Opening a Startup in Colombia: The Good, the Bad and the Ugly

An upswing in information and communications technologies and a growing need to attract foreign investment have led to the streamlining of certain processes that facilitate the creation and construction of companies in Colombia. Nevertheless, complexity-adding obstacles persist.

In the case of startups, information, timelines, taxes, brand registration, patenting and assessment are the most challenging aspects of setting up shop.

What is the right moment to establish the business formally and legally? The basic nature of startups renders this an open question.

Bernardo Franco, Colombian entrepreneur and CEO of Yimup, advised, “Startups are generally composed of just two or three individuals. If they know and trust one another, they can manage a project perfectly without it being formally established until the time is right. It’s possible to use private documentation establishing the participation of each team member.”

Upon receiving an investment, participating in an acceleration program or deciding to work with an incubator, the time to talk about formalization arrives. “It becomes obvious that it’s the right moment to establish an official company as time goes on,” Franco concluded.

The process of opening and establishing a startup is closely related to the knowledge one already has about the subject. Commencing the formal process and undertaking all that it implies, without consultancy, can prove very difficult when none of the team members has a clear understanding of what exactly needs to be done.

“We weren’t at square one when we started the Wayra acceleration process, but the organization’s support, legal and otherwise, lightened the load,” Bernardo explained. This is what makes accelerators, incubators and startup academies spaces for startups to receive assistance.

Most entrepreneurs agree that the most daunting tasks are managing accounting and filling out paperwork.

“Enrolling new employees in social security and other parafiscal matters are manual processes. Tons of paperwork has to be completed with the same information, and paperwork may be requested up to three times,” said Jorge López, Co-founder and Product Manager at Wikibanco.

According to Julián Amaya of Monoku, problems arise with “any requirement that implies some kind of link to work with the government, as well as procedures that necessitate accounting knowledge. Moreover, anything having to do with DIAN – the National Tax and Customs Direction – tends to be depressing.”

One can’t overlook the issues that come up later down the line, either. In the eyes of Miguel McAllister, Co-founder and Web Developer at Domicilios Bogotá, the greatest challenges may not come right away. He said, ‘What I find most problematic is maintaining the company, namely, monthly and bimonthly tax filing. One has to complete paperwork by hand every month and present it in a bank. If you don’t have an accountant from day one, it’s easy to forget to do it.”

In Colombia today, there are some processes that are relatively straight-forward to complete. Simplified joint stock companies (SAS) can be established online (note that the system is currently out of service).

On one issue, nearly all Colombian entrepreneurs agree: the process of establishing a startup should take place online. López affirmed, “Everything should take place entirely on the internet. Information can be entered in just one time and sent to various entities.”

“Tax filing should be an annual task – not monthly. And it would be great to do it online,” continued McAllister, who did say that, having founded three startups, the process is already quite fast, “The only delay for beginners is the wording of statutes. The best way to overcome this is to consult a lawyer or other entrepreneurs.”

Amaya expressed his opinion that the process should be “short and simple, only the essentials. Most entities already have a lot of the data required. Likewise, free consulting should be available to guide entrepreneurs in accounting and finances, because it is often the case that entrepreneurs don’t know what is required and what they’re going to need – for example, in managing taxes.”

When it comes to establishing a startup in Colombia, there are clear advantages and disadvantages. Some processes are overwhelming, and others are effortless. The necessary tools are out there, and entrepreneurs must appeal to the know-how and experience of others to successfully execute their ideas.

This text has been adapted into English by Emily Stewart from its original Spanish publication.