Discussing the ministerial resolution no. 330 of 2017 on permitting licensing entrepreneurial micro-businesses :

Introduction

Micro-businesses are considered easy because of their low operational costs and lacking the need to have a commercial store to do their business. Micro-businesses contribute to improving the income of individuals because there is no need to possess the capital or to employ workers in addition to the possibility of making significant profits.

Licensing of entrepreneurial enterprises or micro-businesses is the real starting gate for a significant, strong start of micro-businesses in Kuwait because such licenses would achieve a leap for Kuwait and raise the country to become in the ranks of developed nations that facilitate the environment of small business and enterprises.

The basic idea of the micro-business license is a new one in the State of Kuwait; therefore, we should determine how successful this experiment is in light of comparing it with similar programs in other states..

The main idea of the license of home-based micro businesses is helping people start small businesses from home, or anywhere else the entrepreneur deems appropriate. Such licensing is what contributes to reducing the operational cost of the business to enable the entrepreneur to promote the enterprise to become a firm that can work and compete in the market. Home licencing is considered a factor to create economic climate and encourage people to start their own businesses.

• Discussing the ministerial resolution no. 330 of 2017 on permitting licensing  entrepreneurial micro-businesses :

The Ministry of Commerce and Industry decision no. 330 of 2017 was published on 25/6/2017 in the state's official paper Kuwait Alyawm. The decision was on permitting licensing entrepreneurial micro-businesses, and it became in force on the date of publication.  Implementing this decision was meant to organize private entrepreneurial businesses started by their owners without having to the existence of store according to article 2 of the aforementioned decision. The business activity is usually practised at home, on the Internet or otherwise.

❖ Micro-businesses:-

When we consider the definition of the term micro-enterprise (in light of a simple comparison with some other states), we find its concept different from that in the State of Kuwait. For example, micro-businesses in Japan are businesses the number of its workers does not exceed 50 people whether their owners start them in a commercial store or without store. In the United States, an enterprise is considered a micro-business if the number of its personnel is less than 5, and its capital does not exceed 35.000$/-. In the Arab Republic of Egypt according to the decision of the Board of Directors of the Central Bank of Egypt held on 3/12/2015, micro-businesses were defined of having a capital less than 50,000 Egyptian Pounds  and less than 10 workers unlike the definition of micro-businesses in Kuwait that does not address the issue of employment or capital. In Kuwait, micro-businesses were confined to be those businesses (and other profitable activities) that can be practised without a need for a store (which is usually exercised at home or on the Internet) through setting up a one-person company accompanied by cancelling the condition of depositing the capital in order to organize and encourage the citizens to invest and do business according to specific regulations and terms.

• Minors practice of business:-

Originally every person enjoys the right to do business; however, there are some cases that are forbidden by virtue of law. Trade requires a certain degree of awareness and discretion; therefore, the Kuwaiti ministerial decision stipulated that people should enjoy legal commercial capacity to allow them to do businesses. Item 1 of article 2 stipulated that unless the licensees are permitted to trade, they cannot be younger than 21-year-old. Legal capacity means the ability of people to express their will in a way that result in legal effects. On the other hand, commercial capacity means people's capacity to do business and bear the resultant legal effects. There is still an exception of the age condition when the minor obtains a court's permission to do business. This depends of the discretionary power of the judge as the commercial capacity of minors is incomplete in case the court denied granting them a permission to practise trade. As a result, the actions of the minor are of no legal force.

In this regard, a question arises regarding minors' engaging in the category of micro-business; is the minor eligible, if approved by his/her parent or guardian, to do such businesses?

That anyone practises trade as their profession does not necessarily mean that the person has become a trader because they must enjoy the required capacity in addition to practising trade as their profession. They should enjoy the capacity to perform a legal action, and the occurrence of legal consequences of the actions that the person consents to perform as long as this capacity is not affected by feeble-mindedness, insanity, simple-mindedness, or dementia. If a person does not enjoy the aforementioned requirements, they are not permitted to do business.

Therefore, minors in the Kuwaiti law do not enjoy commercial capacity; they do not have the right to start a new business, neither is his/her parent or guardian entitled to start a new business using the money of the minor or to utilize the money in the name of the minor for the minor's benefit. In addition, the minor does not gain the status of a trader.

In the case of a minor under 21 years practised trade through fraud, the practice does not grant the minor the status of a trader. Furthermore, the minor bears compensation because of the wrong activity. Nevertheless, a court of law have the discretion power to provide an exception for that; it may order the continuation of the trade of the minor if it is found that this benefit him/her. This benefit is established if the court deems that the existing trade makes profit, and it is against the interest of the minors to be denied the profit. If the court finds otherwise, the works of the minors are considered void.

As for the permitted activities to be practised without a store, they have been identified exclusively in accordance with the ministerial decision no. 135 of 2016 as follows:-

1- All kinds of counselling except those governed by professional laws.

2- Designing costumes, clothes, shoes and jewellery.

3- Designing interiors.

4- Outdoor photography for events.

5- Software maintenance and websites design.

6- Electronic websites design (Web).

7- Landscaping and maintaining gardens.

8- A photographer.

9- Implementing and managing museums and cultural centers.

10- Translation.

11- Organizing exhibitions, conferences and sports camps.

12- Organizing sports tournaments.

13- Booking means of transportation, hotels, restaurants and entertainment places.

14- Designing presents and luxuries.

15- Producing animations and movies.

16- Teaching sports and arts.

17- Organizing tours and tourism guidance.

18- A calligrapher and a painter.

The activities have been exclusively defined rather than being mentioned for the the purpose of offering examples. In other words, any other activities not mentioned in the aforementioned ministerial decision is not allowed to be conducted without a store such as food shops, beauty salons, or marketing by famous people on the social media. Upon continuation of the commercial activities without a license, the person will be held liable to legal persecution according to article 25 of the Consumer Protection Act no. 39 of 2014 which prohibits advertising goods and services prior to obtaining a permit from the competent authorities. In addition, according to article 30 of the Act, any person who violates the provisions of article 25 is liable to the maximum penalty of imprisonment for a period not exceeding six months and a fine not exceeding 500 KWD, or one of these two punishments. In case of conviction, the court, in addition to the aforementioned penalties imposed on the violator, may seize or destroy the infringing goods and the tools used to produce the goods at the expense of the defendant.

Furthermore, article 34 of the Consumer Protection Act has entitled the commission in case of a proven violation of the Consumer Protection Act to oblige the offender to make adjustments to his/her situation and remove the violation immediately over a period of time determined by the commission as provided in its decision. The commission has the right to decide to stop providing the service or seize the infringing goods until the end of the investigations or a court's ruling.

Upon continuing to practise the commercial activities like advertisements and other activities without obtaining a license through working indirectly, such a practice falls under the penalty of fraud and deception to escape the application of the law. Traders may not resort to the methods of fraud and cheating in order to sell the goods; otherwise they will be held responsible for indemnity payment as provided in article 56 of the Commerce Act in addition to violating article 2 of Act no. 2 of 1952 that maintains that people may not advertise to market their goods or services without a license. All these are subject to the discretion power of a judge after hearing the testimony of the witnesses and examining the evidence such as the balance sheets to make sure about the source of the held funds

• Some cases exempted from the provision of the ministerial decisions no. 135/2016 and no. 330/2017: -

According to the Kuwaiti Trade Act no. 68 of 1980, there is an exception to the application of the ministerial decision pertinent to specific activities. Article 10 does not consider making a work of art by an artist or through employing workers to sell the work of art to be a business. It does not consider publishing the works of a writer and selling them a business. The same applies to farmers; according to article 11, their selling of their products is not considered a business, and therefore they are entitled to continue to operate without the requirement of a store.

A legal comparison of the Kuwaiti, Emirati and American experiences:-

Although these activities are usually carried out at home, it is noted that this issues is not addressed directly unlike the American and Emirati experiences where clear and explicit regulations and requirements were enacted to issue this kind of licences which practice businesses at home to protect the character of the place from which the business is run in order not to damage the inhabitants of the area that usually has a particular family life. Therefore, several programs were launched in the United Arab Emirates including Etimad Program in Sharjah, Entilaq Program in Dubai and Mubdia'h Program in Abu Dhabi that aimed to organize home businesses clearly. When we examine the Kuwaiti ministerial decision, we can find that it has only six articles, and it identifies exclusively 19 activity unlike the Emirati and American experiences where more attention was paid to organize the minute details.

The American and Emirati experiences are clear and explicit in the legal organization of home-based businesses considering them profitable home-based businesses. Some activities were explicitly banned because they are not suitable for residential nature and not to harm the residents of these areas that enjoy a private, quiet family life. As a result, it is prohibited to extract more than one licence per house regardless the number of individuals living in the house. The home owner is liable jointly with the licensee for any infringements committed in the course of practising the activity inside the house. Moreover, the American and Emirati experiences put a clear and explicit limit prohibiting leasing the licence directly or indirectly. The Kuwaiti ministerial decision does not contain any items to regulate these issues. It is also remarkable that in the American and Emirati experiences banned pinning any advertisements on houses, anything that may indicate that the house is being used to do business, or displaying offers or goods on the walls or windows to capture the attention of the passers-by. In case anything of these things was stored in the house, the regulations stipulate that it is inadmissible they are seen from outside. There is, however, an exception in the Emirati experience; the owner is obliged to put only one two-feet-size advertisement at the entrance of the house. The advertisement should contain the licence number and type of activity. The American experience, on the other hand, prohibited all sorts of external changes to the house such as advertisements, displaying goods or even storing goods, or commercial vehicles. The Kuwaiti ministerial decision does not contain any explicit regulations regarding these issues.

Since this type of licences is new, not setting some explicit regulations may be considered a loophole that allows placing advertisements and displaying goods and other items outside the house.

• Retail sales in home businesses: 

As for retail activity, it was banned in the UAE trade for domestic businesses in general, whereas in America retailing was partially prohibited. It was only allowed for businesses deemed appropriate and acceptable that can be done via mobile, by mail order, or on Internet websites. These means of retailing do not require frequent entry into the home.

Retail sale is the process of selling goods or merchandise in a particular place through a store or by mail individually in small quantities for direct consumption by the buyer. The trader buys the goods through the wholesalers and sells these goods in small quantities for the consumers for profit and financial gain. One type of sale retail is done through using technology in trade and delivery of goods to the consumers without stipulating the existence a store. This type of retail sales is done at home or on websites specialized in trade to sell consumers everything they may need.

In view of the Kuwaiti ministerial decision on licensable micro-entrepreneurial activities, we can conclude that it does not clearly and explicitly address the issue of retail sale. It allows designing fashion, clothes, footwear and jewellery, but the issue of its manufacture and sale was not addressed.

This raises a question: Is retailing without a store in Kuwait permitted or prohibited?

Retailing without the presence of a shop is prohibited in Kuwait. It was only permitted to design products, whether fashion, jewellery or shoes, while their production, manufacture or sale require the existence of a commercial store because they were not explicitly mentioned.

Another question arises as to the situation of retailers who practise this activity without a store if they rent specific areas for a limited period in licensed exhibitions. In this case, I see that their legal status is considered sound according to the decision of the Ministry of Commerce. This status is for a temporary period which is the period of renting an area of ​​land during the exhibition period. This area is considered a store; i.e. once the exhibition finishes, the legal status that entitles them to practise retailing is over whether they sell product of their own design or imported goods.

In accordance with what was provided in items 3 and 4 of the aforementioned ministerial decision, some specific points have been added to protect the environment, health and safety. However, these items are general without explicit restrictions and regulations to facilitate their application and implementation contrary to the American and Emirati experiences which paid attention to setting regulations and conditions regarding the allowable business activities to be practiced without a store. Home-based business licenses in the US include many domestic industrial activities such as manufacturing shoes, clothes, perfume, and toys in addition to bed and breakfast activity and child-care centres. Besides, the American experience defined the cases that prohibit home-based businesses such as animal care and training centres as well as selling vehicles and maintaining their frameworks because these vehicles are big and cannot be stored at houses. Furthermore, such activities cause a lot of nuisance odors, noise and smoke and cause environmental pollution.

As the nature of the work of some commercial activities does not suit to residential neighbourhoods as they contribute to attracting a lot of people and producing smells like restaurants and crematoria, theses activities were  also banned in the United States.

It is noticeable that some home-based business activities have been prohibited in some states in America and allowed in other states such as beauty salons, barbershops and nail care centresbecause they attracts a lot of people except in Colombia state whose law allows the practice of these activities in houses.

Besides, storing medicines or any poisonous substances or foods that are harmful for the public health or the environment have been banned. In addition, any other goods that are harmful or annoy the neighbours or residents of that region are banned, whereas in the Kuwaiti experience, paragraph 4 of article 2 of the ministerial decision prohibits only any activities that harm the environment. Its wording was broad and unclear making it difficult to be applicable in real life.

When we review the American experience, we find also many constraints to prevent nuisance external impacts such as linking the acceptable levels of external impacts with the common residential sources of noise. For instance, the noise level should not exceed the sound of an air conditioning compressor. It is noteworthy that the items in the American experience highlight a phrase (with no impact). The key standard is that instead of prohibiting the physical external changes, it is possible to request redesigning the place that practises a home-based business in a way that matches the distinctive character of the residential area. In the Emirati experiment, for example, the licensee is required to allocate an external extension detached from the house and to organize the working hours so that they are acceptable to restrict the entry and exit traffic; therefore, the number of visitors and parking of the vehicles of the home-based business have been restricted in the American experience that went on to restrict the number of employees or prohibit them completely. On the other hand, the Kuwaiti legislation did not mention the issue of regulating noise and inconvenience.

• Means of Legal Communication:-

It is noticeable that one of the most important prerequisites to be granted a license in Kuwait is the availability of an accredited mailbox and an email address, or a domicile of choice provided that it is not a private residence.

Definition of the domicile of choice: it is the location on which the parties agree on in writing to implement a particular legal action and to be considered the location of judicial correspondence and declarations pertinent to the business the parties agreed on. Lawyers offices are considered the domicile of choice of the agent who draws up a power of attorney hiring the lawyer who owns the office. The domicile of choice is different from the private domicile because the private domicile is the location to run the business where the individual practises the profession or business. In conformity with the regulations, the declaration should be in the private domicile; nevertheless, the legislators permitted delivering declaration in the domicile of choice if there is one. It is considered an alternate means of communicating instead of mail or email.

And here another question arises; what is the justification or reason of connecting a mailbox and an email? Although they represent alternate, different means of communication, the first is paper-based, while the second is electronic. As we are in a transitional phase, there is no problem of preserving the traditional ways and means of communication and not cancelling them. There is no logical link between them, and they replace each other; consequently, the article should have usedthe coordinating conjunction “or” instead of “and” so that the wording of the sentence becomes “mailbox or email” instead of the current one “mailbox and email”. Such amendment would give the enterprise owner the right to choose the means of correspondence without obliging individuals to obtain both of them especially that modern Kuwaiti laws have supported electronic correspondence with the legal force in accordance with the terms of the Electronic Transactions Act no. 20 of 2014. In addition to that, trade issues enjoy the freedom of proof; they might be proven by all means in accordance with the Law of Evidence in civil and commercial matters no. 25 of 1968 and according to the Kuwaiti Trade Law no. 68 of 1980 and its amendments. As for judicial declarations, the Code of Civil and Commercial Procedures no. 38 of 1980 gave right to business people to make judicial declaration using agreed methods because business transactions have a special nature that requires speed and confidence. It is one of the pillars of the trade boom, so it was better to take advantage of laws that seek to set free the workers in the commercial sector from restrictions and to keep them away from any complexities.  The laws need to be simplified and not to oblige the license applicants when they choose electronic correspondence to have a mailbox. Having both means is a pointless repetition and burdens the business owner with a useless obligation because of clinging to an old practice as if the wording was meant to impede the commercial activity instead of simplifying it.

Article 4 of the ministerial decision provided that the license period is three years as stipulated in the terms of the home-based business licensing in the UAE. The key idea of ​​commercial home-based licenses is to help citizens start their small business, so the period of license was defined. The operational cost of an enterprise was included in the licence fee without having to pay a monthly rent. The framework of action in this license is minimizing the operational cost to enable enterprise owner to promote the project to become firms are capable of working and competing in the market. It is considered one of the elements to accommodate the economic atmosphere and encourage the citizens to start their own businesses.

The UAE experience in granting home-based business licenses has been characterized by a number of measures, arrangements and appropriate procedures to control these activities which are of a special nature including conducting house inspection visits to verify the proper use of the license provided that the entry is subject to obtaining the prior approval of the competent authorities and obtaining the prior permission of the residents of this house. The inspectors need to write periodic reports on the inspections, and one of the important measures and the basic controls in the experience of the UAE is the existence of a clear and explicit item that prohibits the practice of any profitable home-based business without obtaining a license to practise it from the competent authorities. The law contains a set of administrative and legal penalties for those who violate it.

As for the Kuwaiti experience, there was no clear, explicit text about that; however, it defines the business activities that are allowed to be practised without a commercial shop. This means that every business activity that is being practiced without the existence of a commercial store and without being mentioned in the ministerial decision no. 330 / 2017 constitutes a violation and is subject to the aforementioned penalties in the Consumer Protection Law which prohibits the practice of business activity and advertising goods without obtaining a license from the competent authorities. The public prosecution is the competent authority to investigate these matters.

In addition to these measures, clear and explicit legal items have been put to prevent leasing the license. As for the home-based business activities carried out by their owners in the rented houses, the American experience regulated that through establishing a set of regulations and conditions; for example, to obtain a license, the applicant should either obtain the written consent of the owner of the leased property to do business inside the house, or a special item in lease contract should be mentioned to give the tenant the right to do business.

Some states in the United States have been interested in supporting home-based businesses. For instance, California places crystal clear articles that nullify contracts or agreements that include texts and articles prohibiting the practice of home-based business. 

• Negative impacts of home-based business licenses:

It is noted that some negative aspects have emerged in the practical application of the home-based business activities in the UAE; some legal loopholes were exploited by some financial institutions and banks after they took a step that harmed greatly the owners of these licenses by granting them loans and raising the ceiling of personal borrowing of individuals who own such licenses without controlling the issue of granting personal loans and without seeking to check the accuracy of the project asking for funding. As a result, a large number of citizens who have home-based business licenses were implicated in the loans without being able to pay them. Some of them received financial facilities for purposes unrelated to developing the business such as buying luxury cars, tourist travel or buying jewellery. These purposes are the complete opposite to the objective of granting this type of license which is to create a new generation of business people by helping them to develop their businesses in an appropriate economic environment, and the financial institutions must play their natural role to help citizens by providing appropriate financing and development rather than plunging the citizens who own the home-based commercial business licenses into bank debts and get them implicated in such debts. For this end, a special department specialized in micro-businesses was established. In addition, many international banks were kind enough to grant people who do business in this sector special loans in accordance with some regulations. They call them small or simple loans, and the repayment period ranges from 4 months to 3 years. The mean amount of loans being granted to them ranges from 250 to 500 KWD for the purpose of purchasing equipment to develop their enterprises.

A loan is when a person who is the creditor lends money to another person called the debtor. The debtor is obliged to provide a security in exchange for a monetary compensation which is the profit for a specified period of time, an the debtor is obliged to pay the money back after the expiry of the period the parties agreed upon in advance. There are many classifications of loans that banks can grant to customers according to the controls and standards such as small and simple loans. One of the advantages of this type of loans is that the client is not responsible for the banks commissions and administrative expenses for the purpose of encouraging their businesses.