BizCLIR

Although the Commercial Code in Honduras is modern by regional standards, sections of the code remain outdated and in some cases leave significant legislative voids. Specifically, the code does not allow for fully owned subsidiaries, requires equity capital, and lacks mechanisms to protect minority shareholders and enforce principles of corporate governance. These issues detract from the country’s business climate and should be addressed through reform of the Commercial Code.

Problems associated with the legal code are exacerbated by the poor functioning of the Commercial Registry. The excess of requirements imposed by the registry deters foreign and domestic business growth and has encouraged the trend of businesses’ operating in the informal economy.

Lack of access to credit further inhibits business growth. Access to credit is scarce for formal businesses and nearly nonexistent for informal firms. The stock market, which could be used as an alternative source of capital, is underdeveloped.

Income taxes are relatively high and the tax system is complex. The government has also had problems in tax collection and has imposed direct taxes on consumers to compensate for low collection rates.

The unreliability of the judicial system further weakens the code. In fact, companies are reluctant to take cases to court because of the unpredictability of the judicial system.