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Company Law and Corporate Governance
Company Law is crucial in market economies; it sets the legal environment for the creation and continuing operation of privately-owned businesses. Good Company Law is especially critical in transition-economy countries. It can encourage entrepreneurship by making it easy to start up and register a company; it can encourage businesses to come out of the underground economy into the publicly-registered taxpaying economy; and it can encourage new investment – and provide investor protection – by setting forth clear and objective rules for a company’s ongoing internal governance.
Afghanistan is expected to have a new Company Law as of March, 2007. The new law contains some corporate governance principles for corporations that, on paper, follow some international best practices for investor protection and encouragement of investment. Those provisions were taken from current U.S. corporation laws. The new law’s provisions for limited liability companies – which represent the vast majority of Afghan companies – are not available at this time. They should be made flexible to fit the needs of small companies and closely-held companies large or small. Local Afghan consultation and input into the new law can make it stronger, better known, and more widely accepted.
Afghanistan’s procedures for new company startups have been somewhat inconsistent and sometimes costly; the new law does not address these problems. Among other things, starting a significant new business in Afghanistan often requires approvals other than company registration, and getting these approvals is often a lengthy, difficult, costly, and unpredictable process. This Report recommends that the company registration process be taken out of the courts and other bodies and given exclusively to an independent and streamlined central registry agency that has “one-stop-shop” authority with respect to all regulatory licenses. That agency could reside within the Afghan Investment Support Agency (AISA) or exist as an entirely new governmental body. Other transitioning countries provide successful models. Afghanistan also suffers from a lack of disclosure and public recordkeeping of information on companies. The new central registry also offers an opportunity to address these problems.
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