The New FDRE Commercial Code Proclamation no. 1243/2013 new provisions on Share Company

FDRE house of people’s representatives approved the new commercial code in March 2021. This newly enacted proclamation no. 1243/2021 will start enforcement after the day of publication on Negarit Gazette after replacing the 1960 Ethiopian commercial code. Our legal team managed to tailor the below major changes regarding share Companies.

The minimum nominal value of shares. The minimum value of one share is increased from 10 ETB to 100 ETB while the minimum capital remains 50,000 ETB. (the new commercial code Article 247)

The capacity of Founders. Persons who were in a managerial position (such as founder, auditor, director, or general manager) of other share companies and convicted for crimes related to the position are not capable to be the Founder of a new company. (Article 249)

Liability of the Founders. More grounds for liability on founders are introduced such as the legality of the formation process of the company, whether the formation process has been audited by an auditor, and other related issues. (Article 250)

Repayment to subscribers when the registration is not completed within a year. The new code introduced that repayment for the subscribers caused by failure to register in the commercial register is made only for those who requested repayment. And the formation will continue with the remaining subscribers. (Article 254/3)

Auditing of the formation process. Founders have a new duty to audit the formation process by an external auditor and present it for subscribers’ meetings. (Article 261)

Shares in the form of “to the bearer” are now excluded. According to the new code article 267, for companies to be established, there is no share in the “to the bearer” form and starting from the date of publication of the new code 3 years are given for existing companies to change such forms of share.

Shares can be intangible. In addition to the ordinary issuance of shares (printed on paper), now it is possible to provide electronics (intangible) shares. However, even if the issuance is made by the company, the electronics share is prepared only by legally authorized institutions for such purposes. (Article 272)

Right of minority and majority shareholders. If 90% of the company’s shares are owned by one person, the minority shareholders have the right to require the majority shareholder to buy their share. The reverse is also possible. (Article 292-294)

Board of directors. The maximum number of directors is now 13 (previously 12). 2/3 of the member of the board of directors shall be taken by non-executives of the company. Non-shareholders can be selected for board of directors position but not more than one-third of the number of directors. (Article 296 and 297)

In addition to the above provision, there are new provisions that introduce the board of directors meeting through the electronics communications, conflict of interest between directors and the company, and freedom to decide. (Article 309 and the following)

Board of supervisors. In the new code, the other new thing introduced is a body called the board of supervisors which can establish by a Memorandum of Association. It has a supervision and inspection role in the company and is organized by non-director and non-executive shareholders and responsible for the general meeting of shareholders. (Article 331-336). Remember that, it is different from auditors.

Shareholders General Meeting. In addition to the traditional way, the annual general meeting of shareholders can be conducted through electronic communication. Moreover, if the shareholders agreed unanimously, without calling for a general meeting they can send their stand on the issue in writing or through electronic communication. To sum up, calling for meetings is now possible through email or other reliable electronic communication. (Article 362 and 367)

Right to inspect. The right of shareholders to inspect documents of the company is now broadened. It includes getting the list of shareholders, who is the highest-paid employee in the year, proposed decisions to be presented, and the right to take the copy of such files in addition to types of documents provided in the old code. (Article 381)

Transactions values more than 10% of the company’s capital and have Conflict of interest. When there is a conflict of interest on contractual relation which covers more than 10% of the company’s capital, it is valid only approved by the general meeting of shareholders. (Article 395) 

Special Inspectors. Providing the scope and purpose of inspection, shareholders can request the ordinary general meeting to appoint a special inspector. The shareholders who request for special inspector should have announced this to the board of directors 1 month before the general meeting and expected to cover the cost and payments of the inspector. However, if the finding of the special inspector shows any violation of the memorandum of association or administrative procedure of the company the shareholders are entitled to recovery of any cost made for the special inspectors. (Article 396)

The duty to have a Website. Considering the new technological innovations, all share companies are now duty-bound to have a website according to article 492 of the new code. Giving more emphasis to it, the new code makes a chapter regarding the company’s website which includes articles that govern Setting up/opening a company’s website, a list of information to be publicized on the Website, and the period the information stays.   

Disclaimer: these changes tailored in this legal update are based on the latest draft of the new commercial code, which needs confirmation at the publication of the new commercial code. Moreover, this legal memo is only for information-providing purposes and doesn’t replace either considered as or legal experts advise.