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2.4. Legal aspects

2.4.1. Registration of the enterprise
2.4.2. Food related laws

2.4.1. Registration of the enterprise

Before starting registration procedures, aspiring entrepreneurs should seek professional advice from small enterprise advisors, accountants or solicitors on what is the best type of enterprise to establish, as this varies according to the legal framework and economic structures prevailing at a given time in a particular country.

The form that a business takes is influenced by both the wishes or needs of the owner and also by the types of product that are to be made. Very frequently, new businesses are established by a family member or by a farmer who wishes to process the crops to add value. It is usually simpler and cheaper for these people to register either as personal business with unlimited liability or as a limited company with a single owner/director. However, this may not be appropriate if additional partners are required to contribute capital or specific skills.

Other types of business that can therefore be considered include a limited liability company with several directors or an un-incorporated association that has no limited liability (see Glossary for the meanings of these terms). If the proposed enterprise has a larger number of interested investors, for example a farmers' association, or if the aims also include social benefits (see Part I, Introduction), the form of the business could be a co-operative association, a not-for-profit organisation or a registered charity. However, it should be noted that charity law in many countries prohibits trading.

Once the form of the business has been decided, there are a number of registration procedures that need to be taken before it can begin trading. Again, these vary in both the number of steps and the degrees of complexity and bureaucracy in different countries and it is not possible to be comprehensive in a book of this nature. Professional advice is needed to guide the entrepreneur through each stage, from a solicitor and an accountant who are experienced in the national law in the particular country.

However, as a general guide it is necessary to register a processing business with some or all of the following authorities:

· notify the taxation authorities (e.g. the Sales Tax Commissioner or VAT Office) and complete Notification of Business Intention forms or their equivalent

· notify another branch of the taxation authorities to get an Approval Certificate to indicate that no unpaid income tax is outstanding

· apply to the Local Government Office (e.g. a Town Council or District Council) for a Business Licence

· apply to the Ministry of Health or Bureau of Standards, requesting that a Food Inspector visits the premises to examine the facilities

· when the inspection is completed and a satisfactory report is made, apply for registration as a Food Premises and the issuing of a Food Producer's Licence or Certificate or equivalent

· apply to the Bureau of Standards or equivalent, sending a sample of product for chemical analysis. This will be tested to determine whether it conforms to national legislation on food composition (see below). If it conforms, a Product Approval Certificate or similar will be issued and a Standards Authority symbol may be placed on the product label

· apply to the Ministry of Finance, Department of Customs and Local Government Tax Authority or VAT Office if there are opportunities for remission of taxes on imported ingredients, packaging materials or equipment. This is also necessary to reclaim VAT.

· register the business at a bank and open an account for trading.

If export is being considered it is also necessary to apply to:

· the Ministry of Trade and Industry or equivalent for a Business Licence
· the National or Central Bank for an Export Licence
· the Customs Department for clearance to export.

The majority of these stages require a fee to be paid and there is clearly a considerable expense in both time and travel costs to complete the registration procedure, particularly when the business is located away from the capital city. For inexperienced entrepreneurs, this is a daunting process and many either do not complete it or attempt to bypass it. However, incomplete or fraudulent registration leaves the entrepreneur open to later complications and possible prosecution.

More positively, there are schemes in many countries that are operated by National or Local Governments to encourage small enterprise development. These can vary from subsidised electricity, tax-holidays (tax-free periods of up to ten years), free land for enterprise development, support from a Small Business Advisory Service, or special bonuses if the business aims to employ women, rural people or social and ethnic minorities. The business should therefore be registered with the Ministry of Trade and Industry or other authorities that operate the schemes, in order to obtain these benefits.

Similarly, a number of international development organisations (Appendix IV) operate schemes to encourage small enterprise development and they should be contacted to find out whether credit, training or business support are available. Their local offices are often located in the Capital city, but some may have sub-offices in District Centres. Where donor countries operate bilateral development programmes, information about the available assistance can be obtained from the Aid Section of their Embassies or High Commissions. Finally the new entrepreneur should contact the local Manufacturers' Association or Chamber of Commerce to find out what assistance they can offer to get a new business established.

2.4.2. Food related laws

Food composition
Food labelling
Hygiene and sanitation
Weights and measures

In most countries there are general laws that govern the sale of all goods, including foods, which state that any product should be suitable for its intended purpose. There are also food laws relating to the effects of food on health that say: It is an offence for anyone to add anything to food, to process food or to sell food so that it is injurious to health with the intention that it is sold for human consumption.

Most countries have laws to protect customers from adulteration of foods or other forms of cheating. Typically these say that it is an offence to sell food that is not of the nature, substance nor quality demanded by the purchaser. It is also an offence to falsely describe a food on the label or in advertising, with the intention of misleading the customer.

Within these general laws, there are also specific laws that deal with the composition of certain foods, their safety, the amount that is contained in a package, the hygiene of operators and sanitation of premises where foods are made. These laws are detailed and specific to each country, although they are often based on, or derived from, laws that have been developed in Europe or the USA during the last century. In this section it is therefore only possible to describe the broad outline of the legislation. Entrepreneurs should seek advice on specific national interpretations from professional staff in the local Bureau of Standards or from food technologists who work in universities or food research institutes. Many of these institutions have field workers or outreach programmes that are intended to provide such advice.

Figure 35. - Some headlines showing the effect of not considering food laws

Food composition

Laws relating to the composition of processed foods are complex and specific to particular types of food, particularly those such as pies or prepared foods that present opportunities for adulteration. The intention of the laws is to produce a standard for a particular food and so ensure that all foods sold with that name have that standard composition. This approach is changing in some countries and is being relaxed because of the difficulties of enforcement. Instead the authorities are relying on stricter labelling requirements to inform consumers of the food composition (see labelling below).

If export to Europe, ASEAN or USA is being considered, it is essential to obtain a detailed specification of the required product composition and quality from the local Export Development Authority, from importing companies or their agents, from Fair Trading Organisations or from the Trade Section in Embassies of the countries concerned.

It is not possible in a book of this type to detail the limits that are set for individual foods as these vary from country to country. The section below therefore describes the types of compositional standards that may be in force and the producer should find precise details of each from local authorities or Bureaux of Standards.

In relation to fruit and vegetable products, the following often have compositional standards:

Fruit juices and nectars (Sections 2.2.7 and 2.2.8):

Juice should be only pure juice with nothing added except vitamin C, specified acids used to adjust the pH and maximum levels of residual sulphur dioxide if this has been used as a preservative. Typically nectars should contain a minimum % juice, between 25% and 40% juice depending on the type of fruit and a maximum of 20% sugar or honey. There are also minimum limits for the acid content of nectars.

Soft drinks (Section 2.2.8):

Squashes, crushes and cordials are each defined in law and have minimum fruit contents specified for different types of fruit. These are typically between 1.5% and 5% minimum fruit content for drinks that are not diluted and 7% to 25% minimum fruit content for those drinks that require dilution. Dilution must be four parts water to one part drink. They each have maximum permitted levels of sugar or artificial sweeteners and can contain specified food acids.

Jams and similar products (Section 2.2.9):

Jams should contain a minimum amount of fruit pulp, which varies with the type of fruit being used, but for many is around 200g pulp per kg product. Similarly the amount of fruit juice in jelly and marmalade is specified. Normally jams should have minimum of 60% soluble solids (in practice 68%-70% is used to achieve adequate preservation, especially in tropical climates) and there are limits on residual sulphur dioxide in all products. There are detailed regulations covering definitions of the names jams, jellies, marmalades, conserves, preserves, extra jam or jelly and reduced sugar jam, jelly or marmalade.

Tomato ketchup (Section 2.2.6):

This should have a minimum of 6% tomato solids and not contain seeds. There is a maximum limit on contamination with copper and no other fruits or vegetables can be used except onions, garlic or spices for flavouring.

Additives and contaminants:

There are lists of permitted food colours, emulsifies, stabilisers, preservatives and other additives that can be added to foods. Any chemical that is not on these lists cannot be used. There are also maximum levels set for each additive in specific foods and lists of foods that are able to contain specified preservatives. Contaminants, including poisonous metals such as arsenic and lead, have maximum permitted levels in specified foods.

Food labelling

When prosecutions of food companies are analysed, a large percentage often relate to 'technical' breaches of the law because a label is incorrectly designed. It is therefore in the processors' interest to involve the local Bureau of Standards at an early stage of label design to avoid problems with prosecution and expensive re-design after labels have been printed. There are general labelling requirements that describe the information that must be included on a label (see also Section 2.8.3), but in many countries there are also very detailed laws concerning some or all of the following aspects:

· specify names that must be given to different types of ingredients

· ingredients that are exempt from the law

· the use of words such as Best before and Sell by

· the declaration of alcohol content on spirit drinks

· locations of the name of the food, the sell-by date and the net weight (they must all be in the same field of vision when a customer looks at the label)

· the visibility of information and the ability of customers to understand it (including the relative print sizes of different information)

· claims and misleading descriptions, especially about health-giving or tonic properties, nutritional advantages, diabetic or other medicinal claims

· specifications of the way in which certain words such as flavour, fresh, vitamin etc. can be used.

This is also a complex area, which is not possible to describe in detail in this book and professional advice should be sought from graphic designers who are experienced in label design, or from a Bureau of Standards.

Hygiene and sanitation

Laws relating to food production premises and the staff who handle foods are among the most widely enforced in most developing countries. There are numerous examples of prosecutions by Food Inspectors from Ministries of Health or other enforcement authorities and in some cases, enforced closure of the business for failure to comply with these laws. Guidelines on the design and construction of premises (Section 2.5.3) and hygiene of operators (Appendix I) should therefore be consulted before submitting a new processing facility for inspection and certification (see above).

These guidelines should be rigorously enforced in routine production to ensure that safe, high quality products are produced (see also Section 2.7.2). In summary the laws are concerned with the following aspects of health, hygiene and sanitation:

· processing that is carried out in unsanitary conditions

· or where food is exposed to the risk of contamination

· equipment (which must be able to be cleaned and kept clean)

· persons handling food and their responsibilities to protect it from contamination

· building design and construction including water supplies,

· drainage, toilet facilities, wash-hand basins, provision of first aid facilities, places to store clothing, facilities for washing food and equipment, lighting, ventilation, protection against infestation by rats and insects and removal of wastes.

Weights and measures

The aim of this type of legislation is to protect customers from being cheated by unscrupulous manufacturers, for example from being sold underweight packs of food. The laws are to ensure that the amount of food that is declared on the label as the net weight (the weight of product in a pack) is the same as the weight of food that is actually in the pack. However, it is recognised that not every pack can be filled with exactly the specified weight because both machine-filling and hand-filling of containers is subject to some variability. The laws are therefore designed to allow for this variability but to prevent fraud.

There are two types of weights and measures legislation in force in different countries: the older method, which is still used in most developing countries, is known as the Minimum Weight System. This is intended to ensure that every pack of food contains at least the net weight that is written on the label. If any pack is found below this weight the producer is liable for prosecution. This system works well to protect customers, but is more expensive for producers because they have to routinely fill packs to just above the declared weight to avoid prosecution and they therefore give a small amount of product away in every pack.

A second type of legislation was introduced in Europe to take account of the automated filling and packaging that is used by most producers there. This is known as the Average Weight System and uses a statistical probability of a defined proportion of packages being above the declared weight as a basis for enforcement. As most small scale producers in developing countries do not use automatic fillers and programmable check-weighers, this system is difficult to operate and un-necessarily complex. If however, a producer is considering export to an industrialised country, advice and information on this legislation should be obtained from a local Export Promotion Board or equivalent institution so that an 'e' mark can be obtained to indicate that the process conforms to this system.

In some countries, there are specified weights that must be used when selling dried fruits and vegetables and jams or marmalades (but not other processed fruit and vegetable products).

Figure 36. - Hygiene and sanitation are controlled by law in most countries

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