Economic Policy Review ISSN 1313 - 0544

The legislative competition

Author: Metodi V. Metodiev / 11.12.2008
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The MPs could not understand the logic behind the proposed by Martin Dimitrov (deputy) changes to the requirement for a minimal capital to start a business and specifically to register a limited liability company (OOD). The idea is related to the reduction of the required capital from 5,000 levs to 500 levs. At the end of the day it was not passed. In spite of that positive steps were taken in the process to ease up the administrative process to start a new business - the Parliament passed a decision that when setting up a limited liability company you have to put 35% of 5,000 levs (i.e. 1,750 levs) in the special account. Before the changes it was mandated that 70% of the required minimal capital be put into a special account (i.e. 3,500 levs).

Due to purely political or even better purely economic reasons, during recent days the Minister of Economics Mr. Peter Dimitrov mentioned that the Council of Ministers could rethink the concept for minimum capital and eventually to suggest a greater (that Mr. Martin Dimitrov's proposal) reduction and the amount of 100 levs was mentioned.

All this (really) is making us believe that a better policy for the Bulgarian entrepreneur would take place in the near future. Here is the place to propose to overcome the psychological barrier of the politicians and to repeat the proposal of IME for total removal of the requirements for minimum capital to start a business. The difference is not significant from 100 (or from 500 levs) to 0 levs. The removal of the requirement would save:

  • Compliance costs with the administrative requirements, as well as
  • Transaction costs related to finding, negotiating and administration of legally defined amount of money, required to start a business (as it is well known the entrepreneurs have to borrow the money to register a company). 

Besides that the removal of the requirement for a minimum capital would help for:

  • Development of entrepreneurship. The young people with ideas would have a better environment for realization and better motivation for development;
  • It would be possible to achieve missed benefits for the budget, from the point of view of tax and non tax revenues;  
  • Develop the potential of the economy as a whole.

With respect to the answer to a group of politicians about the "negative effects" from the elimination of the requirement of a minimum capital, IME had given a sufficiently detailed explanation to rebut the thesis that they would not be able to protect the creditors of the companies. In order to remind you the discussion you could look here and here.

I would like to finish by expressing my strongly positive perception of the ideological (and logically accurate) evolution of the people who must implement this policy.