A disturbing tradition has taken root in Lithuania. The government is dispensing favours and handouts while paying lip service to private business initiative. Government largesse is ostensibly supposed to open up new opportunities for business growth. Meanwhile, the authorities are turning a blind eye to emerging obstacles to business undertakings. The first steps in starting a company are already beset with a mass of senseless, and often insuperable, problems.
Most would-be entrepreneurs picture the start of a business more or less like this: “I will go and fill in some forms, pay stamp duties, get a registration certificate and I’m done with it.” Such attitudes, I’m afraid, are too idealistic. No matter what type of business is going to be launched, an entrepreneur-to-be is in for a bit of bureaucratic horror.
Registering a Company Name
According to the Law on the Register of Enterprises, founders of a company must submit a copy of the certificate on the registration of the company’s name to the registrar. So, before filing a registration application, the founders must register the firm’s name with the State Patent Bureau. This implies extra visits to the authorities, extra forms, and extra stamp duties. In addition to that, the founders will be in for a bit of disappointment as they register the company’s name. The problem is that “the best” names have already been picked out. To give their own firm a more or less decent name, they will have to buy it from business registration mediators. In Lithuania, company names are subject to strict regulations which prohibit the use even of certain Lithuanian words, phrases and figures, let alone foreign words. As a result, the inventory of potential names is almost complete, and with thousands of companies already in operation, the choice is very limited.
The authorities may have a good intention of preventing companies from being confused with one another. But that’s what company codes are for. Another good intention is to protect the names of existing firms from being used by others. But this reminds of protection through coercion. A sports club Sveikata (health in Lith.) in Gargždai, for example, would hardly ever care about a drug-store by the same name in Zarasai. But the existing rules make people invent cranky names, so our drug-store in Zarasai would be named, for example, Pananginas.
The use of names could be restricted, if at all, say, on a smaller territory instead of the whole country? The registration of names with the Patent Bureau as well as their special protection are often, though not always, useful for businesses themselves. So why not have voluntary registration? In turn, the task of checking if there are any other enterprises by the same name could be delegated to the institution responsible for legal registration of businesses.
Another regulation imposes restrictions on the use of the word Lithuania. If one wants to use this word in the name of his firm, he must obtain permission from the prime minister. The criteria for granting such permits are rather vague, and permits are issued fairly rarely. That private entities are not allowed to use the official name of the state, the Republic of Lithuania, is understandable. But nationalisation of the name of the country, Lithuania, seems strange, to say the least. Contrary to what Lithuanian bureaucrats may think, in the business world the name of Lithuania is far from being associated only with the government. At this particular point, my special sympathy is for subsidiaries of international companies. Some Lithuanian firms may deem it prestigious to use the word Lithuania in their names, but for international groups it is but a geographical term which designates the territory where business is done.
Forming Authorised Capital
In order to start a joint-stock company or a limited liability company, one must raise authorised capital. In Lithuania, authorised capital is still viewed as a sort of companies’ guarantee for third parties. In reality, however, authorised capital is supposed to help accumulate funds and to reflect equity and the owners’ role in the company’s management. In Lithuania, companies are not simply subject to a minimum capital requirement. Attempts are made “to make authorised capital a reality.” To help bureaucrats attain these ends, a business-to-be must send them, in the process of registration, notifications from the bank about the opening of an accrual account. The money in the account may be used only after the company has been registered. Founding contributions must be estimated according to a special government-adopted procedure.
The worst of it is, requirements like this do not end with the registration of a business. The operational domain gets its share of regulation too. For example, the latest amendments to the Law on Joint Stock Companies provide that a company’s equity may not be lower than three fourth of the authorised capital.
Registering a business office
According to the Law on the Register of Enterprises, registration documents include, among others, documents testifying that the owner of a business has title to the premises used for business activity as well as documents testifying that the owner of the premises agrees to provide them for the business. By attaching so much importance to the location and address of a business office, bureaucrats seem to forget the purpose of specifying a business address. The address is used only for official correspondence and similar needs. It doesn’t need to coincide with the actual location of business activity. Besides, a business may be active in different locations or have no offices altogether.
Promoting Foreign Investment?..
Often as not, we hear Lithuanian officials chant slogans about foreign investment promotion. But let us imagine a foreigner starting a business in Lithuania. Starting a business is not an easy thing to do even for a Lithuanian who is well familiar with the labyrinth of local bureaucracy. For inexperienced foreigners, the number of hurdles is, as if on purpose, even greater. Unlike Lithuanian enterprises, which must register with local authorities, enterprises with at least one foreigner as a founder or shareholder must register with the Ministry of Economy. This discrimination isn’t formidable at first sight. But if a foreigner decides to sell his only share or, vice versa, to buy at least one share in a “Lithuanian” concern, God give him strength! As business ties across the world expand, these requirements will be increasingly obtrusive and burdensome. It would be more convenient for businesses and the state itself to have all legal entities registered with the same institution.
The Law on Enterprises erects an additional barrier for companies that are registered with the Ministry of Economy, that is, companies with foreign capital. According to the law, they must obtain permission to do business from local authorities. The reasons that are stipulated for refusal to issue a permit suggest that the aims of granting the permits are to check the following: (i) whether the establishment of an enterprise will not jeopardise people’s health or inflict damage on the environment, (ii) whether registration documents comply with laws, and (iii) whether other laws are observed.
The first rationale doesn’t stand up as the establishment of an enterprise cannot threaten and, the more so, damage the environment or anyone’s health. This may happen only if a firm carries out activities that do not meet environmental, hygiene or other requirements stipulated in legal acts of Lithuania. But this issue is within the competence of agencies that are in charge of state governance and control in the area of environment protection. The second point on which a permit may be refused coincides with the function of the registrar, the Ministry of Economy. The third one is very ambiguous and makes one fear the worst. Ambiguity may come in handy only for local government officials, who, drawing on the three stipulated criteria, may turn their personal opinions into requirements. Requirements which may prove too difficult to satisfy.
According to a decree of the Department of Statistics under the Government of Lithuania, all documents submitted to the Ministry of Economy must be in the Lithuanian language. Translation thereof must be verified with the translator’s signature. The translator, make no mistake, must be hired from a translation office. But if foreign investment is to be promoted, why not accept registration documents in some other languages too, say, in the official languages of the United Nations Organisation? Also, why not allow, say, representatives of the founders translate the company’s bylaws?
In most countries a seal is no longer a necessary attribute of a legal entity. Theoretically, seals are not required in Lithuania either. But if a foreign subject sets up an enterprise and has no seal, his signature must be notarised. This means that the founder’s proxy must come to Lithuania, hire a translator, take him to a notary and put his signature to verify the founder’s wish to start a company in Lithuania. All this must be done only because the founder’s home country applies looser regulations on activities of legal entities.
Struggling without respite
Problems do not end with registration. If a company is to function properly and fulfil all government requirements, it must obtain a seal, open a bank account, register with the Tax Inspectorate and the State Social Insurance Fund, receive permits, licenses, certificates, proofs, etc etc.
According to the Law on Tax Administration, every company must register with a local tax administrator within five days from the date of its registration. This seems a minor problem, but why cannot this be done by the institution that registers firms? Registration with the Tax Inspectorate is nothing but filing of registration data.
In addition to that, enterprises must register with regional departments of the Board of the State Social Insurance Fund within ten days from the establishment date. This visit is as pointless as that to the Tax Inspectorate. By the way, if a firm does not register with its regional social insurance department, the said department must register the firm based on the data provided by the registrar of enterprises. This means that the procedures at issue can easily be simplified.
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These and many other problems, it seems, are no longer hurdles for “experienced” Lithuanian entrepreneurs. Yet, a budding entrepreneur may at this point start reproaching himself for having chosen a business career. The worst of it is, there is not only the hard task of satisfying consumers’ needs that awaits him. Regulations, restrictions, inspections, taxes, reports and many other problems are in store. Sadly, businesses have to deal with official obstacles constantly and without a moment’s respite.
In addition to what we have looked at here, there is a number of petty regulations of commerce, labour relationships, production, and other individual and corporate actions. No one can calculate how many businesses have failed to be launched, and how many goods and services have failed to be created, due to bureaucratic hurdles. The imperative need for changes – man’s liberation – is not only verified by rational arguments. It is evidenced by the lessons drawn from life. Maybe at least they will make the government stop or turn back.