The Role of the Lawyer in the Development of Entrepreneurship in Cuba

Since 2011, business creation has greatly increased due to new regulations authorizing private enterprise in Cuba.  Commonly referred to as the “self-employed sector” or the “private sector” or simply “the entrepreneurs” these small businesses embody the innate Cuban entrepreneurial spirit, which endures even in an unfavorable environment.  With recent announcements that, as part of the country’s economic development plan, businesses will soon be able to organize under a legal framework as small and medium-sized enterprises (SMEs), private business activity is poised to strengthen and grow.

The Current Legal Framework

The legal framework regulating private enterprise in Cuba is tangled - subjected to continuous changes that undercut transparency and discourage compliance.  The Cuban legal culture does not contemplate private legal advice as an essential ingredient for business success.  However, I submit that an orderly, predictable legal system, which is accessible to all and that encourages certainty, constitutes an essential element for a country's economic growth.  The legal community must play a critical role: first, helping to formulate the law, and, second, advising entrepreneurs on how to interpret the laws and organize their businesses and their activities in compliance with them.

In my opinion, from the moment that the business idea springs into their heads, Cuban entrepreneurs need to appreciate the importance of complying with the regulatory framework.  Hundreds of articles have been written by experts world-wide on legal compliance to mitigate risk.  Although written for a free market economy, The Entrepreneur’s Guide for Law and Strategy contains a number of tools that reflect the importance of legal advice and counsel during all stages of business development. For example, by simply applying for a business license in Cuba, the entrepreneur is establishing a legal relationship with the ministries of Labor and Social Security, which gives rise to implied rights and obligations despite the lack of a written contract.  Moreover, when entering into a contract with another business or the State, the business owner must understand that there is a legal framework related to the interpretation and enforcement of this agreement that authorizes and regulates these transactions.

Selecting the Legal Form for the Business

These first steps are known as business formation: selecting the form of business, be it a corporation, limited liability corporation, cooperative or other. Unlike the experience of other countries, so far in Cuba, entrepreneurs have limited legal ways to establish their business, either on their own account or through cooperatives. However, this does not mean that you do not need legal advice from an expert in the application process to apply for the license and register with the Taxpayer Registry.

In the rest of the world, restaurants, software engineering services, marketing and advertising, authorized today in Cuba under licenses for self-employment, are generally created as a corporation or limited liability companies with the aim of separating the assets of the company from the personal assets. of the entrepreneur.  If the business does not have an independent legal existence, all the personal assets of the entrepreneur are at risk because there is no separation of the obligations incurred in the business from the personal assets.

These forms are not currently available in Cuba. The result is that Cubans with business ideas are constrained from launching businesses so as not to risk their personal assets. This also means that many who do create a business do not see their business as an independent entity and therefore do not manage it profitably. Nor will an investor feel motivated to invest in a business where the assets of the business are not segregated from those of the individuals who contribute to the enterprise with their capital or their work. The article “Legal Structures for the Non-State Sector According to the Type and Scale of the Activity, explains the importance of establishing the correct legal form for a business to achieve success.  Although these forms of organization are not yet recognized in Cuba, it will not take long for that to change. The economic context itself will require these forms of organization to be authorized in order for the country to develop economically.

Meanwhile, with the advice of a lawyer, the entrepreneur can memorialize in contracts a level of operation close to that of a company with separate legal existence.  The entrepreneur can aim to clarify the obligations and limitations, minimizing possible risks due to mismanagement and helping to create a strategy that contributes to the development of the business in compliance with law. The legal expert knows the whole process to request the license and effect the registration in the Taxpayer Registry, optimizing the efficiency of the process for the owner.

Relations with Suppliers, Customers and Employees

Another area where entrepreneurs should turn to a lawyer is in the relationships established with suppliers, clients and employees.  Every agreement that an entrepreneur makes when going to buy raw material or hire a service for his business, whether or not in writing, establishes a contract. This creates rights and obligations for all parties involved.  A deficient contract, one which does not address all of the legal points required by law, can prevent an affected party from claiming her rights.

Having a written contract that meets all the requirements established by law, in form and content, becomes a fundamental tool for the protection of an entrepreneur, particularly in Cuba, which has not had a significant market sector and has not developed the regulatory framework that determines many of the commercial and labor relations such as those existing in market economies. Written contracts establishing what has been agreed are therefore fundamental.

Although today there is no legal culture of suing for breach of contract among entrepreneurs, this does not mean that there is no judicial way to do so.  The contract is one of the oldest legal institutions in human history, and it protects individuals. Although entrepreneurs (in Cuba) do not make use of this legal tool, that could change by seeking the advice of a legal expert.

Intellectual property is another area in which legal advice is essential. In Havana there are many brands and commercial names used by private businesses that infringe on similar well-known brands recognized internationally.  In addition, the businesses that use those “confusingly similar brands” are in many instances operating in the same business area as the well-known internationally recognized brands.  The Cuban businesses infringing on the foreign marks have not yet been punished with regulatory actions and fines only because they have not tried to use those infringing marks overseas. 

Moreover, under current law, Cuban entrepreneurs who create their own unique trademarks and tradenames for their businesses cannot protect them by registering them with the Cuban Office of Industrial Property.

With the new economic strategies announced by the government that will authorize the export of products and services, Cuban entrepreneurs must protect the intellectual property - trademarks, patents, etc. - of their businesses, not only on the island, but also in the countries where they will be sending their products and offering their services.  Moreover, these entrepreneurs should not only consider Cuban laws, but also international laws that regulate intellectual property, as well as the laws of the countries where they hope to sell their products.

In order to accomplish this, they need the advice of legal experts on intellectual property to understand the regulations that will affect their activity and to properly register their marks.  Obtaining legal advice on intellectual property, and others such as tax and financial, is essential for a business to lay down strong roots.  Many entrepreneurs prefer to ignore the legal aspects of their operations but that eventually brings negative consequences.  Compliance with law engenders an environment of certainty and fosters the development of industry.

Conclusion

Regulations on private business in Cuba are atypical due to the adaptation of forms of operation from a market economy into a predominantly socialist economic system. The lawyer's work is essential in helping to correctly interpret these regulations for his entrepreneurial client to succeed. Despite the fact that to date lawyers in Cuba can only be employed by authorized institutions, there is a force of trained and capable legal experts at those institutions who wish to support private businesses.

Yordanka Castillo obtained her Juris Doctor degree from the Law School of the University of Havana.  She recently completed her LLM from Pennsylvania State University School of Law with a Certificate of Concentration in Law and Business Practice.

She is currently a legal consultant for the “Cuba Ocean Program” of the Environmental Defense Fund. She is also the executive director and co-founder of LexiCuba, a project focused on the Cuban market of LegalTech, a software that applies technologies to make legal assistance more accessible to private companies.  Previously, she was a lawyer for the Cuban non-profit environmental organization Fundación Antonio Nuñez Jiménez (FANJ).

Before beginning her master's degree in Law, she provided legal advice and assistance to small private companies in Cuba, including entrepreneurs from the “Habana CreActiva” project, sponsored by the European Union in Cuba.