Examining the Legal and Practical Dimensions of Classes of Company Shares in Ethiopia
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Date
2021-05
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Addis Ababa University
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.