Sunday, February 28, 2021

A Brief Account of Ethiopian Law of Traders and Business Organizations

(Source: LAW OF TRADERS AND BUSINESS ORGANIZATIONS: A Course Material

ALEMAYEHU FENTAW AND KEFENE GURMU)

 Business organizations had gone through various stages throughout the centuries before they came to acquire characteristics which have made up distinct organizational forms prevalent in Ethiopia today. They grew from a single individual to a group of individuals organized, first in some sort of partnerships, then in a more refined type of partnership and finally to a corporate form.

The era of Emperor Menelik II witnessed the first business organization- the Franco- Ethiopian Railway Company. And the company came about by virtue of an imperial  concession granted to Alfred Ilg in 1894 with a view to constructing a railway from Djibouti to Ethiopia via Harar to Entoto and then to the White Nile. Since it was incorporated in France in pursuance of French company law, coupled with the fact that its head office was in Paris, it remained a French company for all practical purposes, nonetheless. In exchange for the concession, several shares had been assigned to the Emperor. The concession was for 99 years and, upon expiry, ownership of the company was to be conveyed to the Imperial Ethiopian Government.

 

The second company to appear was the Bank of Abyssinia which was formed in 1905 as a branch of the National Bank of Egypt. This company came into being, like the Franco-Ethiopian Railway Company, by virtue of a concession granted by the Emperor. Its total subscribed capital was $500,000 of which $100,000 was to be paid after the company commences business. With respect to share in the profits, the Imperial Ethiopian Government was entitled to 20% while the other shareholders were entitled 70%. The legal existence of the company was fixed at 50 years from the date of its formation, without any stipulation as to the company’s fate upon its expiry. Nevertheless, in 1931, the government of Ethiopia bought the company and renamed it as “Bank of Ethiopia”.

The next company that was formed in Ethiopia was the Agricultural and Commercial Development Company of Ethiopia. Unlike its predecessors, the company was incorporated in Ethiopia, and thus, it was the first Ethiopian company, though its incorporation had not been made in compliance with no existing law other than an imperial decree issued to that effect.

 

The formation of the afore mentioned companied and the general trend would seem to have prompted promulgation of the following commercial laws: the Law of Loans of 1924, the Decree of Concessions of 1928, the Law of Bankruptcy of 1931, and the Company Law of 1933.

 

The Company Law of 1933 provides for various forms of business organizations, namely, share companies, joint stock companies, private limited companies, ordinary partnerships, and limited partnerships. It also contains several provisions pertaining to the formation, operation, and dissolution of companies.

 

In 1960, a more comprehensive commercial code was enacted. With respect to the drafting history of this code a few words were in order. Having accepted an invitation from the Imperial Ethiopian Government to draft a Commercial Code and a Maritime Code for Ethiopia, Professor Jean Escarra made several trips to Ethiopia in 1954, during which time he consulted with the Codification Commission and submitted to it the bulk of the texts later promulgated as Books II, IV, and V of the Commercial Code together with their exposes des motifs. Unfortunately, the work on the Commercial Code was interrupted due to the death of Professor Escarra in 1955.  Then, the Imperial Ethiopian Government sent an invitation to Professor Alfred Jauffret to complete the unfinished draft Code by preparing the texts of Books I and III as well as to revise Prof. Escarra’s work. Prof. Jauffret submitted his draft texts along with a Final Report on March 1, 1958. The Amharic version of these texts was then submitted to the parliament, which in early 1960 approved the draft with several amendments. The final draft text of the Commercial Code was promulgated on May 5, 1960 and the Code came into force on September 11, 1960.

 

1.1   General Orientation of the Commercial Code 

One of the crucial issues that the draftsperson had to resolve before he set out to work on the project was as to whether the Commercial Code should be subjective or objective. A subjective Commercial Code is one which regulates a community of persons designated as “traders”. It considers above all the traders, but in order for the legislature to decide which persons have the status of a trader she must take into consideration the profession or activities which she deems to have a commercial character. Whereas, an objective commercial code regulates acts known as “acts of commerce”, as opposed to persons. The scope of application of such commercial code is determined entirely by the enumeration of these acts.

 

In this regard, it has to be pointed out that the expert draftsperson opted for the  subjective system to be the basis upon which he would build the 1960 Ethiopian Commercial Code. The distinctly subjective features of the Code can be gathered from Articles 5 and 10, i.e., the definitional provisions of traders and commercial business organizations respectively, although Article 5 incorporates a list of commercial activities secondarily. The inclusion of this list under Article 5 is secondary, because although such inclusion in the law constitutes the basis for the objective system of commercial law, it does not appear here, as in any subjective system, except as an enumeration of commercial activities carried out by any trader. The subjective features can also be discerned easily from the logical organization of the Law of Trades and Business Organizations. The Law of Trades and Business Organizations, as found in Books I and II of the Commercial Code, regulates a group of persons called traders and business organizations.  According to Prof. Escarra, who opted for the subjective system, as he thought it to be, “it is the only logical system for determining the scope of coverage of the Commercial Code.” Prof. Jauffret also says that he followed Prof Escarra’s suit while drafting the text of Book I.

 

Nevertheless, we should bear in mind that such a watertight distinction between subjective and objective commercial law does not hold in practice and one could easily show that there is hardly any law which is exclusively subjective or objective. All the same, one has to choose between the two in order that the law has got a basis or a point of departure. Hence, the commercial law can be built upon certain acts known as “acts of commerce” or certain persons known as “traders.” The first belongs to the objective system while the second belongs to the subjective system.

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