Introduction

Company law governs the formation, operation, and dissolution of business entities. In Ethiopia, the legal framework for company regulation is primarily established under the Commercial Code of Ethiopia (Proclamation No. 1243/2021). The law recognizes different types of business entities, among which Private Limited Companies (PLCs), One-Man Companies, and Share Companies are the most prominent forms of limited liability companies. Each of these entities has distinct characteristics, formation procedures, management structures, and dissolution processes. This article provides the basics of Ethiopian company law, focusing on these three company types, their regulatory frameworks, and operational implications.

Historical Background

Ethiopia’s company law has undergone significant changes over the years. The first Commercial Code was introduced in 1960, heavily influenced by French and Swiss commercial laws. However, due to economic and political transformations, it became necessary to modernise the law. The 2021 Commercial Code revision brought significant reforms, particularly by formally recognising one-man companies and revising corporate governance structures to align with modern business practices. The amendments aimed to promote entrepreneurship, enhance corporate accountability, and attract investment.

The introduction of modern legal provisions also improved investor confidence by ensuring that companies operate under well-defined governance and financial reporting standards. These changes have significantly impacted the ease of doing business in Ethiopia.

Formation of Companies

a) Private Limited Company (PLC): A Private Limited Company (PLC) is the most common business entity in Ethiopia, especially for small and medium-sized enterprises (SMEs).

b) One-Man Company: A One-Man Company is a new form of entity introduced by the 2021 Commercial Code, allowing a single individual to establish a limited liability company.

c) Share Company: A share company is typically used for large-scale businesses.