Even though a company is setup to run a business, at some point in time the business may need to stop for one or another reason. The dissolution of a company is one aspect of a company’s life. The Ethiopian legal system addresses the issue of dissolution as one important aspect of a company’s phase of life. Dissolution of companies may result from non compliance with the requirements of the law, from provisions of the bylaws of the company, from the common agreement of members to dissolve or from a judicial decision dissolving the companies for just cause.

Non Compliance with the Requirements of the Law

One of the grounds for dissolution as per Ethiopian law is noncompliance with the requirements of the law. This type of dissolution occurs when companies don’t comply with the rules set out in the Commercial Code of Ethiopia. For instance in the case of Private Limited Company (PLC) if one or more share holders leave the company for any reason and the number of shareholders becomes less than two the company shall dissolve for noncompliance with the requirements of the law. The Commercial Code of Ethiopia of Ethiopia requires PLC to be formed and run at least by two persons. Failing to do that the company shall dissolve.

In such cases, the dissolution shall be ordered by the court. But it’s important to note that the court may make some provisional arrangements, in which if the companies comply with such arrangement, they may survive from dissolution.

Dissolution as per the Bylaws of the Company

Another ground for company dissolution in Ethiopia is as per the bylaws of the Company.Causes of dissolution may be laid down in provisions of the company. These causes may relate to its duration or its objects.

For example, if a fixed duration is set by the bylaws of the company, the completion of such time could be a ground for dissolution. Art 217(c) of the Commercial Code of Ethiopia states that:

“If the statute of a company /partnership provides that it shall endure for a fixed term, it is dissolved automatically at the end of that term. However, the members may prolong the duration of the company or partnership by modifying its statues.”

Another ground to dissolve a company is where partnership purpose could not be achieved or where it accomplishes its object for which it was formed. This is stipulated under Art 217/a/ of the Commercial Code of Ethiopia.

Dissolution Resulting from the Agreements of Members

Another ground of company dissolution results from the agreements of members. Accordingly a company or partnership may be dissolved prematurely if all its members agree, or if the appropriate majority resolves to alter its provisions so as to bring about its immediate dissolution. In the case of Share Company, the company may be dissolved by resolution of an extra-ordinary general meeting without alteration of its provisions. This is stipulated under Art 495(2) of the Commercial Code of Ethiopia.

The procedures for dissolving a company by agreement are relatively lengthy one that it will take four to six month time. The process involves filing application to Ministry of Trade and Industry for appointment of liquidator; to the Inland Revenue and Customs Authority for clearance; the Press Agency for public announcement of possible creditors of the company ….etc.

After clearing all government related debts and payments and also the debts of these creditors the company the company will be dissolved officially.

Dissolution By the Order Of the Court

Dissolution by court is set under article 218 of the Commercial Code of Ethiopia. This article stipulates that a company may only be dissolved by court if there exists a good cause and an application is made to that effect.

In such cases the court presumes the existence of Good cause where a partner seriously fails in his duties or becomes through infirmity or permanent illness or for any other reason incapable of carrying out his duties or where disagreement exists between the partners.

In such case of a partner may apply for judicial dissolution. Such jurisdiction of the court for dissolution is created in consideration of the public interest as well as for the protection of private rights, that it cannot be excluded by the provision in the statutes of the company or partnership.

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Related notes

Note: This guide provides vital information on company law in Ethiopia and its practice, especially company dissolution in Ethiopia. This note on company dissolution laws and policies of Ethiopia is not intended to substitute professional advice given with full knowledge of the specific circumstances of each case and proficiency in dissolution law of Ethiopia. Such information about investment in Ethiopia can be available from an Ethiopian Lawyer or Ethiopian Attorney, Ethiopian Company Lawyer, Ethiopian Investment Lawyer, Ethiopian Tax Attorney, Ethiopian, Ethiopian Employment Lawyer and Ethiopian Immigration Attorney.