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

TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004HONDURASF. RECOMMENDATIONS♦♦♦♦♦♦The Commercial Code needs reform to cope with new corporate realities. An alternativeto a comprehensive reform of the Commercial Code would be to pass a law oncompanies. Regardless of the type of reform, the capital equity requirement and therequirement that companies have a minimum of two shareholders should be removed.Companies should also be allowed to own their own shares. Minority shareholders shouldbe granted greater protection, mainly in connection with the 25-percent ownershiprequirement to participate in the appointment of a director. In the case of disagreementwith administrators, minority shareholders should also have the clear legal option to selltheir shares at market value. The reform should include provisions for divestiture,provisions to prevent the abuse of legal personality, and an increase in corporategovernance principles.The Commercial Registry should be modernized. The World Bank–Inter-AmericanDevelopment Bank competitiveness project and the pending establishment of the Institutode Propiedad should be monitored, and current efforts to improve the registry should becomplemented by more comprehensive changes. The El Salvador Commercial Registryprovides a good regional benchmark for reform of the registry.There is need for a comprehensive examination of the regulatory steps involved in doingbusiness. While these steps have already been reduced, there is still too much red tapeassociated with conducting business. The World Bank–Inter-American DevelopmentBank competitiveness project will address some of these issues, and the project should bemonitored 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, apromotional campaign about the advantages of the stock market should be directed atbusinesses of all sizes. Regulations of the market should be harmonized with those of therest of the region. A regional stock market should be considered a priority. The CentralAmerican Stock Market, already in place in Honduras, should be strengthened from thestandpoints of regulatory and technological standards.The tax system should be evaluated, and institutional and legal reforms should beconsidered. Regarding legal reform, the unfavorable tax treatment of mergers should beremoved. An assessment of the business asset tax and the solidarity tax that considers thepossibility of consolidating taxes is necessary. Institutionally, the tax collection agencyshould be automated, and strategic planning and management techniques for taxcollection should be introduced.A thorough assessment of the status of the SMEs and the size of the informal sector isneeded. The study should pay particular attention to issues such as access to credit,regulatory burdens, and the potential for cluster development. Providing SMEs with theoption of obtaining special status, similar to the 8(a) certificates issued by the SmallBusiness Administration in the United States, that would provide preferential access tocredit 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 providingIII-9