Month: June 2021

By Dagnachew Tesfaye
The 1960 Commercial Code of the Empire of Ethiopia incorporated one form of limited partnership called Limited Partnership. However the limited partnership comprises of two types of partners. General partners in full liability personally, jointly and severally and limited partners who are only liable to the extent of their contribution. The name limited partnership does not describe it perfectly. It is a two type of liability partnership rather than a limited partnership. The correction in naming is made in the new Commercial Code of Ethiopia Proclamation No 1243/2013(the new CC Proclamation hereafter). It is now called a Two Type Liability Partnership rather than limited partnership.

On the other hand, the new CC proclamation introduces a new additional form of limited partnership. It is called Limited Liability Partnership (LLP). The LLP comprises of only limited partners who are only liable to the extent of their contribution. LLP does not have partners with full liability personally, jointly and severally.

The LLP can be formed by two or more partners. The partners need to have professional practice licences. The partners come together to exercise their profession and related professional services. Not only physical persons but also juridical persons with the necessary professional competencies can also be partners in the LLP. Nevertheless, the general manager of a LLP must be a natural person who has the professional licence that qualifies him to practice the profession.

LLP once registered will have its own legal personality. The LLP shall have a name. The name need not necessarily be the name of the partners, as in the case of Two Type Liability Partnership. The name has to be a legally acceptable name and the name shall have at the end ‘Limited Liability Partnership’.

LLP shall be established by a memorandum of association(MoA) and shall contain particulars as stated in Article 185 of the new CC Proclamation. However, in addition to those particulars, licence copies and licence numbers of each partner should be attached to the formation document of the LLP. This requirement identifies LLP as a business model done by licensed practitioners of a certain duly recognized profession.

Contributions by partners is not limited to skill. Contributions can be in cash, movable or immovable property, trade mark, good will, patent, copy right, lease right, use right or any other form of contribution.

Conflict of interest between a partners and the LLP shall be governed by specific profession related laws. Such laws for example include the new Federal Advocates Licencing and Administration Proclamation 1249/2013. However, a partner seeking to do a similar job with the LLP by himself or to a third party can do so only when he obtains a unanimous vote in the LLP. The intention is to reduce conflict of interest and if so happens with the full consent of its partners.

Liability of the LLP is broad. The LLP is jointly and severally liable with a partner that inflicts damage intentionally or through negligence, to third parties while doing his job. Nevertheless, the LLP shall be free from such liability only when the third party victim knows that the partner is acting beyond his powers. For this and similar incidents and compensations thereof, the LLP is required by law to have professional indemnity insurance.

Withdrawal or expulsion of a partner happens when the partner gives a three month written notice unless otherwise a different term is mentioned on the MoA, upon death or for a legal person partner upon dissolution, creditors of the partner take over his shares or sell of ALL his share contributions, insolvency of the partner, cancellation of the professional licence, barred from his profession for a long period of time unless a different agreement is there in the MoA, incapacity or ordered by court of law for good cause. The forms of withdrawal or expulsion of a partner have become more detailed and incorporate the professional licence cancellation or barring. The withdrawal or expulsion of a partner should be entered in the register where the LLP is formed, for the protection of third parties, the LLP itself and the knowledge of the licencing body.

Shares of a deceased, incapacitated or insolvent partner shall be given to the rightful successors in CASH. A request to be a substitute partner is not allowed. When calculating the amount to be dispersed to a successor, the contributions of the partner, debts of the LLP or accumulated dividends if any of the partner, possible profits on progressive cases the partner has been working on, shall be considered. This made it clear what to consider in assessing the amount devolving a partner leaving the LLP.

Voting for normal business affairs shall be majority of the members support. For amendment of the terms of the MoA, a 2/3 approval is required. And for change in nationality of the LLP or change of business field, 3/4 approval is required. It is unclear whether majority support, or 2/3 approval or 3/4 approval are in terms of number of partners or share values. The MoA has to clarify the voting system. For that matter, a different voting requirement can be included for normal business voting and amendment of the MoA.

Dissolution of the a LLP happens when the membership is reduced to one partner and the remaining partner cannot add a partner within six month period of time. The remaining partner can request an extension for three more month. In total a 9 month period is given for the remaining partner to raise the number of partners to more than one. A partner who continues to work the LLP without taking the necessary measures of adding a partner or partners beyond one, shall be jointly and severally liable with the LLP for creditors and debts of the LLP.

In conclusion, the new Commercial Code of Ethiopia introduces limited liability partnership for professional services, with limited liability enjoyed by the partners.

By Hami Bogale and Dagnachew Tesfaye

The Convention of 5 October 1961 Abolishing the Requirement of Legalization for Foreign Public Documents also known as the Apostille Convention. The Apostille convention brought about a basic simplification of the series of formalities which complicated the utilization of public documents outside of the countries from which they emanated. Where it applies, the treaty reduces the authentication process to a single formality: the issuance of an authentication certificate by an authority designated by the country where the public document was issued. This certificate is called an Apostille.

The public documents covered under the convention include birth, marriage and death certificates; documents emanating from an authority or an official connected with a court, tribunal or commission; extracts from commercial registers and other registers; patents; notarial acts and notarial attestations (acknowledgments) of signatures; school, university and other academic diplomas issued by public institutions. However, the Apostille Convention does not apply to documents executed by diplomatic or consular agents. The Convention also excludes from its scope certain administrative documents related to commercial or customs operations.

The traditional method for authenticating public documents to be used abroad is called legalization and consists of a chain of individual authentications of the document. This process involves officials of the country where the document was issued as well as the foreign Embassy or Consulate of the country where the document is to be used. Because of the number of authorities involved, the legalization process is frequently slow, cumbersome and costly.

The Apostille Convention reduces the need for double-certification by originating state and that of the receiving state. The convention is applied millions of times each year throughout the world. It greatly facilitates the circulation of public documents issued by a country party to the Convention and that are to be used in another country also party to the Convention.

As of Ferbruary 2021, 120 countries are contracting states to the Apostille convention.

Since the convention greatly simplifies the authentication of public documents to be used abroad, Ethiopians will benefit by joining the convention.

By Dagnachew Tesfaye
The new Commercial Code Proclamation No 1243/2013 repealed Book I, II and V of the 1960 Commercial Code of the Empire of Ethiopia Proclamation No 166/1960. The effective date of the new Commercial Code (new CC) is from the date of publication in the Federal Negarit Gazette. The repeal of Book I, II and V shall commence from the effective date. A brief discussion shall be done on Book II specifically on general provisions to business organizations.

Definition: A business organization (BO) has been defined in the old Commercial Code(old CC) as an association arising out of a partnership agreement. But now in the new CC a business organization is defined differently. A business organization is an association created by memorandum of association by persons coming together contributing for the purpose of carrying economic activities and of participating in the profits. The term partnership agreement existing in the old CC has been left out and probably substituted by memorandum of association. However, there are exceptions to the above definition. The exceptions are joint venture (JV) and a one-person private limited company. JV is established not by memorandum of association but by a contractual agreement. Such contractual agreement should not be revealed to third parties. The other exception is a one-person private limited company. Association requires two or more persons. However as an exception, a company can be established by a single person. The existence of the exceptions are mentioned in the new CC.

Memorandum of Association: Memorandum of Association (MoA) serves as the formation document of BOs except JV. Template MoA can be prepared by government entities including Ministry of Trade and Industry. However content of the MoA should not limit the right to agree by the partners. Any law or procedure that limit the partners to stick with the template or limit the right to agree on different matters not contrary to law, are null and void, it states. This last part is an addition in the new CC that practically solves problems faced by new entrants in forming company or partnerships.

Different Business Organizations: It used to be 6 types of BOs in the old CC. They were ordinary partnership, joint venture, general partnership, limited partnership, share company and private limited company. Now in the new CC, they became 7(seven) in number. These are general partnership, two types of liability limited partnerships, limited liability partnership, joint venture, share company, private limited company and one-person private limited company. Here in the new CC ordinary partnership is left out. On the other hand limited partnership is broadened to two types of partnerships, namely limited partnership with limited liability and two types of liability limited partnership. A new form of company is introduced namely one-person PLC.

Dissolution for Good Cause by Court: Dissolution of a BO by court happens when there is good cause. Good cause used to include in the old CC infirmity, permanent illness or any other reason incapable of carrying out his duties or serious disagreements existing between partners. Now in the new CC, good cause is only when serious disagreement exists between partners. The rest of the reasons namely infirmity, permanent illness, incapacity to carry out duties were disregarded. Still when there is serious disagreement between the partners, the court should not go automatically to dissolution. If the disagreeing partners can take their share and leave the organization and the rest of the partners can continue the organization, then the organization should continue to exist. Such clarification in the law will enable judges to interpret the law in a more clear and easier way.

Publication of Cancellation of Registration: The old CC state that where a BO is dissolved and wound-up, the existence of the BO shall stop after cancellation has been published in the official commercial gazette. This article has been amended by Commercial Registration and Licencing Proclamation No 980/2016. On the later proclamation on Article 11(7) it is stated that cancellation of registration of BO shall come into force one month after publication of notice of cancellation on a newspaper having wider circulation at the expense of the applicant; in the case of sole proprietor, however, the cancellation shall become effective as of the date of its entry into the register and without the need to publicize. The new CC however state clearly that the legal personality of the business organization shall cease to exist the next day the cancellation of the BO is entered in the commercial register. Then the cancellation of the organization as BO will be publicized by a gazette with wide spread distribution in the locality the main office of the cancelled BO is situated. On whose, the applicant or the government, expense is the publicity by a gazette is done is not clear. Publicity by a gazette, however, is not a requirement for cancellation of registration of all types of BOs. Rather publicity in a gazette happens to simply notify the fact that such a BO has stopped existing.

To sum up, these are some of the additions and deductions that happened on the general section of business organizations in the new Commercial Code.

By Mahlet Mesganaw

Email: mahlet@dmethiolawyers.com

Authentication and Registration of Documents Proclamation No 922/2015 provide the details in which documents are authenticated and registered. Authentication involves signature and affixing of seal while registration involves giving identification number and deposit of the document. A look into the document authentication and registration process shall be made here below.

Organs Vested with Authentication and Registration of Documents

Different government organs are vested with the authentication and registration of documents. The Federal Document Authentication and Registration Agency (FDARA) established under Regulation No 379/2016 takes the primary role of document authentication and registration task under the Federal Government. Ethiopian Embassies and Consular Offices authenticate documents to be sent to Ethiopia. The Ministry of Foreign Affairs (MoFA) authenticate documents stamped by Ethiopian Embassies and Consular offices. MoFA also authenticate documents authenticated by Embassies and Consular Offices of foreign countries in Ethiopia. Moreover documents that are sent abroad and require authentication under the law of the receiving country will be authenticated by MoFA. The other organs vested with the power to authenticate and register document are Commanders of Divisions of the Defense Force. The commanders authenticate documents submitted by members of the defense force who are in active duty. Commanders of Divisions of the Federal Police Commission shall also authenticate documents submitted by members of the federal police force who are on active duty. The Ethiopian Investment Commission(Commission) under the Investment Regulation No 474/2020 is given by law under Article 18 a one-stop-service to register memorandum of association and articles of association and their amendments for investments registered under the Commission. Last but not least, the Industrial Park Regulation No 417/2017 provides under Article 15 a one-stop-shop service including authentication of documents including memorandum of association, articles of association and amendments thereof.

Mandatory Authentication and Registration

Under Proclamation No 922/2015, documents that SHALL be authenticated and registered include power of attorney or revocation of power of attorney, memorandum of association and articles of association and their amendments of business organizations and other associations, documents that shall be required to be authenticated and registered by law. These may include contracts of transfer of immovable properties, contracts to establish collateral or guarantee rights on immovable properties and public wills. Other than the above documents, authentication happen upon request by clients. The notary shall authenticate and register where parties to a document request for authentication and registration.

Types Documents presented for Authentications and Registration

Authentication involves not only new documents submitted for authentication but also documents that are already signed and need authentication and registration. More so copies of documents to be ascertained vis-a-vis the originals can be presented for authentication. Ascertaining the legality of documents, ascertaining the capacity and authority of signatures of a document and ascertaining the conditions of ownership and the owners of certain properties are also documents that are presented for authentication.

Prohibitions against the Notary

Apart from ascertaining its legitimacy, a notary shall not have power to change or cause to be changed the contents of a document submitted for authentication.

Oath and Hearing of Witnesses

Any person may declare the truth of the contents of a document under oath before a notary. In such a case the notary shall write down on the document that he caused the said person to sworn before he made the declaration. Furthermore, a notary shall take the testimony of a witness where he is ordered by a court.

Requirement of Witnesses on a Document

Not all documents presented for authentication and registration require the appearance and signature of witnesses. Contracts of transfer of ownership of immovable properties via selling or donation or contracts to establish collateral or guarantee rights on immovable properties and public will shall have two witnesses. Other than the above 3(three) types of documents, other documents may be authenticated and registered without being signed by witnesses.

Confidentiality

A notary shall not give to THIRD PARTIES information which comes into his possession in the course of performing his duties, unless ordered by a court or by a body empowered by law.

Legal Effect of Authentication and Registration

A document authenticated and registered in accordance with the Proclamation shall be Conclusive Evidence of its contents. The document can be challenged only for GOOD CAUSE by the PERMISSION of a court. In addition to this, any document authenticated and registered by Federal or Regional institution shall be accepted by any federal or regional governments.

Suspension of Authenticated and Registered Document

The Agency, if it is provided with adequate evidence, may pass temporary order of suspension on improperly authenticated and registered document. Such suspension shall be given within 5(five) working days from the date of submission of the petition or from the date examination commenced if the suspension is initiated by the institution. During suspension, the document shall be considered as not authenticated and registered.

When a document is suspended, the concerned person SHOULD institute a case in court within one month from the date of order of suspension. The court may approve, amend or repeal the order of suspension. Order of suspension shall be discarded if the court invalidate the order of suspension or if the concerned person DO NOT institute proceedings in a court WITHIN ONE MONTH of the date of suspension.

To sum up, authentication and registration of documents is conducted by government entities. FDARA branches are swarmed by customers. Dissatisfaction is apparent. Besides those that require ascertaining ownership or injunction orders like contracts of transfer involving immovable excluding lease, contracts involving transfer of special-movables, and power of attorney and cancellation of the same, the rest can be done privately. There is a need to outsource or create public-private- partnership or assign part of document authentication and registration by law to private entities. Qualified persons to do the job are licensed attorneys. This will elevate the function of FDARA and contribute to ease of doing business in Ethiopia.