“The requirement of a minimum share capital to set up a company is an unnecessary burden for entrepreneurs.”

“The requirement of a minimum share capital to set up a company is an unnecessary burden for entrepreneurs.”

The concept of minimum share of capital required to set up a business is a widely used concept in corporate law and banking, which traces back to Europe in the 19hcentury.  It represents those assets the organization must hold as minimum requirement, with the main purpose of ensuring that in the event of insolvency or little financial stability, the organization had enough assets to pay its creditors.  When the concept was established it was strictly mandatory by law in all countries, intending therefore to, as main aim of the minimum share of capital, protect creditors and inject reliability in financial markets. 

An entrepreneur then is that who create these type of companies, who has the capacity and willingness to develop, organize and manage a business venture along with any of the  risks that come along, in order to make a profit. In the beginning of the century, the definition of entrepreneurship shifted towards illustrating how and why individuals identified business opportunities, evaluated them and decided to take them into practice, launching their companies and achieving profits over time. 

It is common, when defining entrepreneurs, to focus on the risk assumption, for they are solely responsible for them and these could be the main reasons why their business closes down, for causes such as lack of financing, bad decisions, or a non favorable economic atmosphere, among others.

Linking both the concepts of minimum capital and entrepreneurship, as exposed above, we can pose the question of: are entrepreneurs restrained by the minimum share of capital when setting up a company? 

We can then say that: when the minimum capital requirement of a county is too high, entrepreneurs might become restricted, consequently falling not willingly into unemployment. Noting an important correlation between the minimum capital requirement and unemployment. Potential entrepreneurs may be then discouraged from starting a new business plan for the constant threat of the minimum capital requirement and the constant fear of losing their jobs because of it.  

Eliminating or lowering minimum capital requirements can ease setting up small and medium sized companies. In fact, there is data backing up this statement: A research paper that analyzed 5 European Union economies clearly depicts how the number of registered companies has increased in 4 out of the 5 economies that have considerably lowered or eliminated the minimum share of capital (France, Hungary, Germany and Poland). 

In those EU countries where minimum capital requirements are still high, national entrepreneurs basically take advantage of the fact of belonging in the European Union and simply move to another economy which can offer them a lower or none minimum capital to set up their business, regardless of their initial location. Recently, the UK has received many entrepreneurs driven by this phenomenon, seeking low capital requirements. 

We can extract as a conclusion that it is a very complicate and long process to completely eliminate minimum share capital requirements. This means they will inevitably continue existing in many economies, and that entrepreneurs will continue struggling to achieve them. The only thing that can be done is progressively lowering this minimum capital requirements in order to reach the middle ground between government and entrepreneurs’ demands; making them lower for small and medium size new companies to enter the market, but at the same time not extremely low, so as to somehow protect creditors and inject reliability in financial markets. Another idea would be to do, as some governments such as Denmark have recently done: allowing businesses to pay a portion of the minimum share of capital before getting registered, and paying the rest after a year running the business. All the argued are baby steps towards granting entrepreneurs more security, and a bigger probability to succeed when setting up a business.