Forms of Investment in Ethiopia

Forms of Investment in Ethiopia

Investment in Ethiopia may take place in one of the following forms:

I. SOLE PROPRIETORSHIP

Sole proprietorship is business in which only one individual owns all the assets, and operates in his/her personal capacity. The sole proprietor is liable personally for all debts of the business operation.

II. BUSINESS ORGANIZATION

There are three business organizations are recognized in Ethiopia. These are Companies, Partnerships, and Joint Ventures.

A. COMPANIES

There are three forms of Companies, under Business Organizations, recognized in Ethiopia. These are Private Limited Companies, Share Companies, and Foreign Branch Companies.

Private Limited Company

  • A private limited company is a company whose partners are liable only to the extent of their contributions. The maximum number of the partners is fifty while the minimum is two.
  • The minimum required amount of capital to form private limited company is 15,000 Ethiopian Birr.
  • The name of the private limited company may contain a disclosure of the nature of its activity and must include the words “private limited company”.
  • The firm-name and the amount of capital of the company shall appear on all of the company documents, invoices, publications and other papers.

Share Company

  • A share company is a company whose capital is fixed in advance and divided into shares and whose liabilities are met only by the assets of the company.
  • The establishment of share company requires 50,000 Birr as a minimum capital and at least five persons. Formal registration or investment certificate is required.
  • The founders shall be fully jointly and severally liable to third parties in respect of commitments entered into for the formation of the company. All persons who have acted in the name of the company before its registration in the commercial register shall be similarly liable.

Foreign Branch Company

  • A Foreign Branch Company is an organizational unit of a foreign company. It has no legal personality.  The parent company will be held liable along with its branch for all the activities and debts born by the latter.
  • An overseas company wishing to invest through a Branch Office is required to submit the following documents to the Ethiopian Investment Commission:
  • a certified and notarized copy of the statutes or memorandum of association of the company;
  • a resolution passed by the owners of the mother company, authorizing the establishment of a branch office in Ethiopia. The authorized capital of the branch, the activity to be undertaken, and the branch manager vested with the authority to become the legal representative in Ethiopia, should be indicated in the resolution;
  • the Ethiopian Investment Commission shall, upon receipt of the above documents, issue a certificate of registration evidencing the formation of a branch of an overseas company.

B. Partnership

A partnership agreement is a contract whereby two or more persons who intend to join together and to cooperate undertake to bring together 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.

  • The liability of members of a Partnership is unlimited.
  • The death, incapacity, withdrawal or disagreement of any partner will dissolve the partnership.
  • In the case of limited partnership, limited partners who do not participate in management have limited liability. However, the liability of the general partners or managing partners remains unlimited.

There are three forms of Partnerships, under Business Organizations, recognized in Ethiopia. These are Ordinary Partnerships, General Partnerships, and Limited Partnerships. We will discuss the latter two below.

General Partnership

  • The partners are personally, jointly, severally and fully liable as between themselves and to the partnership for the partnership firms undertaking.
  • The management and administration of the company is determined by the agreement concluded by the partners in the memorandum of association.
  • The name of the partnership consists of the names of at least two of the partners followed by the words “General Partnership”.

Limited Partnership

  • A limited partnership is a partnership with two types of partners namely, general partners who are liable personally, jointly, and severally and limited partners who are only liable to the extent of their contribution.
  • A limited partnership is managed by the general partners.  Limited partners are not allowed to participate in management.
  • A limited partnership must consist of the names of the general partners followed by the words ” Limited partnership”.

C. Joint Venture

A Joint Venture is an agreement between partners on terms mutually agreed and subject to the general principles of relating to partnership. It is one form of partnership without having legal personality. No registration is needed. Two or more persons may come together to pool their capital, human resource and experience on the field and invest.

In A Joint Venture, all partners have the status of managers in the absence of appointed manager(s). Consequently, a partner who manages the Joint Venture will be fully liable. As such Every partner should deal with third parties in his/her own name.

Features of Joint Ventures

  • There must be at least two or more persons;
  • There must be a common purpose that the group intends to carry out;
  • The group must have an agreement to carry out the purpose of the business;
  • The group should share the profits and losses that arise from the undertaking;
  • Each member should have equal right in controlling the project.

Joint Venture and Joint Investment

  • An investor, whether local or foreign, can invest in the manufacture of weapons and ammunition; as well as telecommunication services ONLY in joint venture with the Government.
  • Regarding Investments with the Government: The Supervising Authority of Public Enterprise shall receive investment proposals submitted by any private investor intending to invest in joint venture with the government; it shall submit same to the Ministry of Trade and Industry for decision and, upon approval, designate a public enterprise to invest as partner in the joint investment.
  • Therefore, a joint investment has legal personality and partners are liable only to the extent of their contribution and commitments.

III. PUBLIC ENTERPRISES

A Public Enterprise is a wholly state owned organization engaged in manufacturing, distribution, service rendering or other economic and related activities for gain. It is established by regulations. These regulations should indicate, among others, the purpose of the enterprise, its authorized capital and the initial capital paid up.

IV. COOPERATIVE SOCIETIES

A Cooperative Society is a society established by individuals on a voluntary basis to collectively solve their economic and social problems and to democratically manage same. A cooperative society may accrue profit while it works to solve the economic and social problems of its members. Members of a Cooperative Society should not be fewer than Ten.