BizCLIR

Company law is crucial in market economies; it sets the legal environment for the creation and continuing operation of privately owned businesses. Good company law is especially critical in transition-economy countries. It can encourage new investment—and provide investor protection—by setting forth clear and objective rules for a company’s ongoing internal governance; it can encourage entrepreneurship by making it easy to start up and register a company; and it can encourage businesses to come out of the underground economy into the publicly registered, taxpaying economy.

Ethiopia’s current company law is part of its Commercial Code, which has remained unchanged since its enactment in Imperial times (1960). It is patterned after the French Commercial Code as it was in effect in 1960. The company law was effectively suspended during the Communist Derg period (1975–1991), when formation of new limited liability companies was not permitted. The company law was restored to full effect under the present Government.

Although the current company law has been basically adequate for conditions to date, it needs to be updated. The present Government recognizes this and appointed a committee under the Department of Justice, which has been working on an updated version for more than 2 years with completion said to be hoped for by early 2007. The committee currently has a working draft but that draft is not publicly available.

One distinct issue involving company law is that of startup and registration of new companies. Although that has been a problem in the past, it is no longer so according to all persons who were interviewed, including practicing lawyers and accounting firm professionals, company officials, registry officials, and donors. That is due to implementation with donor help of revised and streamlined company registration procedures and forms in the Ministry of Trade and Industry.