update on PPT-1-60.pdfbfhfbdhchdvcbbhgfhf

Law of Traders and Business
Organization
…

The place of Commercial Code under
the classification of laws
• Classification of law: public law Vs. private law;
substantive law Vs. procedural law; civil law Vs.
criminal law, International Vs. National Law etc.
• What is the purpose of classification of laws?
A systematic grouping of law so as to understand easily.
• They may be:
1. stated effectively with a minimum of repetition, over
lapping and potential conflict;
2. administered effectively;
3. taught effectively, and developed effectively for new
situations.

…Continued…
• Private law: civil code and commercial code.
• Continental legal system:-separate codes for civil
law and commercial law. For example, France,
Germany, Spain, Portugal, etc.
• Common law countries:- don’t recognize such
distinction
• Some countries like Italy and Holland:- formerly
acknowledge separate codes but later came to
unity of private law by merging the two codes.

Ethiopia: separate codes ?
• separate codes (civil law and commercial law) but how far
distinct?
• The civil code as complimentary law
Art.1. - Scope of application of the Civil Code.
Unless otherwise provided in this Code, the provisions of the civil
Code shall apply to the status and activities of persons and business
organisations carrying on a trade.
• The new Commercial Code
አንቀጽ 1 ስለ የፍትሐ ብሔር ሕግ ተፈጻሚነት
• በዚህ ሕግ በተለየ ሁኔታ እስካልተደነገገ ድረስ የንግድ ሥራ በሚሠሩ ሰዎችና በንግድ
ማኅበሮች ላይ የፍትሐ ብሔር ሕግ ተፈጻሚ ይሆናል፡፡
አንቀጽ 2 ስለ ባሕር ሕግ ተፈጻሚነት
• የንግድ ሥራቸው ከባሕር ንግድ ሥራ ጋር የተያያዘ በሆኑ ሰዎች ወይም የንግድ
ማኅበሮች ላይ አግባብነት ያላቸው የባህር ህግ ድንጋጌዎች ተፈጻሚ ይሆናሉ፡፡

Why we need to have a special
commercial code?
1. Less stability of commercial law: needs frequent
amendments.
Recognized in the commercial code(see preface of the
comm. code)
Draft Commercial Code( Art. 6)
2. Difference in contents/Substance
 Contract formality and evidence
 Default notice
 Interest rate
 Period of grace
 Period of limitations
 Are these criteria in Ethiopia?

…Continued…
3. Some special privileges to merchants
 admissibility of one's commercial records as evidence
 ownership and protection of certain business assets
unique to commerce (Good will, trade mark etc.)
4. Special Insolvency Proceedings (Bankruptcy):
Given recognition under the commercial code
 Traders and commercial business organizations are subject
to book V of the Commercial Code i.e. bankruptcy
Non traders and non-commercial business organizations
are subject to ordinary insolvency provisions of civil
procedure code.

…continued…
5. Special Status and Regulation of Merchants
 subject to duty of maintaining books and accounts
see Art. 63-85 Comm.C )
– make daily entries of all his dealings
– balance sheet and the profit and loss account.
– All books and accounting documents shall be
preserved for ten years
 NCC- አንቀጽ 61 ሒሳብ መያዝ ግዴታ ስለ መሆኑ
6. Special court/bench /experts

subjective Commercial Code vs.
bjective Commercial Code
• Whether the commercial law be applicable to
traders and only to traders/BO or will it be
applicable to certain acts, called acts of
commerce, no matter who the persons carrying
out these acts are?
• A subjective Commercial Code is one which
regulates a community of persons designated as
“traders” and “Business organizations”.
• Whereas, an objective commercial code regulates
acts known as “acts of commerce”, as opposed to
persons.

Law of Traders and Business Organizations
• Law of Traders and Business Organizations: composed of?
– Book I: Law of Traders and Business (Commercial Code)
– Book II: Law of Traders and Business Organizations (Commercial Code)
– The relevant provisions of the Civil Code-Art. 1
– The relevant provisions of the Maritime Code-Art 2
– Commercial Registration and Business Licensing Proclamation No. 980/2016
– Business Mortgage Proclamation No. 98/1998
– Commercial Registration and Licensing Council of Ministers Amendment
Regulation (Amendment) 1150/2019
– Council of Minister Commercial Registration and Licensing Regulation
No.392/2016
(Amendment) No.461/2020
– Trade Marks Registration and Protection Proclamation No. 501/2006

Law of Traders and Business Organizations:
scope of application?
• Scope Of Application?
• Applies to:
– Traders
– Business Organizations
– Public enterprises (ልዩ ህጎች እንደተጠበቁ ሆኖ በመንግሥት የልማት
ድርጅቶች ላይ ተፈጻሚ ይሆናል፡፡)
• Doesn’t apply to?
– Non-Traders. who are they?
• a negative definition- individuals not trading
– Non-Business Organizations. who are they?
• a negative definition-(Organizations other than
Business Organizations)

Business organizations
The 1960 Comm code
1. ordinary partnership;
2. joint venture;
3. general Partnership
4. limited Partnership;
5. share company;
6. private limited company;
New Comm code
1) የኀብረት ሽርክና ማኅበር፣
2) ሁለት ዓይነት ኃላፊነት ያለበት
የሽርክና ማኀበር፣
3) ኃላፊነቱ የተወሰነ የሽርክና ማኅበር፣
4) የእሽሙር ማኀበር፣
5) የአክሲዮን ማኅበር፣
6) ኃላፊነቱ የተወሰነ የግል ማኅበር፣
7) ባለአንድ አባል ኃላፊነቱ የተወሰነ
የግል ማኅበር፡፡

Doesn’t apply to?
• አንቀጽ 4 ይህ ሕግ የማይፈጸምባቸው ተቋማት -the New
Comm.code
• Administrative agencies
• Religious organizations
• Civil society organizations
• Cooperative associations
– በአንቀጽ 5 የተመለከተውን ሥራ ቢሠሩም አንኳን ግልጽ የሆነ ተቃራኒ የህግ
ድንጋጌ እስከሌለ ድረስ የዚህ ሕግ ድንጋጌዎች ተፈጻሚ አይሆኑባቸውም፤
– የንግድ ማህበር ውስጥ ባለአክሲዮን ወይም ባለድርሻ የሆኑ እንደሆነ
ባለአክዮኖችን ወይም ሸሪኮችን የተመለከቱ አግባብነት ያላቸው የዚህ ህግ
ድንጋጌዎች ተፈፃሚነት ይኖራቸዋል፣

Law of Traders and Business
• Law of Traders and Business
– Book I: Law of Traders and Business of Com Code
– Commercial Registration and Business Licensing Proclamation No.
980/2016
– Commercial Registration and Licensing Council of Ministers
Amendment Regulation (Amendment) 1150/2019
No.392/2016

..
• Book I: Law of Traders and Business of Com Code

Definition of Traders
• Who is traders? What are trading activities?
• Businesses are operated by persons, whether
physical or juridical. However, sole businesses
or sole proprietorships can only be run by
physical persons. Physical persons who
operate a sole business are referred to as
traders.

Traders?
The commercial code of
1960
• Art. 5. - Persons to be
regarded as, traders.
• Persons who
professionally and for
gain carry on any of the
following activities shall
be deemed to be traders:
• List of 21 commercial
activities, and the list is
exhaustive.
The new commercial code
• አንቀጽ 5፡ ነጋዴዎች የሚባሉ
ሰዎች
• የሞያ ሥራቸው አድርገው ጥቅም
ለማግኘት ሲሉ ከዚህ ቀጥሎ
የተዘረዘሩትን ስራዎች ወይም
ሌሎች ተመሳሳይ ሥራዎችን
የሚሠሩ ሰዎች ነጋዴዎች
ናቸው፡-
• List of 37 commercial
activities, and the list is
illustrative.

…Continued…
• Art.5 define Traders.......‘’persons who
professionally & for gain carry on z activities of
….’’
1. For gain/Profit: One who starts a business and
engages herself in such business professionally
does not become a trader unless she does so for
profit.
2. Professionally: Who operates a business has to
do so professionally(who operates a business as
a pastime or in her leisure does not count a
trader).
3. The activities of…

Whether the activities listed under Art.5 are
exhaustive or illustrative?
Whether the activities listed under
Art.5 are exhaustive or illustrative?

Exclusion based on scale of operation
(Negative Definition)
1. አንቀጽ 6 በአነስተኛ መጠን ስለሚሠሩ ሰዎች
/small scale operation in certain
activities/
2. አንቀጽ 7 Handicraftsmen /የዕደ ጥበብ
ባለሙያዎች
3. አንቀጽ 8 Agricultural and Forestry
undertakings./የግብርና እና የደን ማልማት
ሥራዎች /

አንቀጽ 6 በአነስተኛ መጠን ስለሚሠሩ ሰዎች
አንድ ሰው በአነስተኛ መጠን ሰራ የሚባለው:/small scale operation
1. Human resource limitation -ሥራውን ብቻውን ወይንም ከሦስት
ተቀጣሪ ሠራተኞች ወይም ሥራ ተለማማጅ ሠራተኞች በላይ ሳይኖረው
2. No accumulation of inputs-ሥራውን ለማካሄድ ከሚያስፈልገው ውጪ
ግብዓት ሳያከማች
3. utilizes trained or experience based knowledge/skill -
ያካበተውን ልምድ ወይንም በትምህርት ያገኘውን ሳይንሳዊ፣ ቴክኒካዊ
ዕውቀቶችን ወይንም ደግሞ ሁለቱንም በመጠቀም ሥራውን የሚሠራ ሲሆን፣
4. Applicable only regarding certain activities-በአንቀጽ 5 በንዑስ
አንቀጽ (4)፤(5)፤ (31)፤ (32)፤(33)፤(35) እና (36) የተመለከቱትን ተግባራት

አንቀጽ 6 በአነስተኛ መጠን ስለሚሠሩ ሰዎች -Applicable only
regarding certain activities-
Applicable only regarding certain activities-በአንቀጽ 5 በንዑስ አንቀጽ (4)፤(5)፤ (31)፤
(32)፤(33)፤(35) እና (36) የተመለከቱትን ተግባራት
– በሕግ የገጠር መሬት ለመጠቀም ባለመብት ከሆኑ ሰዎች ውጪ ያሉ ሌሎች ሰዎች
እንስሳትን የማርባት ስራ እና ከእንስሳት የሚገኙ ምርቶችን የማምረት ሥራ የሚሰሩ፣
– ዓሳ የሚያጠምዱ እና የሚያረቡ፣
– የማማከር፣ የኦዲት ወይም መሰል የዕውቀት አገልግሎቶችን የሚሰጡ፣
– የሰዎችን ሆነ የእንስሶች የጤና ምርመራ እና የህክምና አገልግሎት መስጠት
– የትምህርት አገልግሎት መስጠት፣ የዕውቀት ማስተላለፍ እና ማሰራጨት ሥራዎችን
የሚሠሩ፣
– የንብረትም ሆነ የግል ደህንነትን የመጠበቅ አገልግሎት የሚሰጡ፣
– ሰነድ ማዘጋጀትን፣ ማባዛትን ጨምሮ ማንኛውንም ዓይነት የቢሮ ሥራን የሚደግፉ
አገልግሎችን መስጠት፣

አንቀጽ 7 Handicraftsmen /የዕደ ጥበብ
ባለሙያዎች
I. Handicraftsmen -persons who carryon an independent
activity, who live mainly on their own manual work-የእጅ
ጥበብ ሙያ ኖሮአቸው በእጅ ሥራቸው ብቻ የሚኖሩ ሰዎች ናቸው፤
II. human resource-(family plus upto 3 employees)ብቻቸውን
ወይም በቤተሰብ አባላት እየተደገፉ ከሦስት ተቀጣሪ ሠራተኞች ወይም
ተለማማጅ ሠራተኞች በላይ ሳይኖራቸው
III. Input limitation- buy such material only as is necessary
for carrying out their activities without setting up
stocks/የሚሰሯቸውን ሥራዎች ለመሥራት ከሚያስፈልጋቸው መጠን
በላይ ግብዓት ወይም ጥሬ ዕቃ ሳያከማቹ/
IV. The Method of production- mainly manual work-
ሥራቸውን በአመዛኙ በእጃቸው እየተጠቀሙ የሚሠሩ but እንደ ሁኔታው
በአነስተኛ መሣሪያ ወይም ማሽን ሊጠቀሙ ይችላሉ፤

…
• What activities in art.5 are listed
as activities of handcraftsmen?
• What common characteristics?

የዕደ-ጥበብ ባለሙያ በሚሰራው መጠን በሆነ
አኳኃን
• (7) የማዕድን፣ የነዳጅ ዘይት …የሚያወጡና …፣
• (8) ለህንፃ፣ ለመንገድም …የድንጋይ ማውጣት እና መፍለጥ ሥራዎችን የሚሰሩ፣
• (9) የጨው ማዕድንን የሚያወጡ፣
• (10) የምግብ ዕቃዎችንና፣ ዕቃዎችንና ካላቸው ተንቀሳቃሽ ነገሮች የሚያመርቱ፣
የሚለዋዉጡ፣ የሚቀይሩና፣ እነዚህን የሚጠግኑ፣
• (11) የግንባታ ሥራና የግንባታ ---ቤትን፣ ህንፃን፣ መንገድንና ማንኛውንም ሌላ ዓይነት
ሥራዎች ንዑሳን ክፍሎችን የመስራት፣ የመጠገን፤ የማፅዳት ሥራ የሚሰሩ ፣
• (12) የመደልደል፣ የመደደቅ፣ የውሃ መውረጃ ቦዮች የመሰንጠቅ ስራ የሚሰሩ፣
• (13) የማጓጓዝ…ሰዎችን፣ እቃዎችን፣ እንደ ፖስታ ባሉ የተያዙ መልእክቶችን .. ፣
እቃዎችን የማሸግና ከዚሁ ጋር የተያያዙ ስራዎችን የሚሰሩ፣
• (15) ደረቅና ፍሳሽን ጨምሮ ማንኛውንም ቆሻሻ የማጓጓዝ፣ የማስወገድ ወይም መልሰው
ለጥቅም እንዲውሉ የማድረግ ሥራዎችን የሚሰሩ፣
• (17) ተቀሳቃሽ እና የማይንቀሳቀሱ ነገሮችን የመጠገን፣ የማጠብ እና የማፅዳት
ሥራዎችን የሚሰሩ፣

Exercise : Compare and contrast the two:
• በአነስተኛ መጠን ሰራ /small
scale operation
• Handicraftsmen /የዕደ
ጥበብ ባለሙያዎች

አንቀጽ 8 የግብርና እና የደን ማልማት ሥራዎች
/exception to art.6?
• (1) በዚህ ሕግ በአንቀጽ (5) በንዑስ አንቀጽ (4) እና (5) ሥር የተደነገገው
እንደተጠበቀ ሆኖ(
– (4) በሕግ የገጠር መሬት ለመጠቀም ባለመብት ከሆኑ ሰዎች ውጪ ያሉ ሌሎች
ሰዎች አነስተኛ ከሆነው መጠን በላይ እንስሳትን የማርባት ስራ እና ከእንስሳት
የሚገኙ ምርቶችን የማምረት ሥራ የሚሰሩ፣
– (5) አነስተኛ ከሆነው መጠን በላይ ዓሳ የሚያጠምዱ እና የሚያረቡ፣)
• Raw products- ማናቸውም ከእርሻ፣ ከደን ማልማት፣ ከችግኝ ማብቀል፤
ከእንስሳት ማርባት ጋር ወይንም የግጦሽ ሣር ከማሳደግ ጋር የተያያዙ
ስራዎችን የሚሰሩ፣
• Further processing-ከሚጠቀሙበት መሬት ያገኟቸውን ምርቶች
የሚሸጡ ወይም ከሚጠቀሙበት መሬት ባገኙት አላባ እየቀለቡ ያረቧቸውን
እንስሳት የሚሸጡ ሰዎች፤ የዘወትር ልማድ መሠረት በማድረግ ከሚያለሙት
ወይም ከሚያዙበት መሬት ላይ ያገኙትን ሰብል ወይም የእንስሳት ተዋኦዎችን
አቀናብረው የሚሸጡ ሰዎች ነጋዴዎች አይባሉም፤

Exercise
How different is article /አንቀጽ 8 የግብርና እና የደን
ማልማት ሥራዎች / from what is provided in art
6?
Is it an exception to art.6?

Rights and duties of traders
• Rights of Traders
• Art. 41 of FDRE Constitution: Every Ethiopians have
the right to engage freely in economic activities and
pursue livelihood, including the right to choose one’s
occupation and profession.
• Art. 16 of Civil Code: Every person is free to exercise
any activity which he deems proper in that which
concerns his calling and his leisure.
• Art. 21-22 of the New Commercial Code: any person
or BO has the right to carry on trade but there may
be certain limitations.

Exceptions
• The right to engage in any trade has its own exceptions.
1. Capacity:
 Art. 192 ff minor, judicially interdicted person, legally interdicted person(?)
 Even the tutor may not carry on trade on behalf of the incapable
 Emancipated minor can trade (New CC- Art 12)
2. Married Persons: Art. 15- 20 of New comm. Code
Objections shall be registered
Trading spouses has two options regarding the objections made against his
trade:
• (1): Setting aside of objection(Art. 18 comm.code) (to the family
arbitrators):
(2): proceed on trade and pay debts from personal assets.
Issue: income/profit: is it common property of spouses?

3. Trade by Legal persons:
BO(Art. 26)-
there might be certain restrictions –e.eg. Partnership
may not undertake banking, other financial
institution & insurance but only share company.
Non business organizations-subject to special
laws if they need to engage in trade
– Administrative agencies
– Religious organizations
– Civil society organizations
– Cooperative associations

Obligations of traders
1. Registration : Commercial registration & business licensing Proc
2016.
 To distinguish legal/illegal traders;
 to provide reliable information to the public about the business
 evidentiary role,
2. Business License:
3. Books & Accounts (Art 63-83): Exception for petty traders(Art.84).
 Tax purpose
 Evidentiary role: Art 71 & 72:- books and accounts properly kept could
be availed by a party keeping them as evidence against other persons.
• Art 2016 of the civil code denies a party to avail his own books and
accounts as evidence in his own favor while it could be used against
himself.
4. Subject to bankruptcy proceeding as opposed to the ordinary rules of
civil procedure on insolvency of civil debtors.
5. Subject to other specific rules of the Commercial Code as opposed to
civil code where difference in content of the two exists.

excercises
• Are all traders required to maintain books of accounts? Or are there
exemptions?
• Can traders avails books of accounts in their favour? For how many
years they should keep the books of accounts?
• Are all traders required to register? Or are there exemptions?
Where should they register? At federal or regional office? What is
principal registration and how about summary registration? What is
registration number?
• What facts should be registered? Can they change facts in the
register? When? What is the effect of failure to register?
• Are the registers public or private? Can anyone see the records?
Why?
• When registration could be cancelled?

Chapter TWO: Businesses
• Businesses: Art.124 of the Comm. Code defines business as “an incorporeal
movable consisting of all movable property brought together and organized for the
purpose of carrying out any of the commercial activities specified in Art.5 of this
Code.”
• Elements of Businesses:(Art.127.ff)
• Mainly of a goodwill.
• It may also consist of trade-name, patents or copyrights.
• May consist corporeal elements(equipments and goods)
• Assets, liabilities and immovable's, except the right to the lease of z premise of
business are excluded from the ambit of the elements of a business(Art.129,124).
• In a nutshell, the term “business” embraces tangible and intangible assets,
including tools, equipment's, raw materials, goods in stock, good will, trade name,
trade mark, patent, copy right, and the right to lease of the premises.
• But, immovable properties cannot form part of the business (fonds de commerce),
even though they are owned by the trader himself. To a greater degree, the
business is regarded as an entity distinct from its constituent elements, as long as
the whole is more valuable than the sum of the constituent parts.

Purpose of the Concept of Business
• The very justification for the birth of the concept of
business is to simplify transactions by treating all the
elements of business as a single unit i.e. subjecting several
properties to single transaction for the sake of simplicity.
• It is held that in case of trader the concept of business
stems from the need to distinguish some properties which
a trader can deal with as unit from his patrimony (sum of all
assets and liabilities) because it is not feasible for an
individual to deal with his patrimony in totality at once.
• Do you think that the concept of business is necessary for
business organizations?

Concept of Business …ctd
• For the case of business organizations treating
the undertaking as a whole/as a unit for all
transactions (sale, mortgage, etc.) is feasible
and no need to segregate some properties of
the undertaking/business organization
forming a business and excluding others not
to be elements of business.

Business as Incorporeal Property
• the owner's right in the business is "a sort of
intangible property right, similar to an industrial
property right or a literary or artistic right: an
exclusive right for the exploitation of an idea,
namely the organization of the business
enterprise.
• The basis for this right is made up of a group of
elements which may be separated but which
have one essential common factor, the purpose
attributed to them by the merchant".

Protection of Business and its
Elements
• Goodwill: goodwill may be described as the attractive force that
draws customers to a certain business which is invisible but of much
value.
• Protection/preservation of Goodwill: a trader may avail himself
the contractual or extra-contractual alternatives to protect a treat
to his goodwill/business. The contractual preventive remedies
indicated in some of the above provisions points out the potential
suspects that might usurp the goodwill of the trader by virtue the
access they have the traders business. Some these prime suspects
are commercial employees-art.30(2), commercial agents-art 55,
seller not to compete with buyer-art.158(2), and the lessee may not
compete with owner upon termination of lease-art.205).
• Hence, the law advises the trader to restrain these persons by way
of contract from potential treat against unfair competition and
usurpation of his customers.

Protection/preservation of Goodwill… ctd
• The contractual remedy may not be adequate either because the
trader did not use a restraining contractual clause or else the treat
comes from persons not contractually bound not to unfairly
compete.
• Hence, the trader has the general remedy based on extra-
contractual liability. Once again the law has listed the potential
suspects and imposed prohibitions failure of which leads to
tortuous claim by the trader(Art. 30, 40, 47, 55, 144, 158, 159, 204
and 205 of this Code).
• The Right to Lease of Business Premises and its Protection(Art.
142-147)
• Trade Name; Trade Mark/ special designation under which trade is
carried on/; Patents and Copyrights, and Their Protection(Art.
135-141).

Dealings in Business :
• sale, mortgage, hire, etc.

Excercises About business ስለንግድ
መደብር
• What is business? What it is composed of (see art 109 of NCC)? Where does it fall
in the classification goods as incorporeal and corporeal in the law of property?
How about in relation to classification of goods/things into movable and
immovables?
• Can a trader have more than one business? When and how?
• Is it possible to lease a business? If yes, who is the trader? The owner? The lessee?
Or both?
• Transactions Related To Business
• How transactions related to business regulated? Sale, lease? Which law governs?
What items compose the business (the sale/lease) includes? Who is liable for
liabilities/debts of business?
• What are the formality requirements, see art…NCC, and art 2266 ff of CC on sale?
Are insurance benefits, employees rights transferable see 2587 of the civil
code?What restrictions apply to the seller/lessor? Duty not to compete? Where is
the limit on duty not to compete? In relation to lease, can the lease of business
premise be transferred?

Excercises About business ስለንግድ
መደብር …ctd’
• What and when the buyer is liable to debts/claims of creditors against the
seller?
• When the price be paid to the seller? Why do we need publication in news
paper? Whose obligation is it? When is title deemed transferred? In which
new paper? How many days? What is expected of creditors? What if they
are late to object?
• mortgage of business /ንግድ መደብር
• Can we a business as security? How? Is it pledge or mortgage? What is the
source of security on business? Contract or legal mortgage? What is legal
mortgage(see art144 of NCC)? Which of the items are part of the
mortgage?
• What formality requirement? Where should it be registered? Register of
immovables or in the trade registry? What laws govern mortgage of
business? The civil code on mortgage? But the civil code is about
immovable but business is movable, the how regulated? Is there registry
of securities on movables? See NCC art.245(3)

Dealings in Business ...ctd’
• Business is a property which therefore may be subject of any transaction.
It may be sold, let out for hire, mortgaged (as special property),
contributed for business organization, etc.
• Art 151(2) provides that the provisions governing sale of business apply
only to sale of business as a whole or at least sales involving the good will.
Sale of other individual elements is governed by laws governing individual
elements , not as business. Thus, a certain corporeal chattel forming part
of the business may be sold, pledged, hired, etc. by the rules governing
corporeal chattels, not business.
• Also business as (the various elements as a unit) property can be
mortgaged. Though it is taken as special movable, it is subject to mortgage
rather than pledge (Art. 1710). It can also out for hire (Art.194) and its
formality requirements are provided. It can as well be contributed for
business organizations.
• Several properties shall be dealt with a single contract formality (be it sale,
mortgage, hire, etc.) under the concept of business which otherwise might
need several independent contracts and formalities.

Law of Business Organizations-Composed of ?
– Book II: Law of Traders and Business Organizations (Commercial Code)
– The relevant provisions of Book I ( Law of Traders and Business)of the Commercial Code-art 3
– Commercial Registration and Business Licensing Proclamation No. 980/2016
– Commercial Registration and Licensing Council of Ministers Amendment
Regulation (Amendment) 1150/2019
No.392/2016

Forms of doing Business -revision
1. Trader/Sole Proprietorship: In this type the individual
entrepreneur:
– supplies the entire capital;
– He organizes and manages the business; himself and
takes the entire risk;
– His legal liability covers all his possessions; and
– the creditor can collect his personal property.
• It is applicable:
– For small scale business requiring small capital which
can be spared by one man.
– Where the risk covered is not too heavy.
– Where management by one man is possible.
– Where local market is available.

2. Business Organization
• What are Business Organizations? How are they established? .
• When do they acquire legal personality? What is the purpose of the organization?
What is memorandum of association? Are there business organization without
MOA? What should be the content of the MOA? Should it be standardized? How
restrictive of freedom contract the content MOA could be? How MOA and contract
differ? See art. 173 of NCC How do they run business? Who runs it among the
members? Who represents the BO? Are there invalid MOAs? When? Which of the
business organizations can issue transferable securities?
• When would the BO come to an end?
• How many business organizations recognized? How many persons need to be
organized to constitute a BO?
• 1) የኀብረት ሽርክና ማኅበር፣
• 2) ሁለት ዓይነት ኃላፊነት ያለበት የሽርክና ማኀበር፣
• 3) ኃላፊነቱ የተወሰነ የሽርክና ማኅበር፣
• 4) የእሽሙር ማኀበር፣
• 5) የአክሲዮን ማኅበር፣
• 6) ኃላፊነቱ የተወሰነ የግል ማኅበር፣
• 7) ባለአንድ አባል ኃላፊነቱ የተወሰነ የግል ማኅበር፡፡

Partnership agreement
• Article 211: Certain elements may be deducted from this provision of the law.
• Art. 211: Five Elements
1. Contract: a partnership agreement is a contract. Required to fulfill the condition
of the contract[Art. 1675 ff].
2. Join together and cooperate: Two or more persons who intend to join together
and cooperate. Except Share Company where at least five persons are required
(Art. 307(1)).
o A minimum of two people’s requirement ousts the possibility of one man business
organization.
3. Contribution: Each party must contribute: these persons are to contribute to the
capital of the company and are to participate in its profits and losses ((Art. 215;
Arts. 229-232). A business organization arises from deliberate act. It does not
arise from possession of status such as being heirs to one person and joint
ownership of property.
4. Profits and losses ((Art. 215; Arts. 229-232): Except, Art 254 a partner in ordinary
partnership who contributed skill may be exempted from sharing in losses.
5. Economic activity : Purpose is to carry out economic activity .

Partnerships(Art. 212(a- d); 227- 303 of the
Comm. Code)
• A partnership is an aggregate or collection of individual members.
• Personality of the individual partner has paramount importance.
Incapacity, insolvency, death, or serious disagreement between
partners may result dissolution of the partnership firm. Comes to
an end when a partner dies or becomes insolvent. Art. 260(1), 298
& 303.
• Only persons who know each other very closely may enter into a
partnership agreement giving rise to a partnership firm.
• Suitable for small business
• The partners are agents for each other. Therefore, they are jointly
and severally liable
• A partner cannot transfer his membership to an outsider or third
party without the consent of all the other partners. Art. 250,
274(2), 282(1) & 303.
• Partners in a business are like spouses, they depend greatly upon
each other, must cooperate, can create liability for each other, and
often end up with irreconcilable differences.

Companies
• Company is an aggregate or collection of shares or
capital
• It is entirely distinct from its members.
• Death or insolvency of a shareholder does not affect its
existence.
• Shares/membership in a company are freely
transferable except Art. 333 for share company(the
possibility of restriction via article of association or
special general meetings) and Art. 523(2) for PLC(3/4
vote for non-member transfer)
• Members of a company are not entitled to take part
directly in the management of the company unless
they become directors.

Questions
1. Which form of business will be easiest for them
to organize?
2. Which will provide the greatest protection for
Abel’s and Eden’s uncommitted savings?
3. Which form will provide the greatest relief from
tax liability?
4. Which form will be best suited for raising
necessary operating capital if Abel’s and Eden’s
contributions should provide inadequate?
5. What are the potential risks and advantages of
becoming shareholder in an internet café?

Factors to be considered in selecting
the form of Business Organization
1. Limited Liability
2. Taxation
3. Formalities
4. Financing
5. Management
6. Life of the business
7. Liquidity of Investment
8. Size & Nature of the business

Limited Liability
• Sole Proprietorships:
Takes all the risk
They have unlimited liability
They may lose assets in the event of a debt needing to
be paid.
• Partnerships:
 Unlimited liability, each partner is responsible
for the debts of the business
• Company:
Shareholders have limited liability.
If company has a lot of shareholders risk is minimal.

Taxation
 Single Taxation
• Partnerships:
– Single Taxation
• Company:
– Double Taxation(Income tax as a company + Dividend payment
from each shareholder)

Formalities
• Sole Proprietorships
Very easy to form/dissolve.
Minimal working capital required.
• Partnerships:
– Easy to form as compared to company
• Company:
– The legal formalities of forming a company are more complex, time
consuming & expensive than forming other business structures .

Financing
– Difificult to raise capital
– Can be difficult to raise all start up finance and as a result loans are
required
– They can be expensive on the business start ups
– Financial records do not have to be revealed to the public
• Partnerships:
– Financial details not open to be viewed by public
 Company:
 Can raise finance for business start ups or expansion through selling
of shares.
 A lot of paperwork including financial audits, reports e.t.c .

Management
 Sole traders have full control of how business is run.
 Decision making is quick.
 Long working hours are common and holidays are difficult to
arrange due to the commitment needed to be a successful
sole trader.
 Difficult to attract qualified employees e.g. can’t offer fringe
benefits.
 Partnerships:
Decision making is shared.
Responsibility is shared.
Specialization – specific duties assigned to different partners.
Disagreements can easily occur.
 Company:
 Greater likelihood of professional Management

Life of the business
– If he/she dies then so does the business
• Partnerships:
– If a partner leaves or a partnership ends a new partnership must be
agreed.
– If someone dies the business is discontinued.
• Company:
– Companies can continue to exist even if a shareholder or
director dies.

Liquidity of Investment
– It can be easily changed into partnership,
company etc.
– It is hard to sale the business for third party
• Partnerships:
– A partner cannot transfer his membership to an
outsider or third party without the consent of all
the other partners
• Companies:
– Shares/membership in a company are freely
transferable

Size & Nature of the business
– For small scale business
– Where local market is available
• Partnerships:
– Suitable for family or close friends business
• Companies:
– Preferable for large scale investment
– Financial Institution(banking, insurance & micro-
financial services

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