Toolkit on how to Start and Improve your Business - Information Seeking

Business Registration

• Commercial Code

• Identification of legal form of business

• Which form of business should I establish?

• Commercial registration and business licensing

You as a business owner have a legal obligation to adhere to existing laws and regulations. These responsibilities include paying taxes, respecting regulations regarding employees, getting licenses and permits, adhering to lease and contractual agreements. Paying taxes is part of running a business and it applies to every one unless you get short-term preferential treatment from the government.  It is, therefore, your responsibility to learn about the legal requirements that concern you as a business person. 

a. Commercial Code  [top]

The Commercial Code of Ethiopia, a legal document issued in 1960, is a document where business related provisions are declared and 'traders and businesses' are expected to respect it. In the Commercial Code of Ethiopia, you will find provisions referring to:

• Persons carrying out trade;

• Definitions for handicraftsmen, persons and business organisations;

• Persons being regarded as traders;

• Persons capable of carrying  out a trade;

• Carrying out a trade by married business persons;

• Right to act as a trader;

• Types of business organisations and legal requirements;

• Commercial registration and business licensing;

• Trade names and trade marks;

• Managers, commercial employees, commercial agents, commercial brokers
  and commission agents;

• Books and accounts to be kept;

• Commercial travellers and representatives;

• Sale of a business and duties of the seller and the buyer;

• Mortgage and hire of a business;

• Carriage (contract of carriage, carriage by land, carriage by air, carriage by sea, transport titles, bill of lading, …);

• Insurance (insurance policy, insurance against damages, insurance of objects and persons, insurance against accidents and illness, …);

• Instruments and banking transactions, bills of exchange, promissory notes, cheques, bank deposits, bank transfers, safes, credit transactions, …);

• Bankruptcy and schemes of its arrangement and other provisions.

Since it is not possible to provide details of all of the above mentioned as well as the rest of the provisions in this toolkit, it will be advisable to refer to the publication of the commercial code available in the bookshops of Addis Ababa.

The following briefings on some of the issues, however, are presented for your reference. They are taken from the commercial code of 1960, proclamation no. 67/1997 of the commercial registration and business licensing and regulation no. 14/1997 on business registration and licensing. Reference to other relevant documents is also being made.

b. Identification of legal Form of Business Organisations   [top]

This refers to the determination of what form of business organisation you are going to register your business in. The Commercial Code of Ethiopia defines a business organisation as follows: "A Business organisation is any association arising out of a partnership agreement." According to this definition there are eight forms of business organisations:

• Ordinary partnership;

• Joint venture;

• General partnership;

• Limited partnership;

• Share company;

• Private limited company;

• Sole proprietorship;

• Co-operative.

Partnership is where two or more persons who intend to join together make contributions for the purpose of carrying out activities of an economic nature and of participating in the profits and losses arising out thereof, if any. According to the Commercial Code of Ethiopia, contributions in partnership are possible in the following conditions.

• Each person shall make a contribution, which may be in money, debts, other property or skill;

• Property or the use of property may form a contribution;

• Unless otherwise agreed, contributions shall be equal and of the nature and extent required for carrying out the purposes of the partnership.

Joint venture is an agreement between partners on terms mutually agreed and is subject to the general principles of law relating to partnerships stated above.

General partnership consists of partners who are personally, jointly, severally and fully liable  between themselves and to the partnership firm's undertakings. This means that each partner is responsible for and must assume the consequences of the actions of the other partner(s). All members share the management of the business. The death or withdrawal of a general partner, or the expiration of the term of the general partnership, will dissolve the partnership. Continuation of the partnership following such events may be dealt with, however, in the partnership agreement. Since a partnership is generally a "voluntary" association, any general partner who no longer desires to be associated with the partnership may withdraw and force dissolution. Dissolution of a partnership, as a general rule, requires the winding up of its affairs and a liquidation of the partnership's assets.

Limited partnership: Some members are general partners who control and manage the business and may be entitled to a greater share of the profits, while other partners are limited and contribute only capital. Limited partners take no part in control or management and are liable for debts to a specified extent only. A legal document, outlining specific requirements, must be drawn up for a limited partnership.

Company limited by share is a company whose capital is fixed in advance and divided into share and whose liabilities are met only by the assets of the company. The members shall be liable only to the extent of their share holding. Formation of a share company shall be by a public memorandum - memorandum of association, which consists of:

• Names, nationality and address of the members, the number of shares which they have subscribed, provided that a member may not subscribe to  less than one share;

• Name of the company;

• Head office and the branches, if any;

• Business purpose of the company;

• Amount of capital subscribed and paid up;

• Par value, number, form and classes of shares;

• Value of contributions in kind, their objects, the price at which they are accepted, the designation of the shareholder and the number of shares allocated to him by way of exchange;

• Manner of distributing profits;

• Number of directors and their power.

For more information on forms of business organisations and their establishment, refer to the Commercial Code of Ethiopia (1960).

Sole proprietorship: This is the simplest way to set up a business. A sole proprietor is fully responsible for all debts and obligations related to his or her business. A creditor with a claim against a sole proprietor has a right against all of his or her assets, whether business or personal. This is known as unlimited liability. If the proprietor chooses to carry on a business under a name other than his/her own, he/she must register with the concerned local authorities. Your business name registration, or renewal of registration, will be valid for a certain period of time. A sole proprietorship is the cheapest and easiest form of business where most of the MSEs prefer to register their business in. Under a sole proprietorship, the entrepreneur is the owner as well as the manager of the business.

The sole proprietorship terminates by law upon the death of the sole proprietor, with very few exceptions. Estate planning documents for the sole proprietor may grant the heirs of the sole proprietor the right to continue the business.

Co-operatives: This is where people associate on a voluntary basis to promote their economic interests, whereby resources are pooled together and used. People with financial constraints, especially, tend to form co-operatives to benefit from joint efforts and external support facilities.

A co-operative business structure provides:

• Democratic control based on one member one vote;

• Open and voluntary membership;

• Patronage dividends.

Each form of business stated above has its own advantages and disadvantages. You can make your choice based on the following factors:

• Ease of registration;

• Number of owners;

• Financial responsibility of owners;

• Degree of freedom in decision making; and

• Mode of tax payment.

        Forms of business organisation

c.  Which Form of Business should I establish?   [top]

 You should consider varieties of conditions before deciding which form of business to establish. Assistance of others may be needed to select and register your business. But make the selection by yourself and try to understand why you should select that form and what consequences it will have in the future. 

        Basis for which form of business to select

d. Commercial Registration and Business Licensing   [top]

After selecting one of the above forms of business organisations, the next procedure is to register your business with the concerned authorities. The concerned authorities are:

• Ministry of Trade and Industry;

• Regional Bureaux of Trade and Industry; and

• The Office of Acts and Documents Registration.

Registration of each of the above business forms may have different requirements and registering offices.

Commercial registers

According to the Ethiopian Proclamation No. 67/1997 on Commercial Registration and Business Licensing, there are three commercial registers.

• Central commercial register administered by the Ministry of Trade and Industry;

• Commercial register, registered by the Ministry of Trade and Industry, in which is registered any person engaged in those commercial activities for which the Ministry issues licensees;

• Commercial register, administered by each relevant Regional Bureau.

Schedules and forms for commercial registration and business licensing

Based on Regulation No. 14/1997 for Commercial Registration and Business Licensing in two cities - Addis Ababa and Dire Dawa - the different standardised forms are presented for your reference in the annexes 8 to 11. The formats and their contents presented in this toolkit are selected on the basis of providing valuable information, which are relevant to new business start-ups in the construction sector. Therefore, there are cases where one could not find the full contents of each of the schedules and forms stated in the Federal Negarit Gazeta, issued by the Council of Ministers of the Federal Democratic Republic of Ethiopia, Regulations No. 14/1997. Therefore, it is advisable to consult the regulation for the details. With the exception of the schedule of fees for commercial registration and business licensing presented below, the registration forms are annexed to the toolkit.

        Fees for commercial registration and business licensing

Application forms for business registration

Under "Documents", you will find formats for applications to be submitted by a sole business person, business organisations and application for a trade name registration business license. Note that there are some variations in the contents of the application forms for sole businessperson and business organisation. Therefore, it is advisable to refer to the relevant legal publication in addition to the annexes.

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