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THE RECENT changes in the Companies Act, making it so much easier for individuals to form companies in Jamaica, has served to encourage many more people to establish limited liability companies. However, a prominent behaviour pattern I have noticed since returning home, and certainly in the last six months since I have been running a consultancy firm, is that many Jamaicans are still quite reluctant to form limited liability companies with each other. This reluctance is without a doubt a restraining factor in getting our economy to grow. My discussions with many people show that there are a number of reasons why Jamaicans fail to set up companies that limit their liability and share the risks (and benefits) with others.
LOW SOCIAL CAPITAL
Like a recurring decimal, and stated in many different ways, Jamaicans make it clear that they do not trust each other very much and certainly not enough to get to the point of establishing companies with even friends and family members. Given that only a really small number of us come from the family backgrounds where entrepreneurship has been practised and businesses established, the vast majority of Jamaicans are used to working for someone else rather than starting a business.
When this historical fact is combined with the existing low social capital - where individuals do not trust each other or the institutions in the society - then we have the pervasive phenomenon of many Jamaicans not even thinking about starting a business with friends and members of the family. Needless to say, starting a business with complete strangers - as is done in many other countries - frequently is considered to be an anathema.
No doubt, Jamaicans have good reasons to distrust each other, or they believe they have good reasons for this distrust. I have been told quite often that Jamaicans are unwilling to share their ideas with others because of their bad experiences. Even bankers in the 1980s and 1990s would take ideas from budding entrepreneurs, change a few details and hand the plans of these entrepreneurs over to their friends to start the business. In some cases, some of these bankers were brazen enough to even start the business for themselves while still working with banking institutions. Poor governance practices by the boards of banks and outright dishonesty on the part of some senior banking executives have contributed to reducing the social capital in the country that is so needed to help individuals to come together to form companies.
100 PER CENT OF ZERO IS ZERO
Jamaicans refuse to invite their friends and family members to start companies because of short-sightedness and maybe even greed. Many Jamaicans want to own 100% of their companies and usually want their names to be prominent on the front of the business. Sharing is difficult when that kind of approach is the driving force behind setting up a new company. Very often they do not consider how beneficial it is to get additional capital into the company from others, get the new ideas that other investors might bring and certainly the sharing of the risk that comes with extending equity to other shareholders.
Many times I have seen individuals who have done extremely well (usually a man and his immediate family members) in establishing a very viable business. After a while, the business has grown to a stage where they need additional money and managerial skills to allow it to proceed to the next level of development. At this stage, many entrepreneurs have a real problem in inviting other investors to share what they invariably call 'my business'. They develop something that can best be called the 'small pie syndrome'. They cannot see that if they keep the business where it is they are going to own 100 per cent of a small pie, whereas if they were to invite investors in to inject additional funds and ideas, the pie would be enhanced manifold. Instead of owning 100 per cent of, say, a company that is worth J$10 million they could now own 60 per cent of a company that, with the injection of new equity and managerial help, could be worth J$100 million. Luckily, more and more entrepreneurs are buying into this logic.
REASONS TO FORM COMPANIES
By encouraging other investors to share the risks and funding of a new business, entrepreneurs avoid a major new-company risk - bank debt. Equity investors of a necessity have to take a longer view with the entrepreneur, whereas banks can only lend money for the short term. Any early problems that threaten revenues and the ability to repay the bank can cause the business to collapse when the bank forecloses. Equity investors have to wait on dividends and do not foreclose. Jamaican entrepreneurs, there are many good new business opportunities that exist from landscaping for the new hotels, setting up educational and training institutions as needed and viable businesses, to finding alternatives for the sugar industry. There are many challenges, but Jamaican entrepreneurs can experience the real high of providing work for the unemployed while building successful and profitable businesses. Join with friends and family members to establish companies that will help you share the risks, provide equity funding and take a long term view for success.
Source: Jamaica
Gleaner
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