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.

One-Member Company

A one-member private limited company is a company formed through the membership of only one person or entity. The one member has the mandate to exercise the powers of the general meeting of shareholders of a private company.

Limited Company

The rules governing a private limited company shall apply as appropriate to a one-member private limited company.

Private Limited Company and Share Company

Private limited companies and share companies are governed and managed by specific bodies or functions as defined under the Ethiopian Commercial Code.

General Meeting of Shareholders

The general meeting of shareholders is the highest decision-making body. It consists of all the shareholders of the company and holds meetings at least annually.

Board of Directors

The board of directors is responsible for the overall governance and strategic direction of the company. The board is elected by the shareholders and oversees the company’s operations. It makes decisions on behalf of the company, appoints the general manager (if applicable), and ensures that the company complies with laws and regulations. The board also has the authority to establish committees (eg, audit committee) to assist in its governance responsibilities. A private limited company may have a board of directors if provided for in its memorandum of association. The board of directors of a private limited company may consist of between three and seven members, while the board of a share company has between three and 13 members. Ethiopian law permits non-shareholders to be board directors, but the number of non-shareholder directors should not exceed one-third of the number of directors.

General Manager

Both private limited companies and share companies have a general manager appointed by the general meeting or the board of directors, if one exists. The general manager may be a shareholder or an outsider, and shall not be the chairperson of the board. Additionally, the general manager is an employee of the company and is responsible for the day-to-day management of the company. The general manager shall be liable to the company, shareholders and third parties for any damage caused by breach of their duties under the law or the memorandum of association of the company. In bankruptcy and where the assets of the company are found to be inadequate, the general manager may be liable to settle the company’s debts or part of them along with the previous managers of the company.

Supervisory Board

A share company may have a supervisory board where its memorandum of association provides the same. The supervisory board is composed of three to five members who can only be shareholders of the company. The members of the supervisory board are appointed by and are accountable to the general meeting of shareholders. The general meeting of shareholders shall also determine the remuneration of the members of the supervisory board. Additionally, members of the supervisory board are not permitted to be members of the management of the company or members of the board of directors. The meeting time for the supervisory board shall be determined by the memorandum of association of the company.

Secretary

A share company shall have a secretary who is appointed by the board of directors upon the recommendation of the general manager. The secretary is accountable to the general manager.

External Auditors

All share companies are required to have an independent and impartial external auditor and assistant auditors, which are appointed by the general meeting of shareholders. A shareholder representing at least 20% may appoint an auditor. The general meeting of the shareholders decides on the remuneration of the auditor. Ethiopian law additionally permits both individuals and corporate entities to act as auditors of a share company. Auditors are appointed for up to three-year terms. 

Private limited companies will be required to have an external auditor if they have ten or more members or if the total assets of the company exceed ETB10 million. The auditor in a private limited company will also be appointed by the general meeting of the shareholders.

The various management bodies have different mandates. Please see 3.1 Bodies or Functions Involved in Governance and Management for details on the mandates of the shareholders’ meetings.

Shareholders’ Meetings

The general meeting of shareholders holds two types of meeting: ordinary and extraordinary shareholders’ meetings.

Ordinary general meeting of shareholders

A meeting will be called by the board of directors, by the manager where there is no board or it fails to call the meeting, or in case of failure by the preceding by the auditor, if any, or by members representing more than one-half of the capital of the company.

A meeting is to be held once at least within four months from the end of the financial year. The four-month period may be extended for up to six months.

An ordinary general meeting can expect to see the following on the agenda:

• amend, approve or reject, after discussion, the balance sheet, the profit and loss account as well as reports of the board of directors, reports of the auditors and supervisory board, if any, and where necessary, pass resolutions relating to the allocation of and distribution of profits and on all questions arising out of the accounts for the past financial year;
• appoint or remove directors, members of the supervisory board or auditors as appropriate and decide the amount of their remuneration;
• approve the issue of debentures as well as the guarantees attached thereto;
• approve transfer of 51% or more of the assets of the company at once or within one year from the date of the first sale at different intervals; and
• decide all matters on which a general meeting passes decisions other than those specifically reserved to an extraordinary general meeting.

Extraordinary general meeting of shareholders

This meeting has the authority to make major decisions such as amending the memorandum of association, increasing or reducing the capital of the company, appointing a liquidator, deciding on dissolution, conversion, division or merger of the company, and changing the nationality of the company.

Board of Directors

Quorum – majority of directors must be present unless a greater vote is required by the memorandum of association.

Decision-making – majority of directors who are present personally, by proxy and by electronic means. Unless provided otherwise, the chairperson shall have a casting vote in case of a tie.

Mandates – the directors have a duty to perform the tasks imposed on them by law, the memorandum of association and resolutions of the general meeting of shareholders. In particular they shall:

• manage the company’s finances with a view to ensuring that the company has adequate capital and liquidity to meet its liabilities in a timely manner;
• ensure that the company’s governance arrangements are such as to ensure the proper monitoring of the company’s financial statements and positions;
• make certain that sufficient procedures for risk management and internal control are established;
• provide to the supervisory board, if any, all information needed for the performance of the duties of the supervisory board in a timely manner; and
• prevent damage to the company, or where prevention is not possible, mitigate adverse impact of acts which are prejudicial to the company.

Without prejudice to what is stated above, the directors shall be responsible for:

• keeping regular records of the meetings of the board of directors and shareholders, accounts and books, registers of shareholders and directors and other necessary documents;
• ensuring submission of accounts and books to auditors when required;
• submitting an annual report of the company’s operations including a financial statement to the general meetings of shareholders;
• convening meetings as provided in Commercial Code or memorandum of association;
• convening an extraordinary general meeting without delay where three-quarters of the capital of the company is lost;
• setting up the reserve funds required by law or memorandum of association or resolution of general meeting of shareholders; and
• where the company’s ability to meet its financial obligations diminishes or where it suspends payment of debt applying, as appropriate, for preventive restructuring, reorganisation or bankruptcy.

Supervisory board – the supervisory board of a share company may have the following powers and duties in addition to those that may be assigned to it by the memorandum of association of the company: 

• causing the submission of documents and information necessary to discharge its responsibility, and examine the same;
• calling and leading a general meeting of shareholders, where the board of directors is unable or unwilling to convene such a meeting;
• taking part and giving opinion in the meeting of the board of directors without voting.
• where it comes to know or has reason to suspect that an act that causes damage to the company has been committed, investigating the matter or cause it to be investigated or, take the necessary measures with the view to instituting legal action, if need be;
• undertaking supervision to ensure that directors and other members of the management are discharging their responsibilities properly;
• where it has been ascertained that they have committed an act that jeopardises the interests of the company, demanding that corrective measures be taken;
• recommending the removal of those who have failed to discharge their responsibilities properly, as appropriate, to the board of directors or general meeting of shareholders;
• supervising as well as causing the auditing of the financial affairs of the company;
• submitting reports to the general meeting; and
• carrying out other functions as may be assigned to it by the memorandum of association or resolution of the general meeting of shareholders.

General Manager

The general manager is responsible for the day-to-day management of the company.

Unless expressly provided in the by-laws, the general manager represents the company in its dealings with third parties. In addition, the general manager has the power to:

• sign and transfer negotiable instruments, especially commercial instruments, transferable securities and documents of title to goods;
• discharge responsibilities entrusted to them by the memorandum of association;
• discharge responsibilities entrusted to them by the board of directors and implement its decisions;
• prepare an annual work plan and budget of the company and implement the same upon approval by the board of directors; and
• hire, manage and fire the employees of the company, as necessary.

Secretary

The role of the secretary is to:

• organise and keep information and records of the company;
• provide reports and other necessary information promptly to concerned body;
• provide information to shareholders and third parties;
• organise meetings of shareholders and members of the board of directors;
• prepare, organise and keep minutes; and
• carry out other tasks assigned to it by the general manager and memorandum of association.

Auditor

The auditor in both a private limited company and share company has significant responsibility. Some of these duties include:

• discharge their duties following generally accepted accounting principles;
• provide accurate information;
• treat shareholders equally;
• keep professional secrets;
• keep the duty to inform of irregularities;
• annually verify the correctness and accuracy of the inventories, balance sheets, and profit and loss accounts, books and other financial documents;
• certify that the report submitted by the board of directors to the general meeting of shareholders reflects the correct state of the company;
• provide written comment on the report of the board of directors to the general meeting of shareholders, recommend to the general meeting to approve or reject the accounts submitted by the directors and comment on the proposal for distribution of profits submitted by the directors;
• call general meetings where the directors or supervisory board fails to call a meeting required by law or the memorandum of association;
• call general meetings where shareholders representing at least 10% of the capital so requests; and
• carry out such other duties as may be assigned to them in the memorandum of association or by a general meeting of shareholders.

Please see 3.2 Decisions Made by Particular Bodies and 5.3 Shareholder Meetings for the decision-making process for these bodies.

The board of directors in a private limited company is composed of between three and seven members, while the board of a share company is composed of between three and 13 directors. The members of the board are elected by the shareholders. The board members may be either shareholders or non-shareholders. The law provides that two- thirds of the members of the board may not play a role in the day-to-day management of the company. Additionally, the law provides that non-member directors may not exceed one third of the total membership of the board.

The board may elect a chairperson or a deputy chairperson among its members. The law provides that it is only a member who is a shareholder that may be appointed as a chairperson.

The board is also permitted to grant any one or more of its members a special mandate, including the mandate to represent the company in a specific transaction.

The general meeting of the shareholders or the memorandum of association may provide details as to the mandate of the chairperson, as well as board committees. The Commercial Code, however, provides only for the roles of the chairperson or the directors in general. Please see 3.2 Decisions Made by Particular Bodies for details of the duties of the directors.

Board members are required to meet the following criteria to qualify as such:

• minimum age specified by the memorandum of association or law, if any;
• be of good moral character;
• no record of conviction of breach of trust, theft, robbery or other similar criminal offences while serving as a promoter, director, manager, member of supervisory board or auditor or holding any other managerial position or under any other circumstance;
• compliance with other requirements set by the memorandum of association or another law, if any.

Where there are different classes of shares in a company, each class of share is required to appoint at least one representative a member of the board.

Members of the board of directors may be appointed for the first time by the memorandum of association and subsequently the general meeting of shareholders. Directors may be removed at any time by the general meeting of the shareholders. It is important to note that a director who is removed without good cause cannot be reinstated but can only claim damages for the wrongful dismissal.

As indicated below, one of the legal duties of directors is the legal duty to exercise independent judgement and avoid conflict of interest. Ethiopian law restricts directors from partnering or taking part either directly or indirectly in a rival business or competing with the company. Directors are also required to avoid situations that may lead to a conflict of interest with the company. This includes the exploitation of the company’s property, information or opportunity of the company regardless of whether the company used the same.

Directors have a duty to disclose any situation as soon as the existence of the situation is known that may be or lead to a conflict of interest. The director shall disclose the nature and extent of that interest to the other directors. A director is also prohibited from receiving a gift or any other type of benefit from a third party for being a director. Given the clear conflict of interest, directors are restricted from voting on matters like a proposed agreement between the director and the company or any other person where the director may derive an essential benefit from the transaction.

Directors and officers of a company have the following legal obligations under Ethiopian law.

• Duty of care and diligence – directors are required to discharge their duties with care, skill and diligence and may be liable for failure to do so.
• Duty to exercise independent judgement.
• Duty of loyalty – directors must act in a way that promotes the success of the company and benefit all shareholders.
• Restriction on private trade – unless expressly permitted by the general meeting, directors are restricted from partnering in rival business or competing against the company directly or indirectly.
• Duty to avoid conflict of interest – directors must avoid situations that have or may have direct or indirect conflict of interest with the company.

Directors are accountable to the general meeting of shareholders. They are at all times required to act in good faith and loyalty to the best interest of the company and for the benefit of the shareholders as a whole. 

The company may enforce a breach of the duties of the directors of the company only with a resolution of the general meeting of shareholders. If the company fails to implement such a resolution within three months, shareholders representing 10% of the capital may jointly institute proceedings in the name of the company. Additionally, shareholders who have sustained damages from a personal injury directly owing to the fault or fraud of a director may bring legal action directly.

Under Ethiopian law, any agreement protecting the directors from liability is of no effect regardless of its form – ie, in the memorandum of association or a contract with the company. The company may, however, maintain an indemnity insurance to protect board members from liability. Additionally, the company may maintain a special fund for the legal defence of its directors against actions by administrative bodies, creditors or shareholders subject to refund if the directors lose the case. 

The general meeting of shareholders is required to fix and approve the annual remuneration of directors in a lump sum. The ordinary general meeting of the company may grant directors specified share in the net profit of a financial year which shall in no case exceed 10% of the net profit that may be distributed as dividend for the fiscal year.

For companies like banks and insurance companies, the National Bank of Ethiopia has strict caps for the disclosure requirement as well as a cap on the amount and type of remuneration directors may receive. Currently, the cap on annual compensation to be paid to board directors of banks and insurance companies is ETB150,000, and the maximum monthly allowance is ETB10,000, both to be paid upon the decision of the ordinary general meeting of the shareholders.

Additionally, any public companies listed on an exchange are required to disclose a list of their directors, remuneration, salaries and incentives as reported to the general meeting of shareholders. Failure to comply with these disclosure requirements for financial institutions and listed companies may lead to a fine being imposed on the company. 

Please see 4.10 Approvals and Restrictions Concerning Payments to Directors/Officers. Additionally, every share company is required to keep a register of its directors and officers including details on their address, directorship, and responsibility in any other businesses. This register is open to shareholders and government authorities who are permitted to examine it free of charge. Non-shareholders may also examine this register for a fee.

The relationship between a company and its shareholders in Ethiopia is primarily defined by the company’s memorandum of association and the Ethiopian Commercial Code. Shareholders are the owners of the company through shares that are to be registered in their names. The obligations of shareholders are limited to making the contribution they pledged to make to the company. On the other hand, shareholders have certain rights, such as:

• voting at shareholders’ meetings;
• receiving dividends and proceeds on winding-up;
• preferred right for subscription of new shares; and
• the right to information about the company’s affairs.

The rules and requirements governing this relationship include the Ethiopian Commercial Code, securities regulations, and commercial registration and licensing requirements. Companies are often required to provide regular financial reports to shareholders, hold annual general meetings, and ensure transparency and fairness in their dealings with shareholders. Additionally, there are specific rules regarding the rights of minority shareholders and the responsibilities of company directors and officers such as the general manager and auditors.

Shareholders play a crucial role in the management of a company under the Ethiopian Commercial Code, although their involvement is limited to certain key decisions. One important aspect is that only a shareholder director can become the chairperson of the board of directors. Additionally, the number of non-shareholder directors is restricted not to exceed one-third of the total membership of the board of directors.

Furthermore, shareholders representing at least 20% of the capital of the company can appoint an auditor selected by them. This gives them a significant say in the financial oversight of the company. A general meeting of shareholders can also resolve to institute proceedings against its directors, even if it is not on the agenda. If the company fails to institute proceedings within three months, shareholders representing at least 10% of the capital have the right to institute proceedings in the name of the company. This demonstrates their ability to hold the management accountable for their actions.

In terms of decision-making, general meetings of shareholders have the authority to amend, approve, or reject the balance sheet, the profit and loss account, reports of the board of directors, reports of the auditors and supervisory board, if any. They can also pass resolutions relating to the allocation and distribution of profits and make decisions on various matters such as appointing or removing directors, members of the supervisory board or auditors, and deciding the amount of their remuneration.

Moreover, it is shareholders that have the power to amend the memorandum of association of the company, increase or reduce the capital, change the nationality of the company, and decide on dissolution, conversion, division, or merger of the company.

The Ethiopian Commercial Code mandatorily requires the holding of an ordinary general meeting of shareholders within four months from the end of each financial year with a possibility of extension to six months under the by-laws of a company. The Commercial Code outlines specific rules and requirements for ordinary general meetings (OGM) and extraordinary general meetings (EGM) to govern the conduct of such meetings. EGMs can be convened whenever necessary.

Mode and Time of Calling Meetings

In terms of convening shareholder meetings, the responsibility falls on various entities, including the directors, supervisory board, auditors, liquidators, or even the court in exceptional cases. Additionally, the Ministry of Trade and Industry or a similar entity may also call for meetings under specific circumstances. Shareholders are notified of these meetings through registered letters, emails, or other reliable electronic methods, with the company bearing the expenses associated with the notification process.

The timing of the notice is critical, with a minimum of 24 days required for the first OGM or EGM. In cases where a quorum is not met, subsequent meetings can be called. For an OGM, the same 24 days is given for a second meeting while there is no specific date for subsequent meetings called for lack of quorum. For an EGM, second and third meetings can be called at one-week intervals. The content of the notice is mandated to include essential details such as the company’s name, capital, head office, meeting specifics, and the agenda to be discussed during the meeting.

Quorum

Quorum requirements vary for OGMs and EGMs. For OGMs, at least 1/4th of voting shares is required for the first meeting, while the second meeting can proceed irrespective of the number of voting shares represented. In contrast, EGMs have more stringent quorum requirements, with at least half of voting shares needed for the first meeting, 1/3rd for the second meeting, and 1/10th for the third meeting.

Majority

The majority required for passing resolutions also differs between OGMs and EGMs. OGM decisions are taken by a simple majority, disregarding abstentions, and blank ballots. In comparison, EGMs require at least a 2/3rd majority for a resolution to be adopted, with specific agenda items, such as changing the nationality of the company, requiring unanimity.

Under the Ethiopian Commercial Code, shareholders have various avenues for claims against the company or directors. Shareholders become creditors of the company for dividends due to them from the date fixed for payment. In addition, the provisions of the Code outline the legal duties of directors and describe potential violations that may result in liabilities for the company. These include:

• requirements for good moral character and compliance with the memorandum of association;
• obtaining necessary approvals and disclosures in related-party transactions;
• approval and independent auditor reports for fund transfers involving directors;
• ensuring adequacy of capital, liquidity, and proper governance arrangements;
• consistently acting in the best interests of shareholders and the company’s long-term sustainability; and
• avoiding personal interest entanglement with company affairs, and ensuring requisite care, skill, and diligence in managing the company’s affairs, among others.

The Commercial Code also specifies the procedures for enforcing the liability of directors, including the necessity of a resolution of a general meeting of shareholders to institute proceedings against directors. If the company fails to institute proceedings within three months, shareholders representing at least 10% of the capital have the right to institute proceedings in the name of the company. Shareholders also have the right to bring legal action for damages if they have been directly injured by the fault or fraud of the directors.

Claims for damages against directors and members of the supervisory board are subject to a limitation period of two years from the date when the aggrieved party knew of the damage and the perpetrator, with an absolute limitation after ten years from the date when the act in question occurred.

There are disclosure obligations on shareholders in publicly traded companies as provided under the Ethiopian Capital Market Proclamation. According to the applicable legal provisions, an “Interested Person” is defined as any person who has an interest representing 5% or more in the capital of a company listed on an exchange, whether directly, indirectly, or in alliance with others.

Such Interested Persons are required to submit an authenticated and signed statement to the Capital Markets Authority (the “Authority”), the exchange where the securities are traded, and to the issuer of those securities within five days of acquiring the interest. The content of the information to be disclosed as such is yet to be determined in a Directive to be issued by the Authority, which was established recently in 2021, and is still in the process of issuing such Directives. Additionally, any share company listed on an exchange is required to disclose the names of interested persons and any changes in their shareholding. The exchange is also required to announce the information received concerning the disclosures of interests immediately upon receipt.

Failure to disclose the interest as described above and Directives to be issued by the Authority, may result in liability for any damages incurred by the Authority, the exchange, or a third party.

Furthermore, interested persons and share companies listed on an exchange are required to report to the Authority and the exchange any changes in interest that exceed more than 0.5% of the issuer’s capital within ten days of the date of the change. This reporting remains mandatory until the change results in a decline of the interest to below 5% of the capital.

Additionally, share companies listed on an exchange are required to maintain a special register for the disclosure of the members of the board of directors, executive directors, and managers, which involves all statements and information determined by the Authority. This register is also required to include all data related to remunerations, salaries, incentives, and other financial benefits as included in the report of the General Assembly, and stakeholders have the right to access this register during regular working hours.

Companies must adhere to a set of financial reporting obligations as stipulated in the Ethiopian Commercial Code on an annual and periodic basis. These obligations encompass the compilation of:

• a comprehensive inventory of the company’s assets;
• a balance sheet;
• a profit and loss statement; and
• a report on the company’s activities and affairs over the previous financial year.

Additionally, company directors are required to submit these documents to auditors, the Ministry of Trade and Industry, or other relevant government authorities at least 40 days prior to dispatching notices for the annual general meeting.

Furthermore, it is mandated that the balance sheet and profit and loss statement be prepared annually in the same format as in prior years, unless variations are approved by the general meeting upon the recommendation of the auditors.

For a holding company, the accounts of its subsidiaries must be presented at the annual general meeting simultaneously and in the same manner as its own accounts, alongside the preparation of a consolidated balance sheet and profit and loss statement.

In circumstances where the board of directors deems it impractical or burdensome to prepare such documents, or if it may be detrimental to the company or its subsidiaries, they have the option to seek exemption from these obligations, subject to approval by the Ministry of Trade and Industry or other relevant government authority.

In addition, any self-regulatory organisation participating in capital markets is required to submit audited financial statements to the Capital Markets Authority within four months after the end of every financial year. The Authority is yet to issue Directives providing the specifics of the audited financial statements that must be disclosed by issuers of public offerings and listed companies.

Under the Ethiopian Commercial Code, the board of directors is responsible to ensure that the company’s governance arrangements are such as to ensure the proper monitoring of the company’s financial statements and positions.

Moreover, directors have the obligation of submitting an annual report of the company’s operations including a report on the company’s activities and affairs over the previous financial year to the general meetings of shareholders, auditors and the Ministry of Trade and Industry. These responsibilities show the obligation to disclose the corporate governance arrangements in the reports. However, there are no specific corporate governance codes that are required to be adhered to in these reports.

In addition, any self-regulatory organisation participating in capital markets is required to submit a report on its corporate governance policy and practices along with its annual report to be submitted to the Capital Markets Authority within four months after the end of every financial year.

In Ethiopia, it is the Ministry of Trade and Industry that establishes and administers a Federal Commercial Register, having a nationwide application. Companies are required to make several filings with this Ministry, including: 

• the submission of the inventory, balance sheet, profit and loss account, and directors’ report;
• detailed information on related-party transactions involving conflicts of interest;
• details regarding a more than 5% reciprocal holding of shares between two companies;
• details by non-wholly-owned subsidiaries on whether their management is directed by the parent company;
• notification of change of business address;
• notification of any alternation or amendment on commercial registration such as company name, general manager, capital, additional business, etc;
• the balance sheet, along with the relevant part of the minute of approval by the meeting; and
• any changes in the particulars of the share register which contains particulars of members, transfers of shares, and any amendments to these particulars.

The Commercial Code and the Commercial Registration and Licensing Proclamation both provide that the commercial register and trade name register must be open and accessible to the public at large. Third parties are entitled to look into the register or demand from the appropriate registering office the issuance of a copy of any extract from the register or, where an entry has not been made into the register, a certificate to the effect that no such entry has been made.

In addition, members have the right to consult the share register kept by companies free of charge, and any third party may do so upon payment of a prescribed fee. If inaccuracies are found in the register, the Ministry of Trade and Industry or relevant government authority may cause rectification, and the company’s directors or managers are liable for any losses resulting from such inaccuracies.

Failure to make these filings and comply with the disclosure requirements results in legal consequences. For instance, failure to notify changes of business address and other changes warranting amendment of the commercial register are punishable with fine and imprisonment. This is in addition to the potential liability for any losses due to inaccuracies in filings or failure to disclose the required information.

All share companies are required to have independent and impartial external auditors and assistant auditors that are appointed by the general meeting of shareholders. All private limited companies with members of more than ten, or private limited companies with total assets exceeding ETB10 million are also required to have independent and impartial external auditors appointed by the general meeting of shareholders. 

Auditors appointed as external auditors must possess professional licence from the Auditing and Accounting Board of Ethiopia, and must be of good moral character. Auditors may not be a shareholder or an employee of the company, and many not in any event be affiliated with the company as directors, managers, or secretaries. Auditors have the duty to discharge their duties following generally accepted accounting principles, provide accurate information, treat shareholders equally, keep professional secrets, annually verify the correctness and accuracy of financial statements and certify that the report submitted by the board of directors reflects the correct state of the company. Auditors also have the duty to compile complete information on conflicts of interest and submit information together with their recommendations to the general meeting of shareholders.

For more detail on the powers and duties of the auditor, please see 3.2 Decisions Made by Particular Bodies.

Directors have the duty to make certain that sufficient procedures for risk management and internal control are established. In particular, directors have the responsibility of ensuring that the company has adequate capital and liquidity to meet its liabilities in a timely manner, ensure that the company’s governance arrangements are such as to ensure the proper monitoring of the company’s financial statements and positions, ensure submission of accounts and books to auditors when required, set up the reserve funds required by the law; and where the company’s ability to meet its financial obligations diminishes or where the company ceases making payments, apply for preventive restructuring, reorganisation or bankruptcy, as appropriate.