Capital Maintenance in Ethiopian Non-financial Share Companies: The Law and the Reality on the Ground

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Maintenance of non-financial share companies’ capital requires adherence to the capital maintenance rules like restricting acquisition of its shares by company and financial assistance for acquisition of its shares or those of its holding company. Moreover, company distributions, companies’ shares cross-holding, capital reduction and capital raising are part of capital maintenance rules. Restricting such improper return of capital to shareholders helps to protect depletion of company’s capital in particular and company’s assets in general. With this respect this paper assessed the importance of capital maintenance and the adequacy of law governing this area and the practical aspect of Non-financial share companies’ capital maintenance in Ethiopia. The study employed qualitative research method. As a result relevant laws are analyzed with proper literatures. Furthermore, case study, in-depth interview and companies’ document evaluation are undergone to explore the realities related subject under consideration. The study founded that there is rare practice of company acquisition, financial assistance and share cross-holding. However, company distribution practice is rampant. Unlike this capital reduction practice is rare. When it comes to capital raising, direct equity capital raising practice is very limited one. Apart from this all rules of capital maintenance have legal gaps. Therefore, the provisions of commercial code governing capital maintenance should be revisited to address the gaps and practical problems for proper companies’ capital maintenance and to enhance the corporatization and public wall fare aimed to be achieved at nation wise.



non-financial share companies,Capital Maintenance