Digitalization of Company Formation Processes
Law firms in Latin America must adapt to the new way of doing business in the world. Almost two decades into the 21st century, and, although we have more than understood the concepts of globalization and internationalization, there is little we are doing in the provision of services to prove it; with legal services being one of the least innovative areas. Legal processes and procedures continue to be done as they have been in the past. In addition to the normal and somewhat painful bureaucracy that is suffered in many Latin American jurisdictions, we are adding obsolete legal services with almost zero digitization (apart from emails) and without creating new efficient and fast ways to provide common services.
Fortunately, some law firms are rising and looking to disrupt the legal market with interesting innovations. There are those who are even seeking to change the standard business model of law firms, making legal services more reachable for people of varying economic statuses. For example, some firms include in their web pages, models of various downloadable commercial contracts for only a few dollars. Others include chat or videoconference options with specialist lawyers based on online subscriptions. In other words, they are adjusting their model of service provision to what new generations are looking for, using a common medium and language; digitalization.
If change, innovation and digitalization were not necessary before, new companies, from online platforms, apps, or collaborative economies, etc., with their internationalization strategies, have made this change inevitable. These new kinds of companies grow and internationalize in such an accelerated way that they overtake old, slow and obsolete law firms relatively easily.
These new companies, so accustomed to lean and efficient processes, understand that having the company incorporated as quickly as possible and with minimum complications is highly valuable. The lean mentality of these new entrepreneurs makes them understand that, if necessary, the bylaws can be changed, and the shareholders’ agreements can be signed post company formation and once the company has validated its commercial opportunities in the new market. There is little success in a company with perfect bylaws if the incorporation process takes 6 additional months to complete, whilst its competitor won simply by being first in the market.
This new breed of entrepreneurs look for people who share their way of seeing businesses and who understand the needs of their business, but more importantly, their valued customer. Probably, one of the best ways to demonstrate to these companies that you understand them is to digitize the company incorporation processes.
In Latin America, the process of setting up companies is quite homogeneous with only small differences between each of the local jurisdiction. In general terms, the basic requirements and procedures to form a new company in Latin America are similar: type of company, partners/shareholders and their respective information, initial company capital and the ownership percentage between partners, who the administrators will be, of course the name of the company, and maybe a couple of more requirements depending on each situation.
This basic information, processed through a simple online form can make the processes of setting up companies more streamlined. The Biz Latin Hub Group has launched a digitalization model for the company incorporation process in Mexico with success, and it has already started working on its application for the rest of the 11 Latin American countries where it has physical offices.
In the experience of Alex Mahoney, the Country Manager of Biz Latin Hub Mexico, “This new system of business formation has had a great impact in Mexico as it has streamlined a traditionally convoluted and tedious process. It also shows that our group understands the needs of customers and adapts to the new way of doing business in the world, while responding to the speed that new companies need in their internationalization strategies”.
The model is quite simple and user friendly; it consists of a basic form with mandatory fields to fill out. It begins by asking for the data of the person who will complete the form, the necessary for latter contact. It continues by asking for details of the company, starting with three options of names, a small description of the economic activity and the desired social purpose. Next, the information of the shareholders is requested, whether they are natural or legal persons and the value of the shares and the percentage of division of these. Then a description of the company’s management and legal representation, to finally resolve issues of fiscal domicile and the preferred financial institute to open the corporate bank account. Once all the fields are filled out, the form is sent, and the group’s lawyers take care of the rest. Presto. If the employer is clear about the points described above, this process should not take more than 30 minutes.
In 30 minutes, entrepreneurs and other business owners can resolve what normally can take months with countless emails, answers, corrections, changes, etc. It saves problems of disagreements between shareholders and above all, allows companies to start working and validate their opportunity and business model in a timely fashion.
The possibility of constituting companies digitally responds to two great peculiarities. The first is that the regulatory development of Latin America in corporate and commercial matters is so detailed that most of the minimum requisites that bylaws should include are established by law. The second, on the other hand, responds to the bet of several Latin American governments made on digitalization that allows legal firms to also carry out the process of incorporating online companies.
It is understandable that this new proposal may scare some law firms, because sometimes the impersonal nature of digitization complicates customer loyalty processes. However, we invite you to see the situation in a different way, from how clients can see the legal studies that provide these services. The companies will see the firms as an ally who understands the needs of the new business models. As people who are on the same page and speak the same language. As an efficient firm that responds quickly, that shares the lean mentality and believes the importance of being first beyond anything else. Ultimately, with these simple gestures, such as digitizing the constitution of companies, firms will show future clients that they understand them, and there is no greater fidelity than that given by companies to customers who understand them. Therefore, give yourself the freedom to expand your way of thinking and build loyalty as it is done in the new era.
The digitalization of legal processes in law firms has another great advantage. This time inside the firm, in the attraction and maintenance of talent. Let’s not forget that the new generations of lawyers are not alien to new technologies, in fact, quite the opposite. The new generations demand working in modern environments, for modern companies or firms and that provide agile and technology-based services. Being honest, the digitalization of the constitution of companies will not be a fundamental pillar for attracting both local and foreign talent because we are not talking about cutting-edge technology or disruptive models. However, it is a strong first step in a new direction. It is a declaration of intentions to change the way of providing traditional legal services and can be the flag to attract companies and new, innovative and disruptive business models that does attract talent, and in turn, supports the provision of high-quality and tailored business services.
As the digitization of the incorporation of companies continues, there are various other services that can be simplified and digitized, using few resources. This is a small invitation to think outside the box; taking the needs of the client into account in ways other than the traditional and ‘accepted’ ways of doing business. Companies should seek to adjust their provision of legal services in an increasingly fast-paced and international business world; to innovate thinking about the client, and to include processes of design thinking and customer experience.
Innovation in the provision of legal services will one day lead to a total paradigm change in the provision of services. It’s good to see that some law firms are already taking us on that route, but let’s not forget that we can make small innovations that do not require a lot of invested capital but can make our clients’ lives easier.
Authors: Craig Dempsey — CEO Biz Latin Hub Group.
Ernesto Terán — Partner and Senior Lawyer Biz Latin Hub Ecuador.