Starting a Business and Protecting Minority Rights

EASE OF DOING BUSINESS IN ZIMBABWE

 

The Government of Zimbabwe is committed to reforming the country’s investment climate. A streamlined, more transparent and predictable business environment will help to make the economy more competitive, and help attract and maintain local and foreign investment. Increased investment leads to job creation and improved revenue, which contribute to growth.

 

The Government launched the Ease of Doing Business Program to undertake reforms through a multi-stakeholder Technical Working Groups. Milestones were set to address challenges faced by entrepreneurs seeking to open and operate a small to medium-size business, while complying with relevant regulations. The program draws from the World Bank Group’s Doing Business project, which provides objective measures of business regulations for local firms in 185 economies. 

 

The Ease of Doing Business aims to reform regulations impacting 11 areas in the life of a business including: starting a business; protecting minority investors; dealing with construction permits; getting electricity; getting credit; credit insolvency; registering property; trading across borders; and enforcing contracts. The World Bank Group is supporting this effort with technical expertise.

 

STARTING A BUSINESS AND PROTECTING MINORITY INVESTORS:

 

The Technical Working Group on Starting a Business and Protecting Minority Investors aims to reduce the time taken to start a business from 30 to 15 days and to strengthen the legal provisions protecting minority shareholders by revising the Companies Act. Ultimately, the goal is to reduce this period to one day, in alignment with international best practice.

 

By May 30, the goal is to

  • reduce the period for starting a business from the current 30 days to 15 days
  • have a final draft Companies Bill

 

1.      What are some of the changes to the Companies Act in order to facilitate the  update of the COMPANIES ACT CHAPTER [23:04]

 

The current Companies Act came into effect in 1952 and lags behind Constitutional, technological, economical and other developments that have taken place in Zimbabwe and internationally. The updated Act will provide for the Registrar of Companies to establish procedures for e-filing, e-storage and e-access to all documents filed with the Registrar.

 

The Act is also being redrafted to make it more user friendly and easier to use in business planning and also incorporates provisions on corporate governance.

 

2.      What are the new provisions that enhance corporate governance?

 

To enhance corporate governance the new Act will incorporate the following provisions:-

 

  • That in a limited company, the board of directors must adopt corporate governance guidelines and explain any deviation from those guidelines. This has become international best practice in public companies.
  • The new Act will expand the duties of care and loyalty which directors and other controlling persons have in their company, including their responsibilities when they face a personal conflict of interest. Unlike the existing Act, the new Act defines the concept of “personal conflict of interest” to cover family relationships.
  • Explain rules for authorizing any contracts or transactions between a company and a director by “disinterested” members, directors or shareholders who themselves have no personal interest in the matter. This is in line with international best practice.
  • Will set out detailed rules for both direct and derivative lawsuits against directors, managers and other persons in control of a company of any type (PBC or limited company).  Such legal actions are a weapon of last resort, but investors must be able to go to court if necessary.  On the other hand, directors must be protected against harassment and possible attempted extortion by using frivolous lawsuits.  The new rules attempt to balance these competing interests, using international models.

 

3.      What will happen to the Private Business Corporations (PBC) Act provisions that are currently in the old act?

 

The Private Business Corporation Act is to be repealed and the provisions shall be incorporated into the new Companies Act. The reform of the (PBC) Act will do the following:-

 

  • Give its owners more freedom to govern their company without the formalities which are required in publicly-traded companies.
  • The new Act will have provisions which are more detailed and flexible.
  • Many of the new Act’s provisions are “default” provisions – that is, provisions that will only apply to a particular PBC, if the members have agreed amongst themselves, through a members’ agreement or bye-laws. 
  • An example is, that under the new PBC provisions, all members of a PBC have the authority to participate in management and to represent the company in dealing with third parties, unless they have agreed to restrict that authority to specific members or to other persons who may even be non-members who are hired or elected by the members.     
  • PBCs will also be subject to modern corporate governance principles to protect investors.

 

4.       What is meant by right of first refusal by shareholders?

The new Act will improve on the existing provisions for pre-emptive rights of existing shareholders when new shares are issued in order to protect minority shareholders.

 

5.      What are the changes being proposed with respect to Mergers and Acquisitions?

 

The new Act will also encompass all-new provisions for mergers of companies, which were not provided for in the existing Companies Act. These are important both technically (mergers can be very complex) and to protect minority shareholders when mergers occur. 

 

 6.      Which services will be available online?

 

The Government of Zimbabwe is in the process of reviewing business registration processes to reduce the time it takes to start a business in the country. Starting a business involves the completion of various documents/forms to ensure compliance with the requirements of various government agencies. This imposes a burden on the investor.

 

To reduce the burden, the Government of Zimbabwe has tasked the agencies listed below to come up with a consolidated application form. The form will be available online and help reduce the number of days required to start a business in Zimbabwe.

 

An online platform has been set up linking the following agencies: The Zimbabwe Investment Authority (ZIA), the National Social Security Authority (NSSA), the Zimbabwe Manpower Development Fund (ZIMDEF), the Zimbabwe Revenue Authority (ZIMRA) and the Registrar of Companies, Deeds and Intellectual Property.

 

The reform process will enable the public to conduct company name searches online, reducing the number of days to acquire the information from nine days to one day.

 

7.      How will the reforms reduce the application period for shop licenses?

 

In order to reduce the application period for a new shop licence, the Minister of Local Government and Public Works issued a waiver of the advertising requirement when applying for a new shop licence in an area already designated for shops. Previously, investors had to advertise twice over a period of 55 days when applying for a shop licence. Therefore, the waiver speeds up the application process by 55 days. This is in accordance with section 6 of the Shop Licences Act [Chapter14:17] which empowers the Minister to issue exemptions with regard to applications for new shop licences.

 

Entrepreneurs no longer need to physically collect the Shop Licence application from the City of Harare, nor to pay an application fee of $20. The electronic application form is now available on the City of Harare and Zimbabwe Investment Authority websites free of charge. The form should eventually become available or possible in all local authorities.