The new commercial code of Ethiopia recognizes a one-person company. This form of company is a new form of company that is believed to create a favorable business environment, especially, for those who want to start a business on their own. This page discusses some of the major issues pertaining to a one-person company: nature, formation, and management.
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One-person Company: Nature
As its name denotes, a one-person company is a company that is owned by one person. Under this form of company, the owner’s personality is separate and distinct from that of the company. As such, the owner is not personally liable for debts due by the company in so far he/she has fully made his/her contribution.
The exemption of the owner from liability, however, ceases in certain circumstances. The first circumstance is if the owner has another one-person company. A single person is only allowed to establish a one-person company. As such, if a single person establishes another company, he/she will be jointly and severally liable for any damage incurred by creditors or any other person. Other circumstances that entail the liability of the owner include:
- commission of an unlawful act by the owner intentionally that jeopardizes the interests of the company or creditors of the company;
- the merger of the assets of the company with the property of the owner;
- failure to separate the owner’s legal personality from that of the company;
- release information on the financial status of the company to deliberately mislead the creditors of the company;
- make use of the assets of the company without payment or agreement for the personal benefits of the owner or that of third parties;
- payment of dividends that exceeds the limit set by the law; and
- commission of other similar acts.
One-person Company: Formation
A one-person company can be formed by a person who wishes to establish a new business. Sole proprietors may also convert their business form into a one-person company. In this case, the sole proprietor remains to be personally liable for all debts incurred prior to the formation of the one-person company through conversion.
A person seeking to establish a one-person company is required to prepare a unilateral declaration as the company is incorporated by such a document. The unilateral declarations should indicate:
- that the company has only one member;
- the name, nationality, and address of the member;
- the name of the nominee of the company who will act on behalf of the member in the event of death or absence or judicial interdiction of the member;
- the acceptance of the nominee his/her nomination;
- the company name, head office, and branches, if any;
- the business purpose of the company;
- the amount of the capital of the company and a statement that the capital is fully paid (a minimum capital of 15,000 ETB);
- the valuation of contributions in kind, if any;
- the name and powers of the manager;
- the name of the auditor, if any;
- the period of time for which the company is established;
- the method and time within which performance report of the company is released; and
- other particulars determined to be included by the law or the member.
The unilateral declaration that incorporates the above detail is made before the Document Authentication and Documents office. The appointed nominee, who is to take over when the owner is incapacitated by law, should also declare his/her nomination before the same office.
The authenticated unilateral declaration should be registered in the commercial register within one month from the decision was made.
One-person Company: Management
The management of a one-person company is conducted by a meeting of the company and a general manager. In this context, the meeting of the company means the minutes of the resolution passed by the owner. The owner can exercise the powers of the general meetings of shareholders in a private limited company.
A one-person company is also managed by a general manager that may or may not be a member of the company. However, if the owner chooses to be a general manager, he/she has to be careful not to mingle his/her personality with that of the company. He/she should not engage in any of the aforementioned acts that would entail personal liability.
The general manager has among others the following powers and responsibilities:
- Manage the company’s financial situation to ensure the company has adequate capital and liquidity.
- Ensure that the company´s governance arrangements are such as to ensure the proper monitoring of the company’s financial statements and positions.
- Make certain that sufficient procedures for risk management and internal control are established.
- take all steps within his/her power to prevent or mitigate acts that are prejudicial to the company.
- keeping regular records of the meetings of the board of directors and shareholders, accounts and books, registers of shareholders and directors, and other necessary documents; and
- ensuring submission of accounts and books to auditors when required.