Law of Traders and Business Organizations Teaching Material Prepared by: Alemayehu Fentaw & Kefene Gurmu Prepared under the Sponsorship of the Justice and Legal System Research Institute 2009 Course Contents Chapter 1: Introduction------------------------------------------------------------------------------------1 1.1 A Brief Account of Ethiopian Law of Traders and Business Organizations--------1 1.2 General Orientation of the Commercial Code ------------------------------------------3 1.3 Scope of the Code -------------------------------------------------------------------------13 Chapter 2: Traders and Business-----------------------------------------------------------------------14 2.1 Traders: Defined---------------------------------------------------------------------------14 2.1.1Positive Definition---------------------------------------------------------------------15 2.1.2. Negative Definition------------------------------------------------------------------17 2.2 Business ------------------------------------------------------------------------------------19 2.3 Good will and its protection by unfair competition-----------------------------------22 2.4 Commercial Unfair Competition--------------------------------------------------------24 2.4.1. The Specific Standard----------------------------------------------------------------26 A. Misleading Commercial Practices----------------------------------------------26 B. False Discrediting Statements----------------------------------------------------27 2 .5 Effect of Unfair Competition----------------------------------------------------------------28 Chapter 3: Business Organizations -------------------------------------------------------------------40 3.1 Introduction --------------------------------------------------------------------------------40 3.1.1 Definition -------------------------------------------------------------------------41 3.1.2 Distinguishing between business organizations and associations--------- 42 3.1.3 Corporative societies distinguished -------------------------------------------43 3.2 Classification of business organization ------------------------------------------------44 3.2.1 Partnership and companies -----------------------------------------------------44 i) partnerships -------------------------------------------------------------------44 ii) companies --------------------------------------------------------------------45 3.2.2 forms of business organizations------------------------------------------------45 3.2.3 distinguishing between commercial and non-commercial business organizations--------------------------------------------46 i 3.3 formation------------------------------------------------------------------------------------47 3.3.1 key elements in the definition of the partnership agreement----------------47 3.3.2 publicity ---------------------------------------------------------------------------52 Chapter 4: Ordinary Partnership-----------------------------------------------------------------------55 4.1 Contributions ------------------------------------------------------------------------------56 4.2 Partnerships capital ----------------------------------------------------------------------57 4.3 Partnership property ----------------------------------------------------------------------57 4.4 Ownership and possession of partnership property -----------------------------------57 4.5 Creditor of the partnership----------------------------------------------------------------58 4.6 Creators of partners------------------------------------------------------------------------59 4.7 Management -------------------------------------------------------------------------------59 4.7.1 Types of managers ---------------------------------------------------------------59 4.7.2 The authority of managers ------------------------------------------------------61 4.8 Relationship among partners-------------------------------------------------------------62 4.9 Mode of doing act to bind a firm--------------------------------------------------------63 4.10 Dissolution, windup and termination ---------------------------------------------------64 4.10.1 Dissolution ------------------------------------------------------------------------65 4.10.2 Winding up------------------------------------------------------------------------66 4.10.3 Distribution of Assets------------------------------------------------------------68 Chapter 5 joint venture-----------------------------------------------------------------------------------71 5.1 Characteristics of joint venture ----------------------------------------------------------71 5.2 Management ---------------------------------------------------------------------------------74 5.3 Dissolution-----------------------------------------------------------------------------------75 5.4 Expulsion of partner in lieu of dissolution ----------------------------------------------75 Chapter 6 General Partnership -------------------------------------------------------------------------80 6.1 Contributions ------------------------------------------------------------------------------80 6.2 Transfer of shares -------------------------------------------------------------------------80 6.3 Memorandum of association and registration -----------------------------------------81 ii 6.4 Powers of manager ------------------------------------------------------------------------82 6.5 Liability of partners------------------------------------------------------------------------86 Chapter 7: Limited partnership ------------------------------------------------------------------------89 Chapter 8: Share Companies----------------------------------------------------------------------------93 8.1 Companies in general---------------------------------------------------------------------93 8.2 Share Company ----------------------------------------------------------------------------97 8.2.1 Nature ------------------------------------------------------------------------------97 8.2.2 Founders---------------------------------------------------------------------------98 8.2.3 Memorandum and Articles of Associations---------------------------------100 8.3 Securities ----------------------------------------------------------------------------------110 8.3.1 Equity securities ----------------------------------------------------------------110 8.3.2 Shares-----------------------------------------------------------------------------111 8.3.2.1 Issuance ------------------------------------------------------------111 8.3.2.2 Forms ---------------------------------------------------------------112 8.3.2.3 Classes---------------------------------------------------------------113 8.3.2.4 Rights and duties of shareholders -------------------------------113 8.3.2.5 Temporary warrants ----------------------------------------------115 8.3.2.6 Joint holdings ------------------------------------------------------115 8.3.3 Debt securities ------------------------------------------------------------------116 8.3.3.1 Debentures ---------------------------------------------------------116 8.3.3.2 Issuance ------------------------------------------------------------117 8.3.3.3 Forms ---------------------------------------------------------------118 8.3.3.4 Company’s duties with respect to debentures------------------119 8.4 Corporate management -----------------------------------------------------------------120 8.4.1 Shareholders’ meetings --------------------------------------------------------120 8.4.1.1 Distinguishing between various types of meetings -----------121 8.4.1.2 Distinguishing between various types of resolutions ---------125 8.4.2 Directors -------------------------------------------------------------------------126 8.4.2.1 Appointment -------------------------------------------------------127 8.4.2.2 Rights, Duties, powers and liabilities --------------------------127 iii 8.4.2.3 Removal ------------------------------------------------------------131 8.4.3 General manager ----------------------------------------------------------------131 8.4.3.1 Appointment -------------------------------------------------------131 8.4.3.2 Rights, duties, powers and liabilities ---------------------------131 8.4.3.3 Removal-------------------------------------------------------------132 8.5 Corporate Accounts and Audit ---------------------------------------------------------132 8.5.1 Out-of-capital payment of interest -------------------------------------------132 8.5.2 Reserve funds -------------------------------------------------------------------133 8.5.3 Profits and Dividends ----------------------------------------------------------133 8.5.4 Appointment of auditors ------------------------------------------------------134 8.6 Dissolution and winding-up-------------------------------------------------------------135 Chapter 9: Private Limited Company----------------------------------------------------------------141 9.1 Nature -------------------------------------------------------------------------------------141 9.2 Formation ---------------------------------------------------------------------------------141 9.3 Liability of Members for the Company’s Obligations------------------------------142 9.4 Members’ Meetings ---------------------------------------------------------------------143 9.5 Role of Management --------------------------------------------------------------------144 9.6 Shares and Transactions in Shares ----------------------------------------------------146 9.7 Transfer inter vivos and mortis causa -------------------------------------------------147 Chapter 10: Conversion and Amalgamation of Business Organizations --------------------------149 10.1 Conversion -------------------------------------------------------------------------------149 10.1.1 Meaning -----------------------------------------------------------------149 10.1.2 Mode --------------------------------------------------------------------149 10.1.3 Effect --------------------------------------------------------------------149 10.2 Amalgamation ---------------------------------------------------------------------------150 10.2.1 Meaning --------------------------------------------------------------------------150 10.2.2 Mode -----------------------------------------------------------------------------151 10.2.3 Effects------------------------------------------------------------------------------51 References………………………………………………………………………152 iv Law of Traders and Business Organizations Teaching Material Prepared by: Alemayehu Fentaw & Kefene Gurmu Prepared under the Sponsorship of the Justice and Legal System Research Institute 2009 1 2 Course Contents Chapter 1: Introduction------------------------------------------------------------------------------------1 1.1 A Brief Account of Ethiopian Law of Traders and Business Organizations--------1 1.2 General Orientation of the Commercial Code ------------------------------------------3 1.3 Scope of the Code -------------------------------------------------------------------------13 Chapter 2: Traders and Business-----------------------------------------------------------------------14 2.1 Traders: Defined---------------------------------------------------------------------------14 2.1.1Positive Definition---------------------------------------------------------------------15 2.1.2. Negative Definition------------------------------------------------------------------17 2.2 Business ------------------------------------------------------------------------------------19 2.3 Good will and its protection by unfair competition-----------------------------------22 2.4 Commercial Unfair Competition--------------------------------------------------------24 2.4.1. The Specific Standard----------------------------------------------------------------26 A. Misleading Commercial Practices----------------------------------------------26 B. False Discrediting Statements----------------------------------------------------27 2 .5 Effect of Unfair Competition----------------------------------------------------------------28 Chapter 3: Business Organizations -------------------------------------------------------------------40 3.1 Introduction --------------------------------------------------------------------------------40 3.1.1 Definition -------------------------------------------------------------------------41 3.1.2 Distinguishing between business organizations and associations--------- 42 3.1.3 Corporative societies distinguished -------------------------------------------43 3.2 Classification of business organization ------------------------------------------------44 3.2.1 Partnership and companies -----------------------------------------------------44 i) partnerships -------------------------------------------------------------------44 ii) companies --------------------------------------------------------------------45 3.2.2 forms of business organizations------------------------------------------------45 3.2.3 distinguishing between commercial and non-commercial business organizations--------------------------------------------46 3.3 formation------------------------------------------------------------------------------------47 3.3.1 key elements in the definition of the partnership agreement----------------47 3.3.2 publicity ---------------------------------------------------------------------------52 3 Chapter 4: Ordinary Partnership-----------------------------------------------------------------------55 4.1 Contributions ------------------------------------------------------------------------------56 4.2 Partnerships capital ----------------------------------------------------------------------57 4.3 Partnership property ----------------------------------------------------------------------57 4.4 Ownership and possession of partnership property -----------------------------------57 4.5 Creditor of the partnership----------------------------------------------------------------58 4.6 Creators of partners------------------------------------------------------------------------59 4.7 Management -------------------------------------------------------------------------------59 4.7.1 Types of managers ---------------------------------------------------------------59 4.7.2 The authority of managers ------------------------------------------------------61 4.8 Relationship among partners-------------------------------------------------------------62 4.9 Mode of doing act to bind a firm--------------------------------------------------------63 4.10 Dissolution, windup and termination ---------------------------------------------------64 4.10.1 Dissolution ------------------------------------------------------------------------65 4.10.2 Winding up------------------------------------------------------------------------66 4.10.3 Distribution of Assets------------------------------------------------------------68 Chapter 5 joint venture-----------------------------------------------------------------------------------71 5.1 Characteristics of joint venture ----------------------------------------------------------71 5.2 Management ---------------------------------------------------------------------------------74 5.3 Dissolution-----------------------------------------------------------------------------------75 5.4 Expulsion of partner in lieu of dissolution ----------------------------------------------75 Chapter 6 General Partnership -------------------------------------------------------------------------80 6.1 Contributions ------------------------------------------------------------------------------80 6.2 Transfer of shares -------------------------------------------------------------------------80 6.3 Memorandum of association and registration -----------------------------------------81 6.4 Powers of manager ------------------------------------------------------------------------82 6.5 Liability of partners------------------------------------------------------------------------86 Chapter 7: Limited partnership ------------------------------------------------------------------------89 Chapter 8: Share Companies----------------------------------------------------------------------------93 8.1 Companies in general---------------------------------------------------------------------93 8.2 Share Company ----------------------------------------------------------------------------97 8.2.1 Nature ------------------------------------------------------------------------------97 8.2.2 Founders---------------------------------------------------------------------------98 4 8.2.3 Memorandum and Articles of Associations---------------------------------100 8.3 Securities ----------------------------------------------------------------------------------110 8.3.1 Equity securities ----------------------------------------------------------------110 8.3.2 Shares-----------------------------------------------------------------------------111 8.3.2.1 Issuance ------------------------------------------------------------111 8.3.2.2 Forms ---------------------------------------------------------------112 8.3.2.3 Classes---------------------------------------------------------------113 8.3.2.4 Rights and duties of shareholders -------------------------------113 8.3.2.5 Temporary warrants ----------------------------------------------115 8.3.2.6 Joint holdings ------------------------------------------------------115 8.3.3 Debt securities ------------------------------------------------------------------116 8.3.3.1 Debentures ---------------------------------------------------------116 8.3.3.2 Issuance ------------------------------------------------------------117 8.3.3.3 Forms ---------------------------------------------------------------118 8.3.3.4 Company‟s duties with respect to debentures------------------119 8.4 Corporate management -----------------------------------------------------------------120 8.4.1 Shareholders‟ meetings --------------------------------------------------------120 8.4.1.1 Distinguishing between various types of meetings -----------121 8.4.1.2 Distinguishing between various types of resolutions ---------125 8.4.2 Directors -------------------------------------------------------------------------126 8.4.2.1 Appointment -------------------------------------------------------127 8.4.2.2 Rights, Duties, powers and liabilities --------------------------127 8.4.2.3 Removal ------------------------------------------------------------131 8.4.3 General manager ----------------------------------------------------------------131 8.4.3.1 Appointment -------------------------------------------------------131 8.4.3.2 Rights, duties, powers and liabilities ---------------------------131 8.4.3.3 Removal-------------------------------------------------------------132 8.5 Corporate Accounts and Audit ---------------------------------------------------------132 8.5.1 Out-of-capital payment of interest -------------------------------------------132 8.5.2 Reserve funds -------------------------------------------------------------------133 8.5.3 Profits and Dividends ----------------------------------------------------------133 8.5.4 Appointment of auditors ------------------------------------------------------134 8.6 Dissolution and winding-up-------------------------------------------------------------135 Chapter 9: Private Limited Company----------------------------------------------------------------141 5