A new draft directive prepared by the Ministry of Trade & Regional Integration (MoTRI) will soon legalize the establishment of a one-person company in Ethiopia.
Designed by the Ministry, the draft directive will replace the existing Commercial Registration, Licensing, and Post-registration Inspection directive.
The new bill, drafted based on the new Ethiopian Commercial Code, allows the registration and licensing of a one-person company after nearly one and a half years of the code’s ratification.
The current commercial code, ratified in March 2021, replacing the 62-year-old code, has permitted the establishment of a one-member private limited company (PLC). However, due to the lack of executive law, investors were not allowed to incorporate a PLC with the unilateral declaration of a single person. The existing business licensing law requires the membership of at least two people to establish a PLC.
The ministry is now discussing and collecting input from stakeholders on the prepared directive.
“The registration of a single member PLC has not yet begun. But, we have now drafted the directive, which includes everything in the code that is linked to registration and licensing,” said Jirata Nemera, the ministry’s Trade Registration and Licensing Customer Service Director.
After ratification of this bill, investors will get a license to a one-member PLC as a business by the unilateral declaration of a one person and a capital of no less than 15,000 birr. After incorporating, the company will have its own legal personality which makes the investor not personally liable for debts due by the company.
However, to get the license, the investor will be required to provide a nominee property custodian, and the property custodian must affirm his acceptance of the nomination with a legal document. In the event of the investor’s absence, death, or loss, the nominee property custodian is accountable for taking responsibility for the association and protecting its property.
Fikadu Petros, a legal expert who participated in the drafting of the commercial law, explains that the previous requirement to establish a PLC is a major stumbling block on investors who want to do business on their own.
“In order to fulfill this obligation, investors used to get into partnerships with someone they didn’t trust and didn’t want,” he said, adding that sometimes they would give one share to their partner and keep 99 percent for themselves.
The requirement also challenges young entrepreneurs who often engage themselves in risky business ideas, according to Saminas Belayneh, partnership and marketing director at Orbit Innovation Hub.
Saminas contends that the success rate for startups in Western countries is less than 10 percent, and that this figure would be much lower in African countries.
“Given this rate, starting a business that has a high risk of failure in sole proprietorship might be devastating even for the person’s economic existence,” he said.
But with the permission to establish a one-member PLC, startups will have the chance to establish a company whose legal personality is separate and distinct from their own. Saminas believes this encourages youths to take risks and implement their business ideas.
Both Fikadu and Saminas agree that the Registration and Licensing directive should have been passed earlier.
Even after the draft of the bill is prepared, Saminas is skeptical of a delay on implementation, mentioning that experts on root level offices could not start issuing the license soon after the directive’s ratification.
“There are a lot of problems when it comes to laws. If any, take the startup proclamation. We haven’t heard anything about it since it was drafted two years ago,” he said.