Few Highlights on Single-Member Private Limited Company

By Hami Bogale(Legal Assistant) and Dagnachew Tesfaye(Partner)
Emails: hamiboged@gmail.com, dagnachew@dmethiolawyers.com,

The 1960’s Ethiopia’s Commercial Code was one of the codes that needed a deep amendment. It governed Ethiopia’s commerce and business related field for the last five decades. In the current period, the world is introducing and establishing the newest companies in accordance with most recent technologies. These new advancements need a new governing law that could go in parallel with the current time. These, of course raised various requests from scholars and investors that the code shall be amended and altered. After various attempts the Commercial Code was reviewed by the legislators and amended.

The new Commercial Code of Ethiopia Proclamation No 1243/2021 has introduced a number of changes. Among those new introductions is a Single-Member Private Limited Company(hereafter referred to as SMPLC). SMPLC is the vital new establishment. Accordingly, under the new Commercial Code, one person can establish a company by himself/herself. Therefore a brief discussion on the formalities of establishing a SMPLC shall be discussed here-below.

The normal private limited company shall have members ranging from two to fifty in number. The SMPLC, however is established only by one person. A person can be both natural and juridical person. The law is clear on Article 539(1) that a SMPLC cannot establish another SMPLC. There is no clear prohibition against Private Limited Company or Share Company from forming SMPLC. Obviously SMPLC can be formed by a natural person. It seems that SMPLC is a form of sole proprietor whereby the SMPLC enjoys limited liability. This can be confirmed by Article 538 in that the sole proprietor is allowed to convert to SMPLC. However the sole proprietor shall remain liable jointly and severally for creditors and debts happening before the conversion to SMPLC.

A SMPLC is established by a declaration entered in front of a notary. The declaration shall be registered on the commercial registry. This is different from normal PLC formation that requires memorandum of association for its formation. However the content of the declaration is a bit different to that of the memorandum of association. One such difference is the requirement of appointing on the declaration a Property Keeper. The Property Keeper shall take over the single member PLC in case of death, absence, juridical interdiction of the Member. The property keeper should consent for the job. Once the Property Keeper consents, he cannot be a property keeper for another SMPLC.
The SMPLC once registered, shall have a different personality than the member.

Contribution and Capital
The SMPLC is established by the member having contributed in full the subscribed contribution. If the contribution is in cash, then there should be a statement stating that the full amount is paid in full. Failing to contribute in full the subscribed cash contribution shall make the member liable personally. The minimum capital should not be less than 15,000 Birr. This is similar to the minimum capital requirement for a Private Limited Company in the 1960 Commercial Code. Now the minimum capital requirement is lifted for PLC’s in the new Commercial Code. On the other hand, in- kind contribution is permissible. When it comes to in-kind contribution, the valuation has to be confirmed by an Auditor. Damage occurring due to over-valuation of the property on third parties shall make the auditor and member jointly and severally liable. However, such liability shall be barred by period of limitation after five years from the date of valuation.

In principle the member in SMPLC shall be liable to the extent of his contributions. The exceptions to this rule are detailed in Article 543, in non-exhaustive way, to include ‘doing unlawful act intentionally to harm creditors or the PLC itself; merge the Single Member PLC’s property with his personal property; fails to separate his identity from the PLC; issuing a false financial standing of the PLC to creditors; benefiting himself or others of the property of the PLC without appropriate consideration/ compensation and pay himself dividend above the legally accepted range. Committing these acts or similar other unlawful acts shall make the member jointly and severally liable with the SMPLC.

General Meeting and General Manager
The SMPLC shall have a General Meeting. The member is endowed with the power of the General Meeting of Members of a normal Private Limited Company. Any resolution as a General Meeting can be done and such resolution has to be attached to the files of the SMPLC. Similarly, the SMPLC shall have a General Manager. The General Manager can be the member himself/herself or a third party. The General Manager shall have powers and responsibilities of the any general manager in a Private Limited Company.

Dissolution of a SMPLC may follow the legal procedure of first liquidation and then dissolution. However, the law allows the SMPLC to dissolve without liquidation, if the member pays all debts of SMPLC. In such situation, the property of the SMPLC shall devolve to the member as it is. Nevertheless, in the circumstance that a creditor comes after dissolution without liquidation, then the member shall be personally liable. The period of limitation is five years from the date of knowledge of the dissolution by the creditor. However from date the property of the SMPLC passes to the member, any creditor’s claim shall be barred by ten years period of limitation.

Company law in Ethiopia used to cover only Private Limited Company and Share Company under the 1960 Commercial Code. Now under the new Commercial Code of Ethiopia 2021, an additional company is introduced namely Single Member PLC. The Single Member PLC will give options to those private limited companies, whose members are nominal or their names are included to fill the minimum number of members requirement, and the active member can convert easily to Single Member PLC. Similarly sole proprietors can now enjoy limited liability by forming a Single Member PLC. Our clients may contact our office for further legal services and advice for issues related with conversion from PLC to Single Member PLC or from sole proprietorship to Single Member PLC.

Major Attraction of FDI for Ethiopia: The African Continental Free Trade Area Agreement

By Dagnachew Tesfaye
Email: dagnachew@dmethiolawyers.com

The African Continental Free Trade Area (‘AfCFTA’) is signed by 54 African Countries out of the 55 African countries. Eritrea being the only country not to sign. As of 15 January 2021, 36 of the 54 signatories ratified the AfCFTA Agreement.

After WTO, AfCFTA is the largest free trade area in the world based on the number of participating counties. It covers nearly 1.3 billion African people. The objective of AfCFTA is to create a single continental market for trade in goods and services and to facilitate the movement of capital and natural persons. Foreign investors thus will be able to do business on a single line of trade and investment procedure across Africa. AfCFTA will promote larger, more integrated markets on the continent. This will make investing in Africa more profitable to foreign investors.

A brief discussion of the contents of AfCFTA Agreement will be made. Then binding and completed protocols namely the protocols on trade in goods, protocols on trade in service and dispute settlement protocol shall follow. A brief discussion on protocols under negotiation namely protocols on investment, protocols on intellectual property and protocol on competition policy shall be made. Finally the positive impact of AfCFTA for attraction of foreign direct investment for Ethiopia shall be discussed.

Contents of the AfCFTA
The general objectives of AfCFTA is set in Article 3 of the Agreement. Some of the major objectives include creation of a single liberalized market for goods, services and movement of persons. In addition to that the objective is to set foundations for establishment of a continental customs union. For realizing these objectives, Article 4 provides specific objectives as follows: the progressive elimination of tariffs and non-tariff barriers to trade in goods; the progressive liberalization of trade in services; co-operation on investment, intellectual property rights, and competition policy; co-operation on all trade-related areas; cooperation on customs matters and the implementation of trade facilitation measures; the establishment of a mechanism for the settlement of disputes concerning the rights and obligations of member states; and the establishment and maintenance of an institutional framework for the implementation and administration of the AfCFTA.

The administration and organization of the AfCFTA shall consist of the Assembly, the Council of Ministers, the Committee of Senior Trade Officials and the Secretariat. The composition and decision making powers of each of the above organs are detailed in the Agreement. State Parties to AfCFTA are obliged to promptly publish in their laws publications and make available to the public and the Secretariat of the AfCFTA any trade matter covered under this Agreement.

State parties to AfCFTA shall give on a reciprocal manner, preferences that are no less favorable than those given to non-members(Third Parties) states. In the event that there arises conflict between AfCFTA and any regional agreement ( such as the Arab Maghreb Union (UMA); the Common Market for Eastern and Southern Africa (COMESA); the Community of Sahel-Saharan States (CEN-SAD); the East African Community (EAC); the Economic Community of Central African States (ECCAS); the Economic Community of West African States (ECOWAS); the Intergovernmental Authority on Development (IGAD) and the Southern African Development Community (SADC), this Agreement shall prevail.

The AfCFTA Agreement contains three completed protocols on trade in goods, trade in services, and interstate dispute settlement. So-called “Phase II” negotiations are underway in relation to protocols on investments, intellectual property rights, and competition policy. Overview of the three completed protocols and the three protocols under negotiation are made here-below.

The Completed Protocols
Trade in Goods
Trade in goods protocol apply to trade in goods between State Parties. State Parties shall provide when it comes to trade in goods the most-favored-nation-treatment to one another. Article 2(1) of the Protocol on Trade in Goods provides that “[t]he principal objective of this Protocol is to create a liberalized market for trade in goods in accordance with Article 3” of the AfCFTA Agreement. In doing so, Article 2(2) sets out various objectives, including the progressive elimination of tariffs, the progressive elimination of non-tariff barriers, and the enhanced efficiency of customs procedures, trade facilitation, and transit.

State Parties shall progressively eliminate import duties or charges having equivalent effect on goods originating from the territory of any other State Party. Similarly State Parties may regulate export duties or charges having equivalent effect on goods originating from their own territories.

An important ongoing point of negotiation revolves around the Rules of Origin. Article 13 of the Trade in Goods provide that goods shall be eligible for preferential treatment if they are originating in any of the State Parties. The Rules of Origin are aimed at preventing the import of goods from non-preferential countries at preferential rates of duty. It is not yet clear what rates will apply, but compliance with the Rules of Origin will be necessary in order to access the preferential rates.

Trade in Services
The Protocol on Trade in Services defines ‘Service’ as to include any service in any sector except services supplied in the exercise of government authority. The aim of the Protocol on Trade in Service is to facilitate the liberalization of trade in services. Article 3(2)(a,b,c,d and e) of the Protocol on Trade in Services allows member states to “enhance competitiveness of services through: economies of scale, reduced business costs, enhanced continental market access, and an improved allocation of resources including the development of trade-related infrastructure; promote sustainable development in accordance with the Sustainable Development Goals (SDGs); foster domestic and foreign investment; accelerate efforts on industrial development to promote the development of regional value chains; progressively liberalize trade in services across the African continent on the basis of equity, balance and mutual benefit, by eliminating barriers to trade in services; progressively liberalize trade in services across the African continent on the basis of equity, balance and mutual benefit, by eliminating barriers to trade in services”.

Each State Party shall accord immediately and unconditionally to service and service suppliers of any other State Party treatment no less favorable than that it accords to like services and service suppliers of any Third Party.

Dispute Settlement

Article 20 of the AfCFTA Agreement establishes an interstate Dispute Settlement Mechanism that will be administered according to the Protocol on Rules and Procedures on the Settlement of Disputes (‘Dispute Settlement Protocol’). The Dispute Settlement Protocol was set out along with the AfCFTA Agreement. Article 3(1) of the Disputes Settlement Protocol state that ”This protocol applies to disputes arising between State Parties concerning their rights and obligations under the provisions of the Agreement’‘. The aim of the dispute settlement mechanism is to provide security and predictability to the regional trading system. The dispute settlement mechanism shall preserve the rights and
obligations of State Parties under the Agreement and clarify the existing provisions of the Agreement in accordance with customary rules of interpretation of public international law.

This mechanism has copied the dispute settlement system of the WTO and is therefore a state-to-state system. Accordingly, it is important for businesses and individuals to be note that, if they are of the view that a member state has breached an obligation, they should appeal to their home or host country to take up the dispute (while bearing in mind that a dispute is only likely to be taken up in exceptional cases where the subject matter is of national importance and diplomatic efforts have failed).

Procedures under the Dispute Settlement Mechanism is as follows. Where a dispute arises between or among the State Parties, in the first instance, recourse shall be had to consultations, with a view to finding an amicable resolution to the dispute. Where an amicable resolution is not achieved, any party to the dispute shall, after notifying the other parties to the dispute, refer the matter to the (Dispute Settlement Body) DSB, through the Chairperson and request for the establishment of a Dispute Settlement Panel, (“Panel”) for purposes of settling the dispute. The DSB shall adopt Rules of Procedure for the selection of the Panel, including the issues of conduct, to ensure impartiality. The Panel shall set in motion the process of a formal resolution of the dispute as provided for in this Protocol and the parties to the dispute shall, in good faith, observe in a timely manner, any directions, rulings and stipulations that may be given to them by the Panel in relation to procedural matters and shall make their submissions, arguments and rebuttals in a format prescribed by the Panel. The DSB shall make its determination of the matter and its decision shall be final and binding on the parties to a dispute. Where the parties to a dispute consider it expedient to have recourse to arbitration as the first dispute settlement avenue, the parties to a dispute may proceed with arbitration as provided for in Article 27 of this Protocol.

Protocols under negotiation
As mentioned above, there have been ongoing negotiations on the Investment Protocol of the AfCFTA. Nevertheless, the Investment Protocol has not been completed. One hurdle facing the negotiations is the already negotiated and existing international investment agreements at the bilateral and regional level. There are currently 171 intra-African bilateral investment treaties that the AfCFTA Agreement aims to supersede by creating and offering a single treaty that would regulate all intra-African investments. In the future, the AfCFTA Agreement may serve as a basis for negotiations on international investment agreements, including those with non-African countries.

Intellectual Property Rights
The on-going discussions on the Protocol on Intellectual Property will be aimed at creating a consolidated approach to intellectual property rights across the African continent. The Protocol on Intellectual Property will therefore achieve a higher level of certainty to a currently fragmented legal landscape for intellectual property.

Competition Policy
The AfCFTA Agreement will bring greater integration between member states by reducing tariff and non-tariff barriers. This will pave the way to an upward increase in cross-border business. Such cross-border business will require a strong regulatory framework in order to promote competition and protect consumers at a regional level. In this regard, according to some commentators, the Protocol on Competition Policy aims to address cross border anti-competitive cases such as cartels, abuse of dominance, mergers analysis, creation of a competitive environment conducive for existing competitors and new entrants.

Potential for Ethiopia
Ethiopia is a signatory to AfCFTA and also has ratified the AfCFTA Agreement under its Proclamation No 1124/2019 done on the 5th day of April 2019. Foreign investors thus will be able to do business on a single line of trade and investment procedure across Africa. AfCFTA will promote larger, more integrated markets on the continent. This will make investing in Ethiopia more profitable to foreign investors. The conducive business environment existing in Ethiopia, in terms of labor, land, laws, infrastructures and favorable climate will provide foreign investors with access to market across the African continent. As the seat of the African Union, Ethiopia provides direct access to expedited handling of settlement of disputes as well.

Therefore, the AfCFTA Agreement officially came into force as of January 1,2021, in the middle of the Covid19 pandemic. AfCFTA signals a positive hope in the middle of a global economy hardship. Foreign investors now have the opportunity to tap into a vast market that has more legal and economic certainty. Ethiopia is one great access route for such an investment. It is important for local and foreign businesses in the Ethiopia to be aware of and take advantage of the new platform that is now available.

Building an Independent Judiciary: Promulgation of Federal Judicial Administration Proclamation

Ethiopia amended its Federal Judicial Administration Proclamation No 648/2010 and came out with Federal Judicial Administration Proclamation No 1233/2021. The objective is to ensure in a fundamental way that the courts exercise their judicial functions free of all internal and external influences. Such independence of the judiciary with accountability will gain the trust of the people. The process of appointment of judges and judges conduct their judicial functions in a complete independence, impartiality and accountability will ensure public confidence. This will contribute to the democratization process of building of institutions.

One New Addition to the Management of Private Limited Company- Introduction of Board of Directors

By Mahlet Mesganaw, Partner
E-mail: mahlet@dmethiolawyers.com

The 1960 Commercial Code of Ethiopia had one or more managers lead the management of a Private Limited Company(PLC) . However the new Commercial Code of Ethiopia Proclamation No. 1243/2021, added a new management STRUCTURE. That is called a Board of Directors structure. The form and manner of management of a PLC by a board of directors or manager shall be briefly discussed.

The Memorandum of Association
The memorandum of Association(MoA) of a PLC is the formation document of the PLC. The MoA determines the structural organization of the management of the PLC. The MoA may state that the PLC be managed either by a board of directors or a manager.

Composition and Structure of a Board of Directors
When the MoA determines that the PLC be managed by a board of directors, then the number of board members shall be three or five or seven. It can not be less or more. The board of directors as a management body is the one that appoints the manager. There is a prohibition that the appointed manager cannot be the chairman of the board. The manager will be the employee of the PLC. The manner of selection, removal, tenure, decision making, liabilities, remuneration, powers and responsibilities of the board of directors shall follow the board of directors organization of a Share Company. Similarly the dismissal of the manager appointed by a board of directors shall follow the footsteps of the dismissal by a board of directors of its manager in a Share Company.

Management of PLC by a Manager
When the MoA determines that the PLC be managed by a manager, then the PLC can be managed by a manager. This is unlike the previous Commercial Code that allows manager or managers. The manager shall be appointed by the meeting of members. The manager can be a member of the PLC or an outsider. Such manager shall have full powers to achieve the business objective of the PLC. Limitations of the powers of the manager shall not affect third parties. The appointing body i.e. the meeting of members has the power to dismiss the manager.

In conclusion, the new Commercial Code of Ethiopia introduced two ways of management of a PLC. The management organization of the PLC can be either a board of directors structure or a manager structure. The choice is for the members of the PLC. Board of directors structure of management of PLC has been requested by foreign investors and granting that choice will satisfy the business needs of the time.

Comparative Analysis on Interim Measure in Arbitration Proceeding in Ethiopian Courts

By Lydia kedir –Legal Assistant – at Dagnachew and Mahlet Law Office
Email senilidu@gmail.com


Due to the increase in commercial activity, having commercial law and arbitration law is important. Commercial activities sometimes result in commercial disputes. Most of the time commercial disputes use arbitration to solve their disputes. In the arbitration proceeding, the party may claim interim measure. Interim measures are grants of temporary relief aimed at protecting parties’ rights pending final resolution of a dispute. Many legal systems recognize the procedural necessity of interim measures as a complement to final awards. Provisional measures may be even more crucial due to the special risks involved in international disputes. Often the efficacy of the arbitration process as a whole depends on interim measures that may prevent adverse parties from destroying or removing assets so as to render final arbitral awards meaningless. Interim measures are usually designed either to minimize loss, damage, or prejudice during proceedings, or to facilitate the enforcement of final awards.

This article will look into the interim measures taken fist by Kenyan courts and then DIFC Courts. As a comparison a look on to the interim measures of Ethiopian Courts in arbitration proceedings will also be covered.

Arbitration Proceeding and Taking Interim Measure in Kenyan Courts

Kenya enacted an Arbitration Act in 1996 and amended in 2009. In addition Kenya has an arbitration tribunal in Nairobi called Nairobi Center for International Arbitration (NICA). However, an arbitration tribunal not exclusively working alone. Rather the local courts may assist the arbitration proceeding by giving interim relief before enforcement of award. Hence in the Act there is mandatory provision, particularly on intervention of local court. As a result, the court may take an interim measure as per section 70 of the Act. However such intervention of local court is limited. The grounds of intervention include:
-were the tribunal requests assistance in the taking of measures;
-to give interim measure orders of protection during arbitration;
-to determine the question of law on the application by parties.

The Arbitration Act provides that the tribunal can order any party to take whatever interim protection measures it considers necessary in respect of the subject matter of the dispute, with or without an ancillary order requiring the provision of appropriate security in connection with the measure. The types of relief are not specified in the Arbitration Act. The tribunal can order any party to provide security in respect of any claim or any amount in dispute, or order a claimant to provide security for costs (section 18, Arbitration Act). Under section 7, the court can grant interim orders to maintain the status quo of the subject matter of the arbitration before the tribunal has been constituted. This includes interim injunctions, interim custody or sale of goods. The High Court can also enforce the peremptory orders for protection given by the tribunal.

Arbitration Proceedings and Taking Interim Measures in Dubai Courts

Where an arbitration is seated in the Dubai International Financial Center (DIFC) , the DIFC Courts have power to award interim measures in support of arbitration proceedings pursuant to DIFC Arbitration Law No 1of 2008.
The DIFC courts can be asked for an interim measures before or during the arbitration proceedings. These measures are not exhaustive but include the following:
-Maintain or restore the status quo pending determination of the dispute;
-Provide a means of preserving assets out of which a subsequent award may be satisfied or other means for securing or facilitating the enforcement of such an award;
-Take action that would prevent or refrain from taking an action that would likely cause current or imminent harm or prejudice to any party or to the arbitral process itself; or
-preserve evidence that may be relevant and material to the resolution of the dispute.”

As a result, the DIFC Courts’ powers to award interim measures in arbitration proceedings are wider in coverage. Thus where the arbitration proceeding is seated in the DIFC, the DIFC courts assume jurisdiction and excercise their supervisory power that includes giving interim remedies.

Arbitration Proceeding and Taking Interim Measure in Courts of Ethiopia

The arbitration proceedings and interim measures by Federal Courts of Ethiopia is governed by the Arbitration and Conciliation Working Procedure Proclamation No 1237/2021. The Proclamation specifically mentions provisional interim measures taken by courts on Article 9 of the Proclamation. It states as follows:
’With respect to matters falling under the arbitration agreement, the contracting parties may request the court interim measures to be taken before the arbitration proceeding is initiated or during the proceedings. This shall not be considered as violation of the arbitration agreement by the contracting parties and as intervention by the court.’

Here the law does not specify what is included in the interim measure taken by the Ethiopian Courts. It will be a matter for the court to decide based on the arbitration agreement. However, a list of interim measures to be taken by the Tribunals are exhaustively mentioned on Article 20(2) of the Proclamation.

On the other hand as per Article 27 of the Proclamation, the Courts have jurisdiction to issue interim relief irrespective of the place of arbitration of the arbitral tribunal. The seat of the arbitration tribunal need not be situated in Ethiopia to give interim remedies.

The question of whether the tribunal cannot exercise its powers to award interim measures by the courts of Ethiopia is not a requirement. The Court has the power to order interim relief in arbitration proceedings irrespective of the arbitral tribunal’s ability to do so.

Parties to arbitration seated in the Dubai, Nairobi or Addis Ababa generally have access to the same interim relief by respective local courts in each jurisdiction.While the Dubai and Kenyan interim measures of their respective courts are listed, the Ethiopian courts are given general power to intervene to order interim reliefs. Ethiopia has joined through its progressive Arbitration and Conciliation Working Procedure Proclamation No 1237/2021 to the ranks of DIFC courts and Kenyan Courts in rendering interim measures and enforcing of those measures.