing number of experimented people looking for a better professional option : self-employment. This is one of the most drastic social changes which has recently taken place and Drucker has called it the biggest social revolution in this century.
Davis ( 1998) and Lever ( 1998) point out that the access of women to the labour market is another economic factor to be considered. In our geographic sphere, women are taking up business in a proportion twice higher than that of men. For a lot of those women, self-employment provides an opportunity to combine their professional career and their family life.
The final result of all this process has been the renaissance of the Small and Medium-Sized Companies ( PYME or SME)1.
Therefore, in the developed countries a great number of workmen have rebounded jobs in big companies and have created their own. This phenomenon has also been produced in developing countries, being reinforced with other additional aspects : the informal economies or the “research ones”. This type of economy clearly shows how people dedicated to set up their own business. The European Community Commission2 is during the year 2002 updating the definitions of small and medium-sized companies.
Graham´s investigation ( 1985) in the USA determines that small sources of employment since 1970 and that between the years 1977-1982, more than 1000 big companies, according to the “Fortune “ magazine, lost 1´5 million jobs. Nevertheless, the companies, too small to be included in that lest, generated 8´6 million new job positions.
In Spain, Bermejo, Rubio and Vega (1996) analyse the information collected by the Social Security Treasury and they infer that more than 92% companies belong to the small and medium-sized category.
These new companies are the result of the action of new entrepreneurs, who believe that the ideal of life and work must be an act of self-realization, since as Timmons, Smollen and Dingee ( 1985) point out one cannot believe nowadays that the Nirvana is to be a wageworker for big corporations. This generation is an active, ambitious one that believes in its own talents, and is in search of a different frame. These new entrepreneurs are trying to build up totally different organizations from the traditional ones, and have included very special new concepts, such as flexible timetables in order to satisfy the personal needs of their employees; they have also introduced in the companies human values which make the trade unions and the traditional labour conflicts seem anachronistic.
In the Czech Republic an entrepreneur generally has the technical skills to compete in the incipient business world, but he doesn’t often have some degree of the required skilfulness. However, a “tough entrepreneur” doesn’t get lost in the EU and he can even do better than some westerners since they were forced to solve everything by themselves under the communism. One of the biggest problems outlined by the Czech entrepreneurs is the lack of experience as managers, since, even if someone is a good workman, it doesn’t necessarily mean that he or she is a good entrepreneur.
In the past, people considered that the best was to create bigger, more complex and hierarchical business structures, but the whole pattern has greatly changed. This change in the tendency going from the big aspects to the smallest ones, reflects the new tendency of the economy towards the service sector. In relation to the industrial sector, the small companies have kept successfully against the competence of the biggest ones. The introduction of computers in many kind of industries has allowed the small and medium-sized companies to operate as efficiently as the big ones, thus eliminating the scale economy 3 that tended to benefit the big size production. Due to their simpler organization and to their administrative structure, these small and medium-sized companies are usually able to offer custom-made services or deliver goods more rapidly than the big ones3.
If we have a look at the work frame in our country, we notice that:
Young ( 1998) affirms that for many years, people talked more about privatisation than what was really privatised in practice. The number of transactions has significantly increased in the last ten years. For instance, in 1992, thousands of privatisations have been completed in the developed countries, and since then, the figures have amounted to several billion dollars. This tendency can be more clearly stated within the communist countries, as among them,whole sectors of the economy have been transferred to the private one. In Latin America, privatisation has taken place in important sectors among the public services, such as telecommunications, energy, water supplies and railways.
Those tendencies clearly show the substantial modifications of these systems and the identification by intermediate positions which don’t confer special prominence either to the private initiative or the state-centred units.
The dismantling of the benefactor states, initiated during the 80’s in England, and the dismantling of the centralized economics in the former USSR, China, and the whole eastern European countries, brings about a new kind of Socialism that coincides with the concept of free enterprise and market economy.
During the dismantling in England from 1980 to 1988, more than 40% of the state properties were privatised.In 1988, for the first time the number of British citizens which were company members was higher than the number of those who belonged to Trade Unions.
Mijail Gorbachov Perestroika impelled great changes, not only in policies but also in economies all over the socialist countries. Mr. Gorbachov’s reforms encouraged the growth of private agriculture forming, moonlighting, and the small private business, recovering the basis concept of entrepreneur.
In the Czech Republic, there are more than 10 different organizations of SME´s in the Economy Chamber, which is one of the highest number of entrepreneurial representations in Europe. The Czech government has created a fund of grants for small and medium-sized companies and has regulated this sector with several laws. Among them, the most important are : The Commerce Law, The Trade Law, The Civil Code, The Declaration and Activation in Bankrupted Law, The Influence of Economic Competitiveness Law and some others which have influence not only on the very business activities but also on the investment process and the creation of new companies. If a foreign company decides to start a business venture in the Czech Republic, it can do it under the Commerce Code regulations to get established either as another legal Czech entity or as an associated member to an already existing one.
This enterprising tendency is spreading all over the world and is greatly accepted by young people, since among them, we find the most innovating kind of people who are not afraid of taking risks, and less prone to expect government assistance. In many current cultures, industrial and business people are becoming social stars models to be imitated. According to this guideline, The "White Paper" of the European Union suggests 17 areas for the "New European Employment sites"
The constituent European Community Treaty steps the process of realization of the financial and economic unification in the European Union (UEM) in three phases :
The introduction of the euro has involved the creation of a very big inner market which has transformed the business world and the operating patterns of companies and organizations related to the euro area. The Euro became a concrete reality on the 1st of January 2002 when the new notes and coins began circulating all over Europe.
The origin of our new currency is laid out on the different treaties signed and drawn up by the European Council composed by the head of states of the different countries, members of the European Union, and the subsequent ratification by every country in agreement with their respective internal legal procedures.
The state members governments agreed the creation of the new currency, which was named “euro” at the European Council held in Madrid in December 1995.
The European Bank ECB4 was founded on the 1st of June 1998 and is located in the German city of Frankfurt on the Meno. Its major aim is to keep stability on prices and directing a unique monetary policy in the “euro” area. The BCE and the national central banks in the “euro” area form the Eurosystem.
The Euro area is composed by the member states of the European Union that have adopted the “euro”. The governing organisms of the European Central Bank direct the monetary policies being the same for the whole area which is nowadays composed of twelve countries : Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxemburg, Holland, Austria, Portugal and Finland.
Denmark, Sweden and the United Kingdom are members of the European Union but they have not joined yet the unique currency. Denmark is part of the Mechanisms of Exchange Rates II through which the Danish Crown is linked to the “euro” although its exchange rate is not fixed ( chart 1 = Countries within the euro area ).
The symbol of the Euro. The symbol is inspired by the Greek letter “ epsilon” and it also refers to the first letter of the word “Europa” ; while the two parallel lines symbolize the stability of the new currency. The official abbreviator for the Euro is EUR and it has been registered at the International Organization for Normalization (ISO). It is used with financial, commercial and business aims. |
€ |
| A company is an organized body of human, physical, technological and financial resources that tends to the achievement of one or several pre-stated objectives. Its aims are to satisfy human necessities getting in exchange the biggest benefit permitted by the market. |  |
The objectives of a company can be of several types : economic, social and cultural ones. As some examples of social companies we can mention any related to the fire department or any foundation caring for unemployed people. A cultural company could be for instance a music school and a protection company, the one that attends to natural resources.
Fortin (1992) in his network pattern, situates the company in a particular environment. This one is continually changing and the company must act and move within it; according to that, it will have to develop the capacity of forecasting those changes likely to occur in that environment (Figure 5).
Legal context Socio-cultural organisation Economic factor
Political factors Technologic and school-field Business sector
Figure 5. Elements that form the environment of a company
They can be grouped as:
Companies can be grouped according to the legal formation, and each country has its own classification
Cornejo (1996) points out the following legal forms more frequently used when working independently, and that are shown in the figure 7.
| LEGAL FORMS | ||
| Individuals: | Individual Entrepreneurs | |
| Civilians: |
|
|
| Legal entities: | Trading companies |
|
| Cooperative Companies | ||
It is an individual who usually performs, either alone or through a representative, any activity aimed at setting up a commercial, industrial or professional company.
The characteristics of this pattern are :
This pattern includes the self-employed people ( with no employees), owners of individual companies and the work team associated to them ; that is: permanent, part-time employees, trainees and family workers not receiving any salary. It also takes into account the cooperative production members.
According to the ILO report ( 1991 ), in 1990 this sector accounts for approximately 50% of the non-agricultural employment in industrialized countries with market economy.
This pattern occurs when two or more people willingly signed a specific trading contract establishing a legal entity. They put forward a common patrimony fund made up of either properties or labours in order to collaborate in the exploitation of a lucrative company, with the intention of getting a private benefit on the one hand, and share the financial benefits on the other. Then, these companies can be trade companies or cooperative ones.
They are formed by more than one owner ; the extent in liability and ownership depends on the type of company and on the legal regulations which control them.
They are regulated by the Civil Code and possess individual entity although there are two or more members.
Non-trading companies: It is a contract signed by two or more people sharing money, industry or goods in order to share the later benefits. The responsibility of the partners is jointly held and direct.
Join estate: when the property of something or of a right belongs to several people pro indivis. The economic responsibility of the partners is jointly held and liable.
TRADE SOCIETY COMPANIES
They are regulated by the Commercial Law and by a series of special laws which develop and fulfil some other aspects previously regulated by the Commercial Law. The main laws are: The Suspension of Payment Law, The Public Company Law, The worker’s Cooperative Law, The limited Company Law, The Public Labour Company Law, The cooperatives General Law, The Cooperative Regulations and the Trade Regulation of the Chamber of Trade and Industry.
The requirements to set up a company are:
Collective Company.
It is a company in which every member under a collective denomination and a registered name, chase according to a percentage freely agreed the same rights and obligations.
The most relevant characteristics are:
Limited partnership company
Limited partnership company
It is a company made up by two types of members, the collective ones who contribute with capital and work, and as in the case of the collective company are liable to respond with all their properties, and sleeping partners, who only contribute with capital and are responsible only for the contributed funds.
The most relevant characteristics are:
Stock Limited Partnership
It is a variety of the former company which is regulated as a trade company. The most relevant characteristics are
Limited Responsibility Company
It is a company in which members contribute with capital and are responsible for the social debts only with their contributions.
Its major characteristics are:
Joint-stock Company
A joint-stock company is a capital company in which the share stock is divided into shares that can be freely transferred and the members do no directly respond for the social debts.
The main characteristics are:
Worker’s cooperative
It is a company in which at least 51% of the share stock belongs to the workers who are paid directly for full-time and indefinite contract.
The main characteristics are:
It is an association of people, individuals and legal entities, who work cooperatively. Its aim is to give its members work in order to produce common properties and services for third people.
Its major characteristics are :
Any physical or legal entity is entitled to carry on business if it meets the conditions stated under the Small Business Act.
General conditions:
b.1. Joint Stock Company: The Government prefers this type of company. The shares can be freely traded, depending on the company's articles, and do not need registration in the Register of Companies. Therefore, the advantage of a joint stock company is the shares, which are expected to be publicly traded. The accounts must be done annually. Other two advantages of this company is extreme confidentiality for the beneficiaries and that there is no liability for the shareholders.
b.2. Limited Liability Company: This type of company cannot trade on the stock exchange, but owners have limited liability up to their unpaid deposits. The rights and duties of this type of company and its participants are regulated by the Commercial Law. The main benefits include extreme confidentiality for beneficiaries. Annual filing of accounts must be completed (Chamber of Trade and Industry and Trade register)
b.3. General partnership: A general partnership (unlimited liability company) is an association of two or more legal entities or individuals in order to carry out a business under a common name. There are no restrictions regarding the maximum number of partners.
The main feature of a general partnership is that the liability of each partner is unlimited. As a legal entity, it may acquire rights and incur liabilities and sue and be sued in its own name. The partnership agreement regulates the rights of the partners internally and with third parties.
Dissolution and liquidation of the partnership is governed by the Commercial Law to the extent that the partnership agreement does not address this matter.
A partnership share can be transferred only if permitted and in accordance with the partnership agreement, or if it is so agreed by all partners. Two partners must remain all time.
The partnership must be entered in the Commercial Register and in the Chamber of Trade and Industry. The application for registration must include the partnership agreements, which in turn must contain the following information:
No minimum deposit is required. The obligatory deposits must be recorded in the partnership agreement. All deposits made become the property of the partnership and must be paid within the time stipulated in the partnership agreement.
b.4. Limited partnership: A limited partnership is a variation of a general partnership. It has at least one general partner, whose liability for the debts of the company is unlimited, and one or more limited partners, whose liability is limited up to the amount of the unpaid parts of their contributions to the partnership capital. The minimum contribution is CZK 5,000.
The rights and duties of the partnership internally and with third parties are regulated in the partnership agreement to the extent that they are not stipulated in the Commercial Law.
The partnership agreement must contain the following information:
A limited partnership must be entered in the Commercial Register and, if necessary, in the Chamber of Commerce, and details of the capital contributions of the limited partners must be given (in addition to the information listed above). The application must be accompanied by the signed partnership agreements as well as other documents identical or similar to those required in case of the other types of legal entities.
b.5. Silent partnership: The silent partnership is an unpublished and unregistered written agreement by which the silent partners contribute funds or assets to a business but take no part in the activity of the business. The status of a silent partner is similar to that of a creditor.
The value of the deposit increases or decreases in accordance with the silent partner's share of profits and losses.
The liability of a silent partner for the debts and the profits of the business is limited to the amount invested in it by that partner.
The session will begin with an introduction on the economic tendencies in our current society; later on, the participants will be asked to illustrate each change with everyday example.
| Characteristics |
Examples |
| a) There is a shift from an industrial society to a computerized one. | |
| b) There is a general tendency to choose generalists, people who are able to learn quickly new concepts and technologies, and get used to new situations, instead of specialists, who quickly become obsolete in their work. | |
| c) We are shifting from local and regional economic models to global ones. | |
| d) We are shifting from economic models based on import substitutions to economic areas based on export promotions. | |
| e) We are beginning to get convinced that we must forget past industries and give way to future ones. | |
| f) We are also beginning to understand that we should relay more on our own capacities than on institutional ones specially those offered by governments. | |
| g) We are shifting from a society of employers to one of employees. | |
| h) We are reforming our organizations into smaller, entrepreneurial and more participative, productive units. | |
| i) We are contemplating the transformation of antagonist political-economic models such as Capitalism and Marxism |
The class will continue with a discussion in which the teacher will motivate the students on the importance of the contents. Reflections must lead to the needs of choosing correctly the legal form, and of understanding the administrative procedures to set up the company. The exposition of these ideas by the teacher will be reinforced by means of questions to the students. What is a company legal form? What types of companies do they know? Does anybody know someone who has started up a company? What legal form has he chosen? Is everybody well acquainted with constitutive procedures? Why is it important to choose correctly the company form?
Considering the assumption that everybody wants to set up a company, set forth the question, what aspects should be taken into account to choose a legal form? To be applied by the students according to the brainstorming technique. Once that the different criteria have been exposed by the students, the teacher will complete the lists and argue with them about the importance of every aspect to choose a legal form.
The students are in groups. Each group will study the advantages and disadvantages of a legal form. Later on, there will have a debate in which each group will try to convince the other that their chosen form is the most suitable one or, pointing out its positive aspects. The teacher will encourage discussions among the groups, each one trying to defend the advantages of its choice upon the rest of the group.
When the discussion is over, the teacher will make a summary of the characteristics, advantages and disadvantages of each legal form.
The students, in groups, will draw a figure with two columns where they will write the characteristics, advantages and disadvantages of each legal form.
Taking into account the results achieved at the moment, each student will choose a legal form adjusted to his project and will explain the group the reasons for his choice.
Class debate: Supposing we want to create a company, which models would we choose? Which legal form would turn out to be the most profitable for the owner in relation with financial, physical and social aspects?
The teacher will make an introduction about the administrative procedures to set up a company. Later, following the brainstorming technique, a detailed list will be elaborated which will contain the different steps to set up a company.
The students, divided into groups, will draw a design based on the "snakes and ladders for the creation of a Company". Each group will choose a legal form so that the players can pick up the specific procedures for the creation of their particular type of company. Later on, the groups will change their designed games and they will start playing.
Each group will have to find out the places where the creation procedures are carried out and place them on a map of their region, village or town. The maps will be hung in suitable place so that everybody can consult them.
These activities can be completed with the actual realization of the procedures. The students could be sent personally to the different offices where the required documents must be filled out.
It would be interesting to visit to the Chamber of Trade and Industry or Business Associations, depending on the country, in order to know about a company which interests them and find out how it works.
It is also motivating to visit public organizations (Town Hall, the Treasury, the register office or administrative office) where they can find out about the procedures to start up a business.
Divide the class into groups and ask them to set up a company including the following information: name, locations, size, licences, activities, clients and suppliers.
Look up the meaning of the following words in the dictionary: suppliers, clients, procedures, taxes, etc.
Bermejo, M.; Rubio, I. y Vega, I. (1996). La creación de la empresa propia. Madrid. McGraw-Hill e Instituto de Empresa, 11-65.
Bonanno, P.O. (1998/08/1). "Globalización, comercio y democracia" en la Reforma Económica Hoy [en ligne]. http://www.cipe.or/s25/bonans25.html.
Cornejo (1996). Economía y organización de empresa. Servicio de Orientación Profesional. MEC. España.
Davis, S.A. (1998/08/1). "Las mujeres en los negocios: Una llamada a la acción" en la Reforma Económica Hoy [en ligne]. http://www.cipe.org/s24/daviss24.html
Drucker, P. F. (1988). "Management and the World's Work" en Harvard Business Review. September-october.
Fortin, P.A. (1992): Devenez entrepreneur. Québec, Canada. Les éditions Transcontinentales inc. 2ª édition.
Graham, E. (1985). The entrepreneurial Mystique" en The Wall Street Journal: A Special Report on Small Business, 20 May, sec 3, 1c. 4c.
Howard, J. (1998/08/01). "Por qué el comercio internacional es esencial para el desarrollo económico" en la Reforma Económica Hoy [en ligne]. http://www.cipe.or/s25/howars25.html
Lever, A. (1998/08/14): "Organizaciones empresariales de mujeres: su potencial y poder" en la Reforma Económica Hoy [en ligne] http://www.cipe.org/s24/levers24.html
Naisbitts (1990). Megatrends, 2000. Las grandes nuevas tendencias para la década de los 90. Barcelona. Plaza et Janés. traducido New York. Willian Morrow and Company.
Timmons J. A.; Smollen, L.E. & Dingee, A.L.M. (1985). New Venture Creation. A Guide to Entrepreneurship. Homewood. Illinois. Richard D. Irwin. 2nd ed.
Young, P. (1998/08/01). "Las enseñanzas de la privatización" en la Reforma Económica Hoy [en ligne]. http://www.cipe.org/s27/youngs27.html
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Small companies : between 1 and 50 employees
Middle companies : 50 and 250
Big companies : over 250 employees.
Micro companies : less than 10 employees
Small companies : between 10 and 100 employees.
Middle companies : between 101 and 500 employees.
Big companies : over 500 employees.
1 employee
2 to 9 employees
10 to 49 employees
50 to 249 employees.