TYPES OF BUSINESS ORGANIZATION

In Ethiopia, a business may be carried out in any one of the following forms

a) By an individual operation as a sole proprietorship (trader)

b) By two or more persons in a partnership agreement,

Sole Proprietorship

A sole proprietorship is a business carried on by an individual acting in an independent way. The Business operation is treated as personal assets & liabilities of the owner. The owner is the ultimate employer & manger.

Business Organizations

Any association arising out of a partnership agreement is called a business organization.

Based in the commercial code of Ethiopia, there are six different forms of business organizations. These are:

1. Ordinary Partnership,
2. General Partnership,
3. Limited Partnership,
4. Private Limited Company,
5. Share Company, and
6. Joint Venture,

Ordinary Partnership

A partnership is an ordinary partnership with the meaning of this Title where it does not have characteristics which make it a business organization covered by another Title of this code.

Each partner shall make a contribution, which may be in money, debts, other property or skill. Unless otherwise agreed, contributions shall be equal and of the nature and extent required for carrying out the purposes of the partnership.

All the partners shall have a right to act as managers, unless the partnership agreement or a decision of the partnership has appointed one or more of the partners or a third party to be the manger.

General partnership

General Partnership is an agreement between two or more person who are eligible for entering into binding contracts. The memorandum of association drawn up by the parties has to be approved by public notary; published in the newspaper.

The Partners are personally; jointly, severely and fully liable as between themselves and to the partnership for the partnership firms undertaking. The partnership shall be administered by one or more managers who may or may not be partners.

The names of the partnership consists of the names of at least two of the partners followed by the words “General Partnership”

Limited Partnership

A limited Partnership is a partnership with tow types of partners namely, general partners who are liable personally, jointly, & severally and limited partners who are only liable to the extent of their contribution. The general partners manage a limited partnership. Limited partners are no allowed to participate in management otherwise they are to be held jointly and severally liable for all the debts and obligations of the company. However, they can require to be presented with a copy of the balance sheet and are entitled to inspect the books of the firm.

A limited partnership must consist of the names of the general partners followed by the words “Limited Partnership”. Where a limited partner allows his name to be included in the firm’s name, he shall be liable to third parties in good-faith as though he were a general partner. A limited partnership is based on a written memorandum of association drafted and signed by the partners.

Private Limited Company

A Private Limited Company is a company whose partners are liable only to the extent of their contributions. The maximum numbers of the partners is fifty while the minimum is two. The company shall not issue transferable securities.

A Private limited company shall not undertake banding, insurance or any business of similar nature.

The company has a minimum capital of Birr 15,000, which must be paid up on registration. The capital contributed by the partners may include in kind contribution, which is subject to valuation. The registered capital should be divided into shares. Shares may be transferred among share holders as provided in the memorandum of associations.

The company may have one or more mangers. They must be individuals appointed by the share holders, but they need not be share holders.

The name of the private limited company may contain a disclosure of the nature of its activity & must include the words “Private Limited Company”.

Share Company

Share Company is a company whose capital is fixed in advance and divided into shares and where liabilities are met only by the assets of the company.

The establishment of Share Company requires at least five persons and there is no maximum as to the number of partners. Subject to the laws provided by NBE for the establishment of banks and insurance companies, the capital of the company shall not be less than 50,000 Birr. The shares are freely transferable and the public may be invited to subscribe.

The formation of the company shall be by memorandum. The Article of Association which governs the operation of the company shall be drawn up by the founders in accordance with the law. Persons who sign the Memorandum of Associations and subscribe the whole of the capital shall have the legal status of founders.

A share company shall not be deemed to have seen formed until:

Ø The capital has been fully subscribed

Ø One quarter at least of the par value of the shares has been paid up and deposited in a bank, in the name and to the account of the company.

Joint Venture:

Joint Venture is a form of business organization established by an agreement between partners on terms mutually agreed and is subject to the general principles of law relating to partnerships. A joint Venture shall be managed by one or more mangers, who need not be partners.

Commercial Representatives

A commercial representative is a person, not domiciled at the place where the head office of the business is situate and bound to a trader by a contract of employment, who is entrusted by the trader with visiting clients in a specified area and offering to them goods of service in the name and on behalf of the trader.

Ø Unless otherwise provided in the contract of employment, commercial representative may not carry on private business.

Ø Unless otherwise agreed, commercial representatives may not act on behalf of traders other than the trader to whom they are bound.

Ø In no case may act on behalf of a trader selling goods or offering services similar to the goods sold or the services offered by the trader to whom they are bound.