Monday, March 8, 2021

The Law and Practice Relating to Holding Companies in Ethiopia

 Teklezgi, Wedawit

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Background

For any legal system, particularly the business regulation regime, it is extremely important to set out the business sector into categories of business and lay down rules regulating their establishment, operation and dissolution in a principled manner. Accordingly, the Ethiopian legal system has its own organized and considerably consolidated legal frameworkin the Commercial Code of the Empire of Ethiopia (1960 – the Commercial Code hereinafter), the Commercial Registration and Business Licensing Proclamation (980/2016 along with its amendment – the proclamation hereinafter) and related other statutes. This scheme governs a great deal of the business operation in the legal system by setting out uniquely categorized business types and determining specifically crafted provisions for the operation of each. Therefore, we can speak about a sole proprietorship and shareholding arrangements in the way the traders are classified.

Business organizations are allowed to institute themselves into either of a Partnership or companies (Share Company or a Private Limited Company). Here, we have a possibility of institution of holding companies in an affiliate or subsidiary relationship with any existing category. In as much as one of the indication of growth in the business world is the combining of independent business units in to group or an economic units which have advantages for the business as well as the state following this companies group themselves under various names. Some of these group themselves as „holding and subsidiary‟ others call themselves as „affiliate companies.‟ whereas others use the designation „group‟. In the Ethiopian business arena, we have a widespread intention among traders to be instituted as a holding company or in a related affiliate or subsidiary relationship among sister companies. On the other hand, when we ask if there is a matching or corresponding legal framework which provides for these and regulates them, the answer is discouraging. Holding companies are one of the least regulated subject matter in the Ethiopian legal system.


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