Examining the Legal and Practical Dimensions of Classes of Company Shares in Ethiopia
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Date
2021
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Addis Ababa
Abstract
Business friendly environment is crucial to attract investment in countries. The legal environment is one of the determinants and allowing companies raise their capital by issuing different classes of company shares with a view to attract investment and widen the capital market is one way of creating favorable environment for business. As a result, different countries through a legislative framework permit companies to issue variety of classes of shares. Ethiopia is not an exception to this and hence the commercial code recognizes classes of company shares. However, classes of shares in general and preference share in particular are not used in practice. This research tried to analyze the laws governing classes of company shares in Ethiopia. An attempt is also made to investigate why classes of company shares are not practically issued in Ethiopia. To this end, the researcher used qualitative data collection and analysis methodology. The Commercial Code, the Banking and Insurance Business Proclamations are consulted; the researcher has also interviewed officials and experts at MoTI, DARA, EIC, commercial law experts in law firms and share companies. The finding of this research relieve the Commercial Code has limitation in expressly recognizing variety of shares. Even if the code recognizes preference share that the provisions lack clarity and flexibility. The draft Commercial Code repeats this limitation of the law. Lack of Awareness, socio economic development of the country, lack of a habit of working together, limitation in the law and lack of experience of classes of company shares in Ethiopia are the factors for the absence of the practice of classes of shares. Depending on the findings of this research, the researcher recommends the government to provide laws with a clear legislative intent and the laws governing classes of shares should be detail, clear and flexible. Creating awareness by providing seminars for experts in the area and for the business community is among the tasks the government should undertake.