Monday, March 8, 2021

Willful Withdrawal and/or Dismissal of Members from Private Limited Company in Ethiopia: the law and the practice

 Bogale, Abera

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Abstract:

Business organizations are preferred to undertake business activities in an organized form. In most jurisdictions, they are classified as partnerships and corporations. The Ethiopian Commercial Code of 1960 also follows the same classification. Companies are further classified as share companies and private limited companies (PLCs).

PLCs have both the attributes of partnerships and share companies. They are formed between families, friends, and close business partners based on mutual trust, fiduciary, and cooperation. Members can also be an employee in the company and it’s characterized by corporate and members limited liability. Besides majorities of companies in Ethiopia are PLCs and have a tremendous contribution to the national economy by creating job opportunities and paying taxes. Though it is founded on mutual trust and cooperation things may not go as members have expected it to be. In due course members who are also employees may misappropriate the company’s asset, majority shareholders may oppress the minorities or the purpose for which the company is established may not be achieved or trust may break. For all these reasons the members may want to willfully withdraw or other shareholders in the interest of the company may want to dismiss a member who is the source of the dissatisfaction. Although members are free to determine how to settle these issues under the MOA or AOA, the intimate relation that exists in the early days of its formation obstructs them to plan in advance on how to regulate possible disputes arising in the feature. Moreover, the provisions of the Commercial Code on PLCs have not regulated the issue. Therefore, the absence of clear legal provisions to effect withdrawal and/or dismissal and failure of the parties to plan in advance on how to solve such issues results in a serious problem. The only possible remedy for shareholders who have irreconcilable disputes is dissolution and this goes against the interest of members, employees, and the national economy. This problem is further exacerbated by the inconsistency of court’s decision on the issue. Some of the Federal Courts apply the provisions of share companies and partnerships to rule on withdrawal and dismissal for a substantial cause. Other Federal Courts decide that such claims lack cause of action. Therefore, the thesis examines the legal and practical problems on willful withdrawal and dismissal of members. Thereby recommends the possible measures that should be taken to tackle the problem.

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