Corporate Governance 2024 Comparisons

Eight different forms of business organisations are recognised under the Ethiopian Commercial Code of 2021:

• sole proprietorship;
• general partnership (GP);
• limited partnership (LP);
• joint venture (JV);
• limited liability partnership (LLP);
• private limited company (PLC);
• one-person company (OPC); and
• share company (SC).

Foreign businesses can also operate business via “branches” or “commercial representative offices” (CROs). Foreign companies that win international competitive bids operate in Ethiopia by opening “Project Offices” or “Contract Offices”.

The primary vehicles for doing business with limited liability are the private limited company (PLC) and share company (SC).

A share company is an entity that is closest to a public company, formed by either founders or public subscription.

A private limited company is established usually by family or closely-related persons, but it is also a preferred form of business for foreign companies seeking to establish subsidiaries in Ethiopia. A private limited company may be used to undertake most types of businesses except financial services of banking and insurance, for which a share company is a requirement. The shares of private limited companies are not open for public subscription.

A one-person private limited company (OPC) is the newest form of business organisation introduced by the new Commercial Code of Ethiopia. The OPC is incorporated by one person and operates like a private limited company.  Although the OPC operates similarly to a limited liability company, the member of a one-person private limited company, or any other person who directly or indirectly controls the company, is jointly and severally liable with the company if found to have committed any of the following acts:

• intentionally commits an unlawful act that jeopardises the interests of the company or its creditors;
• intermingles the assets of the company with their personal assets;
• fails to maintain a clear distinction between their personal identity and that of the company;
• deliberately provides misleading financial information about the company’s status to its creditors;
• utilises the company’s assets for personal gain or the benefit of third parties without appropriate compensation to the company;
• receives dividends exceeding the legally permitted maximum; or
• commits other similar acts.

The main legislative source for corporate governance is the Commercial Code of Ethiopia, issued in 2021 (Proclamation No 1243/2021). Additional and special corporate governance requirements are also provided for in the Commercial Registration and Licensing Proclamation No 980/2016 (and Directives issued thereunder). In the case of banks and insurance companies, special corporate governance requirements are provided for in Banking Business Proclamation No 592/2002, as amended by Proclamation No 1159/2019, Insurance Business Proclamation 746/2013 and Insurance Business (Amendment) Proclamation No 1163/2019. 

With the advent of capital markets in Ethiopia, corporate governance requirements concerning publicly listed companies are in the works.

In addition to the laws mentioned above, companies provide for additional corporate governance requirements in their memorandums of associations and by-laws.

Ethiopia has just started organising stock markets. The Capital Markets Proclamation No 1248/2021 contemplates that notices and guidelines on corporate governance will be issued for publicly listed companies. A Directive on corporate governance for publicly listed companies is in the works.

In recent years, corporate governance in Ethiopia has been influenced by a range of factors including economic reforms, international business practices, and changes in the legal and regulatory environment. The following are some hot topics in corporate governance in Ethiopia.

Corporate Governance Frameworks and Best Practices

Efforts to develop and implement corporate governance frameworks and codes of conduct that align with international best practices are ongoing. This is particularly the case for State Enterprises. This includes strengthening transparency, accountability, and ethical conduct within corporations.

Transparency and Disclosure

Enhancing transparency in financial reporting and corporate disclosures is a key focus. This includes ensuring timely and accurate financial statements, as well as clear communication with shareholders and other stakeholders.

Minority Shareholder Rights

Strengthening the rights of shareholders, particularly minority shareholders, and encouraging greater engagement in corporate decision-making are important topics particularly after the passing of the New Commercial Code.

Digital Transformation and Cybersecurity

With the rise of digital transformation, companies are focusing on cybersecurity and data protection to safeguard against cyber threats and data breaches. The newly passed data protection will also contribute significantly to the handling and storage of data by companies.

Privatisation and Foreign Investment

As Ethiopia continues to open up its economy to foreign investment and privatisation, there is an increased emphasis on establishing robust corporate governance standards to attract and retain investors.

Legislative Reform

With a number of legislative changes taking place, companies are working overtime to ensure they are up to date and complaint with laws that have been passed. Ethiopia has seen extensive legislative reform in the past years including a revision of the Commercial Code, investment laws, and the passing of new legislation like the Data Protection Proclamation. The country has also opened up many sectors, including banking, telecoms and other parts of the trading sectors.

Companies and their directors are encouraged to take into consideration the environmental and social implications of their project. For some particular sectors like manufacturing, energy and mining companies producing Environmental Impact Assessment and waste management plans are an essential requirement for business licensing.

With regards to corporate governance, the by-laws of business organisations must contain standard corporate governance rules that are provided for in the Commercial Code. The law commits the parties to higher standards of corporate governance.