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Ethiopia: Commercial Code- A New Regime for Business and Commercial

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N-62 International Company and Commercial Law Review

Ethiopia: Commercial Law—Commercial code

Enactment of the Commercial Code of Ethiopia 2021, Proclamation Number
1243/2021—legal and institutional framework of business and business
organisations—commercial and non-commercial business organisations—activities
of economic nature—auxiliaries and agents of traders—books and accounts—
commercial registration—sale, hire, and mortgage of businesses—types of business
organisations recognised in the new legal regime—definition and terminology—
disclosure requirements—shareholders’ protection—creditors’ protection—
bankruptcy and reorganisation

Commercial law; Ethiopia

Ethiopia: Commercial Code—A new regime for business

and commercial relationships

Legal background
For many decades, Ethiopia’s Commercial Code of 1960 (“Old Code”) had
governed the majority of business and commercial relationships (including the
formation, operation, and termination of businesses and business organisations).
However, there was a perceived need to update the law to adequately govern the
then economic development and the market-led economic system, and thereby lay
a firm legal foundation for the conduct of commercial activities that ensure
economic development and global competitiveness. The Old Code also contained
noticeable gaps and insufficiencies that were inadequate for the practical operations
of businesses and business organisations. To that effect, the Old Code has been
recently amended and replaced by the Commercial Code of Ethiopia 2021,
Proclamation Number 1243/2021 (“New Code”).
Some of the following major changes introduced by the New Code that impact
the legal and institutional framework of business and commercial relationships in
Ethiopia are considered.1

Legal and institutional framework

By expressly surrendering the power to issue implementation regulations of the
New Code to the Council of Ministers and the power to issue directives and to
regulate businesses and business organisations to the Ministry of Trade and
Industry,2 the New Code alleviated the long-existing deficiency of structure and
accountability in the legal and institutional framework of business and business
organisations in Ethiopia.3

1
The Preamble of the Commercial Code of Ethiopia 2021, Proclamation No.1243/2021, repeals Books I, II, and
III of the Commercial Code of Ethiopia 1960. However, Books III (Carriage and Insurance) and IV (Negotiable
Instruments) of the Old Code continue to apply pending the issuance of the Financial Services Code; See art.55(4)
of the Constitution of the Federal Democratic Republic of Ethiopia.
2
Commercial Code of Ethiopia 2021 arts 274, 312, 313, 355–361, 366, 381, 395, 427, 431, 441, 486, 555.
3
See s.4 and 5 of the Preamble of the Commercial Code of Ethiopia 2021.

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 News Section N-63

Commercial and non-commercial organisations

The New Code excludes the application of its provisions to administrative organs
that are bodies corporate under public law and other organs, which are destined
to serve larger social purposes other than economic gain or profits. These include
religious institutions, civil society organisations, and cooperative societies even
where they carry on trading activities. However, the exclusion does not apply
where the above organs are shareholders or partners in a business organisation.
The New Code has extended its scope of application to public enterprises.4 By so
doing, it clearly demarcated commercial and non-commercial organisations in
Ethiopia.

Activities of economic nature

The New Code has expanded the list of economic activities to be operated by
traders widening the ambit of the definition of a Trader. The definition includes a
plethora of previously excluded and modern economic activities (i.e., in addition
to production and supply of goods), such as the rendering of various for-profit
services, and making the list of commercial activities open to including other
similar economic activities to be designated as such in the future. By so doing, the
New Code contributes significantly to the expansion of commercial activities, the
flow of capital, and credit, and increases the prospect of tax revenue of the
Government.5 Moreover, to incentivise the growth of some economic sectors by
giving tax-relief and considering their role as a source of income to a large segment
of society, the New Code also intentionally excluded some activities and
professionals such as Small-scale Works, Handicraftsmen, Agricultural and Forestry
Undertakings, Commercial Employees, Managers of business, and Commercial
Travelers from being considered as a Trader.6

Auxiliaries and agents of traders

To enable traders to undertake their trading activities in a facilitated and secured
manner, the New Code also contains detailed rules that define and govern the
contractual and legal relationships between traders and various personnel or
professionals hired by traders in due course of operating trading activities, such
as Commercial Travelers, Commercial Representatives, Commercial Agents,
Commercial Brokers, and Commission Agents.7

Book and accounts

To enable traders to duly discharge their duty to keep Books and Accounts remotely,
cheaply, and accessibly, in addition to the traditional mechanisms, the New Code
introduced to traders the option to keep their General Accounts using modern
technologies. It is also expressly guaranteed that traders may use accounts kept

4
Commercial Code of Ethiopia 2021 art.4(1–3).
5
Commercial Code of Ethiopia 2021 art.5(1–37).
6
Commercial Code of Ethiopia 2021 arts 6–8, 27–29, 32, 36.
7
Commercial Code of Ethiopia 2021 arts 36–60.

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N-64 International Company and Commercial Law Review

using modern technology as evidence thereby guaranteeing equal treatment to

technology-based evidence.8

Commercial registration
Similarly, to facilitate economic activities nationwide, detect pseudo businesses,
and ascertain transparency and accountability in the regulation of businesses, the
New Code also mandates the Ministry of Trade and Industry to establish and
administer the Federal Commercial Register of Traders, Businesses, and Business
Organisations having nationwide applications that undertake registration of traders
and business organisations. In addition, it also provides the option to Regional
States, Addis Ababa, and Dire Dawa City Administrations to establish their regional
commercial registers that undertake commercial registration.9 As a testament to
its modern nature, the New Code imposes the duty on the Ministry of Trade and
Industry to establish and administer a central commercial registration database
with a national application, which shall be organised making use of modern
information technology and be open and accessible to the public through the
Ministry’s website.10 Additionally, the fact that the New Code introduced the option
to make commercial entries, registration as a trader, and written statements online
through the database destined for that purpose enables traders to access such
services remotely, cheaply, and comfortably.11

Sale, hire, and mortgage of business

To guarantee the security of contractual transactions and ease of transfer of
businesses the New Code introduced detailed and modern rules on the sale, hire,
and mortgage of a business by traders on the one hand12 and the right of traders to
contribute their business as a contribution to form a business organisation, on the
other hand.13

Business organisations

The types of business organisations

One of the major changes introduced by the New Code relates to the types of
business organisations recognised in Ethiopia. The New Code increased the types
of business organisations in Ethiopia from six, in the Old Code, to seven. This has
the effect of widening the opportunity of investors to do business in a form of
business organisation that suits, among others, the nature of their business, the
number of members, or the amount of initial capital at their disposal.14 This is
achieved by repealing the provisions of the Old Code that dealt with ordinary

8
Commercial Code of Ethiopia 2021 arts 65(1–3), 61–69.
9
Commercial Code of Ethiopia 2021 arts 70–71, 265–266.
10
Commercial Code of Ethiopia 2021 arts 72–81.
11
Commercial Code of Ethiopia 2021 arts 79, 83(3), 82–89.
12
Commercial Code of Ethiopia 2021 arts 122–167.
13
Commercial Code of Ethiopia 2021 arts 168–171.
14
Cross-refer art. 212 of the 1960 Commercial Code with art. 174 of the Commercial Code of Ethiopia 2021. The
1960 Commercial Code recognized only six types of Business Organisations, which are Ordinary Partnership, General
Partnership, Limited Partnership, Joint Venture, Share Company, and Private Limited Company.

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 News Section N-65

partnerships15 and introducing two new types of business organisations, of which,

one is a “partnership” in nature and the other is a form of a “company”.16
Specifically, the New Code introduced the “limited liability partnership” (LLP)17
and the “one person private limited company” (OPPLC).18 An LLP is a business
organisation formed by two or more persons to render professional service and
services complementary thereto in which the liability of partners is limited to the
extent of their contributions.19 The advent of the LLP is expected to encourage a
large number of professionals who were previously forced to deliver their
professional services as a sole-proprietor and with unlimited legal liability to the
debts of the proprietorship due to the absence of a suitable legal form to operate
as a group. This form of business organisation is expected to boost the rendition
of professional services in general and legal services in particular in Ethiopia. One
beneficial effect of LLPs is that two or more licensed lawyers can deliver
professional legal services in the form of a Law Firm (previously there was no
legal framework to establish a Law Firm in Ethiopia) while enjoying the privilege
of limited liability.
As the New Code also recognises OPPLCs, it is expected to attract a large
number of resourceful traders, who wanted to operate a high-profile business in
the form of a company but were unfairly forced to operate their businesses only
as a sole-trader where their liability to the debts of the business was unlimited.
With the advent of the OPPLC, however, the liability of the member is limited to
only the extent of its initial contribution to the company, which encourages such
member to take a higher business risk. Moreover, by enabling a single person to
establish a company, the OPPLC removes the long-standing minimum membership
requirement of two or more persons to operate a business in the form of a business
organisation (as different from a sole-proprietorship) in Ethiopia.20

Definitions and terminology

To avoid practical inconveniences and gaps in due course of application, unlike
the Old Code, the New Code, among others, introduced clearer, pragmatic, and
exclusive definitions of Traders21, a Business Organisation22, General Partnerships23,
Limited partnerships24, LLPs25, Joint Ventures26, Share Companies27, Private Limited
Companies28, and OPPLCs.29 The New Code also adequately introduced modern

15
Commercial Code of Ethiopia 1960 arts 210–213, 227–270 dealt with Ordinary Partnerships. The New Code is
justified in abolishing Ordinary Partnerships that existed illusively and defined non-exclusively in the Old Code. That
is because, the provisions governing Ordinary Partnerships in the Old Code were highly equivocal and in pragmatic
and such partnerships were not considered as commercial in nature and hence, were not subjected to bankruptcy law,
which are all reasons that practically relegated Ordinary Partnerships to the realm of non-commercial organisations.
16
Commercial Code of Ethiopia 2021 arts 172–174.
17
Commercial Code of Ethiopia 2021 arts 221–233.
18
Commercial Code of Ethiopia 2021 arts 534–545.
19
Commercial Code of Ethiopia 2021 art. 221.
20
Commercial Code of Ethiopia 2021 art. 534.
21
Commercial Code of Ethiopia 2021 arts 5–10.
22
Commercial Code of Ethiopia 2021 art.172.
23
Commercial Code of Ethiopia 2021 arts 183–211.
24
Commercial Code of Ethiopia 2021 arts 212–220.
25
Commercial Code of Ethiopia 2021 arts 221–233.
26
Commercial Code of Ethiopia 2021 arts 234–244.
27
Commercial Code of Ethiopia 2021 arts 245–494.
28
Commercial Code of Ethiopia 2021 arts 495–533.
29
Commercial Code of Ethiopia 2021 arts 534–545.

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N-66 International Company and Commercial Law Review

definitions of the various terminologies relevant to business and business

organisations.30

Disclosure requirements
To guarantee transparency, accountability, and accessibility in the operation and
administration of business organisations in Ethiopia, the New Code, based on the
international best practice, adopted modern rules that guarantee the disclosure of
adequate, timely, and authentic material information by the company or its directors
towards shareholders and interested third parties including the duty of companies
to disclose major share ownership in the company and to establish a secured and
accessible website.31

Shareholders’ protection
The New Code contains modern rules and requirements to protect the interests of
shareholders in general and minority shareholders in particular. Accordingly, the
New Code: established a powerful general meeting of shareholders,32 vested with
the power to decide on fundamental governance issues;33 guaranteed the right of
shareholders to call a meeting and set an agenda of meetings;34 guaranteed the right
of shareholders to participate in meetings and vote through proxy and by using
electronic mediums;35 ascertained the equal rights of voting to all the shareholders
regardless of class and number of shares by awarding one vote to each share and
expressly prohibiting multiple voting rights or the issuance of shares without voting
rights;36 introduced a two-tier board structure that delineates the powers and duties
of the supervisory board and the management board, thereby encouraging division
of labour, specialisation, and board independence and preventing conflict of interest,
agency costs, self-dealing, and rents in corporate control;37 guaranteed the absolute
rights of shareholders to elect, remove, and replace directors;38 ascertained the
rights of shareholders as a group to file a derivative suit against directors on behalf
of the company;39 guaranteed the right of shareholders to challenge the resolutions

30
Commercial Code of Ethiopia 2021 arts 32–35, 245, 248–49, 258–264, 293, 294, 562, 295, 296–97, 296 (1, 2),
300, 379, 301, 306, 312, 554, 331–32, 337–38, 343–45, 299, 364, 466, 470, 559–561, 292–294, 403, 562, 558, 403,
407, 550–53, 291, 558; It has also introduced efficient and modern rules for the formation, operation, affiliation,
merger, division, and termination of Sole-proprietorships and Business Organisations in Ethiopia.
31
Commercial Code of Ethiopia 2021 arts 274, 274, 292, 293, 294, 311, 312, 313, 315(6(a)), 381, 382, 386,
387(1–4), 388, 389, 392, 399, 403, 405, 441, 474, 491–494, 554–558, 562.
32
Commercial Code of Ethiopia 2021 arts 262(2)-264, 268(2), 272(3), 275–278, 362–391, 400, 402(2–3), 444,
442, 452, 460, 473–475, 565–577.
33
Commercial Code of Ethiopia 2021 arts 306, 362–391, 394(4), 395.
34
Commercial Code of Ethiopia 2021 arts 303(3–4), 315(6), 328, 351(1–5), 366(1–2), 367, 370, 372, 382, 389,
393, 394, 395,473, 481.
35
Commercial Code of Ethiopia 2021 arts 262(4), 271–272, 283–284, 292, 309, 310, 362, 370, 371, 373, 376, 377,
397, 401, 403(1–4), 422–424, 448(2), 547, 562(1–3).
36
Commercial Code of Ethiopia 2021 arts 275(2), 278(2), 279(2), 289(7), 291(1–5), 363, 364, 375, 379, 383, 384,
385(1–4), 386, 390, 397(1), 401, 448(1)–461, 470.
37
Commercial Code of Ethiopia 2021 arts 296, 297, 301–314, 315–330, 331–336, 337, 338, 379, 347, 436(2), 478;
Similarly, the New Code adopts clear division of power, duties, and independence between the offices of the General
Manager and the Chairperson of the board. Moreover, the New Code also generally recognises Board Committees.
38
Commercial Code of Ethiopia 2021 arts 296, 298, 301, 303, 305, 331, 333, 385, 394.
39
Commercial Code of Ethiopia 2021 arts 179, 306, 315–319, 320–327, 328, 329, 330, 395, 426–428.

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 News Section N-67

of the general meeting that are invalid or illegal;40 and ascertained the right of a
shareholder to offer a mandatory bid to buy the remaining shares in the company.41

Creditors’ protection
The New Code also contains modern rules and requirements that protect the
interests of corporate creditors such as the minimum capital requirement;42
restrictions imposed on the payment of a dividend;43 restrictions imposed on the
repurchases of shares;44 prohibition of under-valued transactions;45 duties imposed
on the directors towards creditors in normal times and during insolvency;46 the
recognised forms and variety of security mechanisms;47 and the special protection
accorded to creditors’ interests through various procedures that are adopted and
followed during bankruptcy proceedings.48

Bankruptcy and reorganisation

In addition, in the interest of adequately protecting the interests of corporate
creditors and based on the modest international best practice, the New Code has
also introduced modern and efficient rules for the settlement of the affairs of
insolvent (unviable) business organisations, based on the need of the situation,
either through preventive restructuring (as a going concern), or reorganisation
(rehabilitation), or via straight bankruptcy (liquidation).49

Samuel Maireg Biresaw

LLB, LLM in Business Law, LLM. In Intl. Com. & Business Law; Lecturer in Law,
University of East Anglia, UK

40
Commercial Code of Ethiopia 2021 arts 292, 306, 362, 363, 364, 374, 381, 383(2), 384, 385, 386, 391, 394, 396,
397, 398, 399, 401, 402, 403, 562.
41
Commercial Code of Ethiopia 2021 arts 267–269, 276, 292–295, 381, 382, 398(2), 399, 403, 442–461, 556, 558,
562.
42
Commercial Code of Ethiopia 2021 arts 247(1–2), 254, 268, 281, 282.
43
Commercial Code of Ethiopia 2021 arts 291, 304(4), 432(1–3), 433–437, 438(1–5), 439–441, 487.
44
Commercial Code of Ethiopia 2021 arts 275–277.
45
Commercial Code of Ethiopia 2021 arts 306(1–6), 307(1–3).
46
Commercial Code of Ethiopia 2021 arts 316–322, 325–328, 329(1–3), 330.
47
Commercial Code of Ethiopia 2021 arts 136–142, 143–155, 156–167, 168–171, 576.
48
Commercial Code of Ethiopia 2021 arts 177, 178, 190, 191, 201, 202, 205–207, 211, 216, 218, 228, 232, 241,
242, 265, 26877, 289, 292–295, 302, 306, 311–313, 334, 442–461, 462–472, 588–825.
49
See arts 558–825 of the Commercial Code of Ethiopia 2021 on Preventive Restructuring, Reorganisation, and
Bankruptcy Law.

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