Legal Implications of Introducing one Member Private Limited Company in Ethiopia
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Date
2022-09
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AAU
Abstract
The one member company plays an increasingly important role in the modern age of commerce in which small companies proliferate. The advantage of limited liability and possible preferential tax treatment and loan facilities makes the company attractive for small business. The revised commercial code that entered into force in 2021 has reformist provisions mostly on company law. One of the most significant provisions which are novel for Ethiopia company law is with respect to one Member Company. The new commercial code allows the establishment of one Member Company in the form of private limited company. This gives wider latitude to investors in that he gets another venue to choose and also can begin business without waiting others to participate in. This research tried to assess the legal implication of introducing one member private limited company in Ethiopia. Based on the unique characteristics of one Member Company, this paper critically analysis the challenges in transition from sole proprietorship to one Member Company. The study also critically examined, whether the provision governing a one member company is sufficient to protect third party creditors by taking international best practices into account. To do this, the writer employed doctrinal legal research method by analyzing the new commercial code of Ethiopia, the federal income tax proclamation no. 979/2016 and FDRE constitution. Based on this, the study identifies as there is a challenge in transition from sole proprietorship to one Member Company from both taxation perspective and procedural complexities. Besides, based on the unique characteristics of this company type, mandatory disclosure requirements are not sufficiently provided in the new commercial code to protect creditors. Thus, the writer recommended that the law maker need to amend some provisions and also incorporate new provisions in the commercial code so as to enhance creditors protection.