Trade and Commercial Law Assessment - Honduras - Economic ...

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TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS F. RECOMMENDATIONS ♦ The Commercial Code needs reform to cope with new corporate realities. An alternative to a comprehensive reform of the Commercial Code would be to pass a law on companies. Regardless of the type of reform, the capital equity requirement and the requirement that companies have a minimum of two shareholders should be removed. Companies should also be allowed to own their own shares. Minority shareholders should be granted greater protection, mainly in connection with the 25-percent ownership requirement to participate in the appointment of a director. In the case of disagreement with administrators, minority shareholders should also have the clear legal option to sell their shares at market value. The reform should include provisions for divestiture, provisions to prevent the abuse of legal personality, and an increase in corporate governance principles. ♦ The Commercial Registry should be modernized. The World Bank–Inter-American Development Bank competitiveness project and the pending establishment of the Instituto de Propiedad should be monitored, and current efforts to improve the registry should be complemented by more comprehensive changes. The El Salvador Commercial Registry provides a good regional benchmark for reform of the registry. ♦ There is need for a comprehensive examination of the regulatory steps involved in doing business. While these steps have already been reduced, there is still too much red tape associated with conducting business. The World Bank–Inter-American Development Bank competitiveness project will address some of these issues, and the project should be monitored and complemented when needed. ♦ The stock market should be revamped. First, the market should be automated. In addition, trading companies should be subject to stringent monitoring of market use. In addition, a promotional campaign about the advantages of the stock market should be directed at businesses of all sizes. Regulations of the market should be harmonized with those of the rest of the region. A regional stock market should be considered a priority. The Central American Stock Market, already in place in Honduras, should be strengthened from the standpoints of regulatory and technological standards. ♦ The tax system should be evaluated, and institutional and legal reforms should be considered. Regarding legal reform, the unfavorable tax treatment of mergers should be removed. An assessment of the business asset tax and the solidarity tax that considers the possibility of consolidating taxes is necessary. Institutionally, the tax collection agency should be automated, and strategic planning and management techniques for tax collection should be introduced. ♦ A thorough assessment of the status of the SMEs and the size of the informal sector is needed. The study should pay particular attention to issues such as access to credit, regulatory burdens, and the potential for cluster development. Providing SMEs with the option of obtaining special status, similar to the 8(a) certificates issued by the Small Business Administration in the United States, that would provide preferential access to credit and government contracts, could help harness the latent potential of small firms. Such a process would also increase the propensity of SMEs to formalize by providing III-9
TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS incentives for incorporation. A regional donors’ conference to generate capital for the establishment of financing institutions specializing in assisting SMEs could address some of the credit issues faced by small businesses and increase integration of micro-finance institutions. III-10
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