Understanding the transition from informal to formal business: A conceptual framework

Abstract

Although there may be incentives for a businesses to remain informal, formalisation comes with many advantages. However, as some ‘graduated’ businesses will attest to, the process of formalisation can be very challenging. In order to make the formalisation journey less challenging, there is need for informal businesses to fully comprehend what it takes to transit from an informal to a formal business. The purpose of this paper was to provide a conceptual framework for studying and comprehending the transition of a business from the informal to the formal sector. The ultimate aim is to assist owners and managers of informal businesses to transit into the formal sector so as to reap the benefits associated with formalisation while allowing society in general to also benefit from increased job creation, tax contributions and social responsibility contributions and so on that result from formalisation of a business. In this paper, the researchers conducted a desk research by reviewing the literature to understand the informal to formal business transition process. This led to the identification of variables incorporated into the conceptual framework. While there can be no one-size-fits-all framework to address a research problem, academic, policy makers, as well as students will find the framework useful in their various endeavours.