According to Proclamation No 769/2012 (DOWNLOAD), investment in Ethiopia may take place in one of the following forms:
- Sole proprietorship
- Business organization
- Public enterprises
- Cooperative societies
Sole proprietorship is business in which only one individual owns all the assets, and operates in his/her personal capacity. The sole proprietor is liable personally for all debts of the business operation.
The following types or forms of business organizations are recognized under the 1960’s Commercial Code (Article 212) of Ethiopia (DOWNLOAD):
The following types or forms of business organizations are recognized under our Commercial Code (Article 212):
- ordinary partnership;
- general partnership;
- limited partnership;
- joint venture
- share company; and
- Private limited company
Article 211 of the Ethiopian Commercial Code provides that:
A partnership agreement is a contract whereby two or more persons who intend to join together and to cooperate undertake to bring together contributions for the purpose of carrying out activities of an economic nature and of participating in the profits and losses arising out thereof, if any.
- Article 280 of the Commercial Code, the liability of members of partnership is unlimited.
- Articles 260 and 295 of the Commercial Code - The death, incapacity, withdrawal or disagreement of any partner will dissolve the partnership.
- Articles 296 and 300 of the Commercial Code - In the case of limited partnership, limited partners who do not participate in management have limited liability. However, the liability of the general partners or managing partners remains unlimited.
- Article 280 of the commercial code - The partners are personally, jointly, severally and fully liable as between themselves and to the partnership for the partnership firms undertaking.
- The management and administration of the company is determined by the agreement concluded by the partners in the memorandum of association.
- Article 281 of the commercial code - The name of the partnership consists of the names of at least two of the partners followed by the words "General partnership".
- Article 296 of the commercial code-A limited partnership is a partnership with two types of partners namely, general partners who are liable personally, jointly, and severally and limited partners who are only liable to the extent of their contribution.
- Article 300 and 301 of the commercial code-A limited partnership is managed by the general partners. Limited partners are not allowed to participate in management.
- Article 297 of the commercial code-A limited partnership must consist of the names of the general partners followed by the words " Limited partnership".
- Article 271 of the Commercial Code- Is an agreement between partners on terms mutually agreed and subject to the general principles of relating to partnership.
- Article 272 of the Commercial Code- Joint venture is one form of partnership without having legal personality. No registration is needed. Two or more persons may come together to pool their capital, human resource and experience on the field and invest.
- Articles 275(2) and 276 of the Commercial Code-All partners have the status of managers in the absence of appointed manager(s). Consequently, a partner who manages the joint venture will be fully liable.
- Article 276 (5) of the Commercial Code-Every partner should deal with third parties in his/her own name.
Features of Joint Ventures
- There must be at least two or more persons;
- There must be a common purpose that the group intends to carry out;
- The group must have an agreement to carry out the purpose of the business;
- The group should share the profits and losses that arise from the undertaking;
- Each member should have equal right in controlling the project.
Joint Venture and Joint Investment
- Article 5(2) of Proclamation 280/2002 (as amended) - an investor (local or foreigner) can invest in the manufacture of weapons and ammunitions; as well as telecommunication services only in joint venture with the Government.
- Article 7 of Proclamation 280/2002 (as amended) Regarding Investments with the Government: The Supervising Authority of Public Enterprise shall receive investment proposals submitted by any private investor intending to invest in joint venture with the government; it shall submit same to the Ministry of Trade and Industry for decision and, upon approval, designate a public enterprise to invest as partner in the joint investment.
Therefore, a joint investment has legal personality and partners are liable only to the extent of their contribution and commitments.
- Article 510 of the Commercial Code- A private limited company is a company whose partners are liable only to the extent of their contributions. The maximum number of the partners is fifty while the minimum is two.
- Article 512 of the commercial code-The minimum required amount of capital to form private limited company is 15,000 Ethiopian Birr.
- Article 514 of the Commercial Code-The name of the private limited company may contain a disclosure of the nature of its activity and must include the words “private limited company".
- Article 515 of the Commercial Code-The firm-name and the amount of capital of the company shall appear on all of the company documents, invoices, publications and other papers.
- Article 304-A share company is a company whose capital is fixed in advance and divided into shares and whose liabilities are met only by the assets of the company.
- Articles 306 and 307 of the Commercial Code -The establishment of a share company requires 50,000 Birr as a minimum capital and at least five persons. Formal registration or investment certificate is required.
- Article 308 of the commercial code-The founders shall be fully jointly and severally liable to third parties in respect of commitments entered into for the formation of the company. All persons who have acted in the name of the company before its registration in the commercial register shall be similarly liable.
All foreign companies intending to invest in Ethiopia must be registered in accordance with the Commercial Code of Ethiopia and Commercial Registration and Business Licensing Proclamation No. 980/2016.
A branch company is an organizational unit of a foreign company. It has no legal personality. The parent company will be held liable along with its branch for all the activities and debts born by the latter.
Opening a Branch Office of an Overseas Company
An overseas company wishing to invest through a branch office is required to submit the following documents to the Ethiopian Investment Commission:
- a certified and notarized copy of the statutes or memorandum of association of the company;
- a resolution passed by the owners of the mother company, authorizing the establishment of a branch office in Ethiopia. The authorized capital of the branch, the activity to be undertaken, and the branch manager vested with the authority to become the legal representative in Ethiopia, should be indicated in the resolution;
- the Ethiopian Investment Commission shall, upon receipt of the above documents, issue a certificate of registration evidencing the formation of a branch of an overseas company;
- Article 2/1 of Proclamation 25/1992: public enterprise is a wholly state owned public enterprise carries on for gain manufacturing, distribution, service rendering or other economic and related activities.
- Article 6 of Proclamation Number 25/1992-A public enterprise is established by regulations. The regulations should indicate, among others, the purpose of the enterprise, its authorized capital and the initial capital paid up.
- Article 2(1) of Cooperative Societies Proclamation No. 985/2016 (DOWNLOAD): Cooperative society" means an autonomous association having legal personality and democratically controlled by persons united voluntarily to meet their common economic, social and cultural needs and other aspirations, which could not addressed individually, through an enterprise jointly owned and operated on the basis cooperative principles.
- Article 5 of Proclamation No. 985/2016: Cooperative societies are voluntary organizations open to all persons willing to use their services and able to accept the responsibilities of membership without discrimination on the basis of gender, social status, race, political ideology, disability or religion. Cooperative societies are also democratic organizations controlled by their members who actively participate in setting their policies and making decisions; each member having equal voting right as well as one member having only one vote. Members shall also receive dividends from surplus according to their shares and participation after deducting and setting aside an amount necessary for reserve and other services.
Article 7(1 and 2) of Proclamation No. 985/2018: Cooperative societies may, according to their nature, be established at different levels from primary up to federation level.