1.

Public Enterprise in Ethiopia

1.1 Definitions of the term ‘public enterprise’

The term public enterprise refers to enterprises established under the ownership of the state or
public authorities. However, the particular features of such enterprises are not the same in all
definitions. For instance, International Center for Public Enterprises has adopted the following
definition:
Any commercial, financial, industrial, agricultural or promotional undertaking – owned by public
authority, either wholly or through majority shareholding – which is engaged in the sale of goods
and services and whose affairs are capable of being recorded in balance sheets and profit and loss
accounts. Such undertakings may have diverse legal and corporate forms, such as departmental
undertakings, public corporations, and statutory agencies, established by Acts of Parliament or
Joint Stock Companies registered under the Company Law.

This definition is broad enough to embrace all forms of public economic enterprises established
across countries and ideologies. However, it does not hold true in all legal systems because of the
peculiar factors of a country may prompt a definition that fits the setting. For example, the law
governing public enterprises (Public Enterprises Proclamation No. 25/1992) through which
the transition from command to market economy was realized in Ethiopia by transforming the
role of public enterprises defines it as “a wholly state owned public enterprise established
pursuant to the same Proclamation to carry on for gain manufacturing, distribution, service
rendering or other economic and related activities.”
This definition embodies three basic elements that determine the feature of a public enterprise.
The first element relates to ownership and requires an enterprise to be wholly owned by the state
so that it can be characterized as a public enterprise. Hence, mere existence of public investment
share in an enterprise does not suffice (irrespective of its percentage) unless the government is
the sole owner. The law excludes enterprises in which we find joint investment of the two
sectors, namely, private and public, irrespective of the quantum of the investment.
The second element requires establishment under the proclamation. The proclamation sets the
legal framework for entities established by the State for the purpose of economic activities for

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gain. The requirements for their formation, operation, structure, and exit are embodied in the
proclamation. The government’s act should indicate that the entity established is governed
by this legislation13 if it is a public enterprise. The third element in the definition of ‘public
enterprise’ under Proclamation No. 25/1992 is the purpose of the entity which distinguishes it
from the main function of the State. Public enterprises are commercial entities as distinguished
from administrative agencies which carry out regulatory activities and render public service.
Subsequent to this definition, several proclamations have come up with diversified usages of this
term. The first modification is introduced14 by Privatization of Public Enterprises Proclamation
No. 146/1998 which states: “enterprise means a public enterprise governed by the Public
Enterprises Proclamation No. 25/1992 or an establishment designated by the Government as a
public enterprise for the purpose of the application of the this Proclamation.”
Proc No. 412/2004 further offers another definition which considers public enterprise as an
enterprise as defined under Article 2(1) of the Public Enterprises Proclamation No. 25/1992, or
as a wholly state-owned share company. But it excludes those enterprises for which specific
supervising authorities are designated by other laws or decisions of the Government.As
compared to the definitions discussed in the preceding paragraphs, this is narrower as it excludes
some public enterprises, and it is meanwhile broader because it extends the application of the
term to share companies wholly owned by the state.
It can generally be noted that the above definitions share features that expressly mention or
impliedly incorporate the definition of public enterprises embodied in Proclamation No. 25/1992.
However, there are additions and exclusions introduced by each proclamation, and the elements
which distinguish one definition from the other are diverse. Proclamation No. 25/1992 was
enacted at the time when the form of state structure was unitary, and the concept of regional
public enterprise is brought up later on along with Ethiopia’s current federal structure.

1.2. Characteristics of Public Enterprise

A public enterprise is necessitated by the need “to find an effective and efficient economic
organization under socially satisfying conditions.”25 Hence, the economic and social aspects
converge in a single entity. It is a borderline entity sharing the features of a public entity and
business. A public enterprise combines dual features (in status and functions) as enterprise
aiming at profit while at the same time having public nature as a public entity. It is proposed that

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the most effective methodology for identification is to specify the tests which need to be met if
an institution can properly be identified as a public enterprise. To this end, certain tests can be
employed, namely: ownership test, public purpose test, the field of activity test, the concept of
investment and return, the concept of marketing and the commercial accounts. These tests are
believed to enable us conceptualize the notion of public enterprises and have a better
understanding of the entity based on its features.

a. Public Dimension

The ascertainment of the public dimension in the realms of ownership, purpose or otherwise, is
recurrent in the discourse on public enterprises. Public enterprises are singled out as part of the
broader stream of the public sector.27 Hence, questions may be posed as to what makes a
purpose public or how public are public enterprises. The term “public” can mean accessibility
and benefit to the general public, ownership by the public, or ownership and control by public
authorities. With regard to public enterprises, it is ownership by public authorities which stands
out even though that is not the only factor which determines the status of the entity.

b.Public ownership.
One manifestation of the public dimension of public enterprises is that they are owned by the
public. Sometimes distinction is made between ownership in the legal sense as a formal claim in
the framework of the legal order and ownership in the economic sense which inquires into the
actual beneficiary from the thing.31 The public is presumed to exercise the ownership through
the state, the government, local authorities or municipalities. The word “public” is therefore used
as “ of or pertaining to the people, relating to or belonging to, or affecting a nation, state or
community at large; as opposed to private”.32 Obviously, an enterprise becomes public if it is
wholly owned by public authorities. In other words, there will usually be no doubt about
the nature of an entity if ownership exclusively belongs to a public authority.33 In this regard,
Proclamation No. 25/1992 is explicit and considers as public only those which are wholly owned
by the state.
A glance at Ethiopia Commodity Exchange Proclamation No. 550/2007 (Federal Negarit Gazeta,
13th Year No. 61) reveals that this is subject to an exception. The Ethiopia Commodity

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Exchange is established as a wholly state owned market institution having its own legal
personality to which a supervising authority is designated.
We can also inquire into the effect of indirect ownership. Where a fully state owned public
enterprise acquires majority holding in a newly formed enterprise, or if two public enterprises
that are fully owned by the government set up an enterprise, the question becomes whether
indirect ownership by the sate confers public character on the new entity. In such cases, the
government is the indirect source of finance. Yet, one of the laws which extend the application of
the term to partial public ownership, excludes (from the definition) those share companies in
which the state owns shares through public enterprises.38 Distinction is often made between
ownership by the Government and ownership of public enterprises which are autonomous and
independent legal persons. Even though the Government ultimately owns the net assets of such
enterprises, it is doubtful to conclude that what is owned by the enterprises is owned by the state.
One can thus argue that ownership should be limited to direct ownership by the state, the
government, or local authorities.

c.Public purpose
A public enterprise has multiple purposes, including public purpose. The designation of purpose
is one of the conceptual differences between public and private enterprises. In particular, the
impact of the activities of the enterprise on the society is an essential element of the distinction.
The goals of public enterprises emanate from the state and the society and are meant to attend to
public purpose. But public purposes enunciated by public enterprises to some extent depend on
value judgment in addition to preferences of functions assigned to the enterprises. Moreover, the
role of public enterprises hinges on the role and nature of the state which in turn depends on
economic and political considerations. Ideally, the state may be considered as representative of the
people, which will administer public enterprises on behalf of the latter. However, in reality,
it may become an agent of the ruling class or group or interest groups. Thus, it is argued that the state
may not define public purpose in such a way that the public enterprise would serve the interest of the
people as a whole.

The establishment of a public enterprise usually presupposes the attainment of some public
policy goals. The rationale for setting up these enterprises is that they are better instruments for

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promoting developmental goals. This could be reflected in the corporate objectives of or the
allocation of resources in an enterprise. For instance, one of the purposes of Ethio- Telecom is
“to engage, in accordance with development policies and priorities of the government, in the
construction, operation, maintenance and expansion of telecommunications networks and
services.” Unlike ordinary enterprises, the priority is set by the government irrespective of
economic returns and prudent business practice. Ethiopian Grain Trade Enterprise, inter alia,
aims at the stabilization of markets for farmers' produces so that they will be encouraged to
increase their outputs. These objectives may not be profitable in business terms. However, the
idea is that the public benefits from the realization of the objectives. Unlike a private business,
profit is not the only motive that drives the enterprise or its decisions. It has public purpose to
achieve such as employment, public service, access, fair distribution, economic development,
and other elements of public interest. However, the question remains whether they are supposed
to cater for a particular public purpose though it could threaten the commercial existence of the
enterprise. This issue was raised when Ethiopian Grain Trade Enterprise submitted its report to a
committee of the Council of Peoples’ Representative. In response to a query posed by the
committee, it was argued that stabilizing the market cannot be Ethio-Telecom Establishment
Council of Ministers Regulations No. 197/2010, (Federal Negarit Gazeta, 17th Year, No. 11),
Article 5(3). Ethiopian Grain Trade Enterprise Re-establishment Council of Ministers
Regulations No. 58/1999, Art. 5(2). At a parliamentary hearing, the enterprise maintained that it
have no duty to stabilize the market in response to the criticism that t it has no grain in its store to
be used for stabilizing the market. In developing countries where social expectations are often
are articulated through national economic development plans, the operative assumption is that a
state enterprise should promote the strategies and priorities contained in national economic
development plans. Where there is a conflict between the plan and corporate self-interest, a state
corporation must compromise its self-interest in order to foster development. A state enterprise
should not object to this, even if its earnings are reduced, since it is under a duty to benefit its
public shareholder. See Robert Fabrikant (1976), Developing Country State Enterprises:
Performance and Control, Colum. J. Transnat'l L. Vol. 15, p. 49. undertaken unless the
government guarantees to make up for the imminent loss incurred by the Enterprise.
d.Public Control and Management

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Government’s inherent power enables it to exercise control on private or public enterprises.
However, the control it has over public enterprises as an owner is internal control which involves
“agent-principal” relationship between the government and the enterprise. As enterprises are
controlled by persons who have made the investment, government control over public enterprises
is primarily practiced through its power to appoint top management.
e. Private Dimension
The dual nature of a public enterprise gives it the features of a business enterprise, as well. The
entity preserves its public features without at the same time undermining its enterprising
dimension. The reason why a government opts to set up the entities in this form is to enable them
operate as business entities. They operate in the same manner as private enterprises engaged in
commercial activities. Thus, they have the following attributes.
f. Commercial Nature
Public enterprises are formed to undertake manufacturing, distribution, service rendering or other
economic and related activities with a view to selling goods and services. These activities are
undertaken for gain with a view to ensuring that there is return on investment. This confers on
them “commercial nature” making them subject to the rules of the market. Their commercial
character is manifested in different forms. First, a business enterprise cannot engage in trade
activities without registration in the commercial register.Accordingly, a public enterprise is
required to register in the commercial register of the Federal government or a regional state as
the case may be. It also needs to have business license to carry out the commercial activities
stated in the establishing regulation.
Second, persons “bring together contributions for the purpose of carrying out activities of an
economic nature and participate in the profit and losses arising from the commercial activity”.52
On the other hand, the government puts resources at the disposal of the enterprise it establishes,
after which the enterprise is expected to sustain and develop itself through its profit. After
its establishment, a public enterprise obtains its income from its economic activities and through
the charges paid by users. This distinguishes public enterprises from administrative authorities
which receive annual budget allocations from the State. A public enterprise must be viable so
that it can remain in the market. That is why the law makes it a ground for dissolution

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if a public enterprise loses 75 % of its capital. It is also to be noted that a public enterprise may
encounter bankruptcy if it suspends payment. Its survival thus depends on economic viability at
least to the threshold of maintaining its capital.
The third manifestation of a public enterprise’s private dimension relates to its competitiveness
in the market. Any business entity markets its output whereas a public service institution
provides these outputs free of charge.55 Even though public enterprises address social purposes,
they cannot survive unless there are schemes that make up for the loss sustained while
undertaking unprofitable activities.

1.3. Forms of Public Economic Enterprises

In this section, we use the term ‘public economic enterprises’ in reference to all enterprises set
up by the state or public authorities to carry out business activities thereby avoiding the
confusion arising from a particular definition of the term ‘public enterprise’. As highlighted
above, the scope of the term ‘public enterprise’ can extend to all public economic enterprises or
it can be limited to public enterprises ‘proper’ depending on the law one relies on. Apart from
such legal conundrum, no clear-cut universal legal theory of the public economic enterprise has
emerged so far. Moreover, the classification of public economic enterprises does not pursue a
consistent pattern. In the Ethiopian context, current public economic enterprises are formed as
enterprises, corporations or share companies.

a.Departmental undertakings
Historically, the expansion of activities of the government to economic, activities was achieved
through departmental undertakings. Through this model, a business activity was carried out as an
integral part of the government itself. They were not established as independent legal entities;
rather they were established by an executive decision as part of an existing state organ or an
independent unit. Departmental undertakings did not have legal personality and their activities
were not distinct from the regular function of the state. Thus, both administrative and business
activities were carried out by a single entity as part of the state structure. As a result of inclusion
in the state structure, departmental undertakings shared many features with government organs.
They were under a ministry which ultimately assumed the responsibility to manage them. Their

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employees were civil servants and their budget was part of the national budget. They were rather
public enterprises run as a department of the government, organized, financed and controlled like
any administrative agency. They were subject to the accounting and audit systems applicable to
other government departments.
For example, before the Ethiopian Electric Power Corporation was established as a corporation
under Regulation No. 18/1997, it was organized as Ethiopian Electric Light and Power Authority
in 1956. The corporation is engaged in the production, transmission, distribution and sale of
electric energy to the public and undertakes any other lawful business incidental or appropriate
thereto. 68 It is indeed challenging to run business activity under the auspices an administrative
organ which is incompatible with business operations. The first challenge relates to lack of
autonomy because a departmental undertaking does not have the freedom required in efficient
business operations. Second, a governmental department is exposed to unrestricted political
influence emanating from its structure. It thus lacks flexibility due to bureaucratic delay in
decision making. Such delays are, inter alia, attributable to undue intervention from civil
servants and inadequate autonomy of professional management. In general, the structure
and workings of a departmental undertaking is incompatible with the financial, logistics,
production, operational and marketing requirements of a competitive business enterprise.

b. Corporations
In US literature, the word ‘corporation’ merely represents a legal entity separate and distinct
from its stockholders. The word mainly distinguishes the entity from partnerships. In the
Ethiopian context, however, various public enterprises use the word ‘corporation’. In the earlier
years, there were countries where the designation of a public enterprise as a ‘corporation’ usually
meant being “clothed with the power of government, but possessed with the flexibility and
initiative of private enterprise.”70 The choice of this form is basically driven by the need to
cloak the entity with autonomy so as to reduce interference in its operation. It can operate
basically as a private entity but at the same time it has support of the government. But this virtue
of the corporation form is said to have become a fiction as the organizational autonomy of
corporations have been severely diluted in many countries.

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Under Ethiopian law, the essential features of corporations are shared by other public enterprises.
They are established by regulation and are governed by Proclamation No. 25/1992 in the same
manner as other public enterprises. It is, thus, imperative to inquire into their peculiarity which
warrants their designation as corporations. Comparing the establishing regulations of
corporations and other public enterprises, one can understand that they are crafted in line with
Article 6 of Proclamation No. 25/1992.
c. Share companies
The law recognizes that the government has the option to set up a business firm in the form of a
business organization which will be governed by the legal regime applicable to private
enterprises.85 Hence, the government can establish a public enterprise and convert it to a
business organization under the Commercial Code. It is maintained that public enterprises are
companies established by law which must be subject to the same legal regime (under the
Commercial Code) applicable to share companies.86 The basis of this view is the reference made
to the Commercial Code under Proclamation No. 25/1992.87 In line with this contention, public
enterprises are companies except that they are established by law. However, the entities are
distinct not only because they are subject to separate legal regimes but also because they
have their own peculiarities. Even if the law provides for the establishment of a public enterprise
as a business organization, it is not specific about the form of business organization chosen out
of the forms recognized under the Commercial Code.

1.4. Ethiopia’s Laws on Public Enterprises: Role and

Significance
Generally, a public enterprise comes into being either through nationalization or through creation
by government of an enterprise de novo or through government investment in a joint venture.122
In Ethiopia as well, the emergence of public sector enterprises coincided with the modernization
of Ethiopia’s post-1991 policy on public enterprises can be characterized as kaleidoscopic as
there is shift of policies ranging from restructuring and privatization to the mushrooming of
public enterprises. Almost all relevant laws declare that public enterprises should operate in a
competitive environment. More specifically, the pledge in the laws, for example, expresses the
necessity to change the role and participation of the state in the Proc No 25/1992 article 3(1)(a),
The legal regime applied during this period encompasses Proclamation No.131/1978 and Public

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Enterprises Regulation No.5/1975, Agricultural Development Corporations regulations
No.60/1978 and the regulation and coordination of public Financial Operations Proclamation No.
163/1979. Ethiopia’s economic policies during the past twenty years indicate change of role and
significance of public enterprises. The ambivalence of the state regarding its role in the economy
can be inferred from the privatization effort, on the one hand and retaining the big enterprises
and the burgeoning of new ones, on the other. The policy alluded to in the various laws expresses
the desire of the government to pull out of the economic sector so long as the market is viable.
For example, Proclamation No. 25/1992 envisions broader private sector with reduced number of
public enterprises which compete with the private sector. With a view to ensuring the increasing
share of the private sector in the economy, several laws were enacted in order to address the need
to change the role and participation of the state in the economy and to encourage the expansion
of the private sector.

1. JOINT VENTURE

2.1 Definition:
“Joint Venture” is an association of persons with an intent, by way of contract, express or
implied, to engage in and carry out a single business venture for joint profit, for which purpose
such persons combine their property, money, effects, skill, and knowledge, without creating a
partnership, a corporation, or other business entity, pursuant to an agreement that there shall be a
community of interest among the parties as to the purpose of the understanding, and that each
joint ventures must stand in the relation of principal, as well as agent as to each of the other
coventurers within the general scope of the enterprise.”

2.2Historical Evolution of Joint Venture in Ethiopia

In the broader sense of the term, we can comfortably assert that business arrangements by two or
more persons jointly have long existed in Ethiopia and same is confirmed by Paul McCarthy,
who wrote on Ethiopian partnership law and practice21. Paul McCarthy further wrote on the
system of relationships prevalent among the Gurage merchants in Addis Ababa, and according to
him, merchant who wishes to invest in a new business will seek someone who knows how to run

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such a business and in whom he has confidence. When he can find such a person, they will enter
into an agreement whereby the one will contribute the necessary capital to start the business
and the other will actually operate it…. Under such an agreement, the two men will share both
profits and losses, usually equally. The parties consider themselves to be joint owners of the
business (building, inventory, etc…) and both may participate in decisions. Upon termination of
the arrangement, after all debts are paid, the capital contribution will be returned to the
contributor,….”
In Ethiopian history of the law of business organizations, we can see that joint venture was
introduced to our legal system since 1933 by the Law of Business Organizations of 1933. This
law of Business Organizations was said to have been inspired in its main points by French
legislation24. According to this proclamation, joint venture (in a different name) was recognized
as one type of business organizations, and Peter Winship wrote that Joint Venture was regulated
by Articles 131-133 of this Ethiopian Law of Business Organizations (of 12 July, 1933)25. The
proclamation recognized different types of companies; namely, limited liability companies of
persons (such as Companies in Collective name, Simple Joint stock companies, and Societies),
Companies of capital, and Mixed companies26. Besides, this law also permitted, under the same
article cited above, for the formation of participating associations which have no juridical
existence in so far as third parties are concerned. Article 131 of this proclamation provided that
“[a] Participating Association can be concluded for a determined business, for series of
operations or for the performance of a commerce.” According to Articles 4 and 132 of this
proclamation, Participating Association has no legal personality as against third parties.
Subsequently, the 1960 Commercial Code has replaced and amended this Proclamation and in
this Code also joint venture has been recognized as one of the six business organizations in
Ethiopia. The Commercial Code has provided a little bit detailed provisions compared to the
previous law, but it still has only nine (9) provisions and maintains the basic feature of such
organization, i.e. no legal formalities for its formation and no legal personality. In his Expose des
Motifs Professor Escara had forwarded to the Codification Commission as to whether or no to
include other types of business organizations such as stock partnerships (societe en commandite
par actions), business organizations with variable capital (societe a capital variable), cooperative
societies, insurance companies, financing institutions, saving institutions, semi-public business

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organizations (societe d’economie mixte, i.e. companies formed with the participation of the
state), nationalized business organizations, and investment companies.
Currently, Investment Proclamation no. 280/2002 also provides the option of joint venture and
joint investment to be established by foreign investors with either the Ethiopian Government or
with domestic investors, but it should be noted that the idea of joint venture as envisaged in this
Proclamation is not the same as the nature of joint venture in the 1960 Commercial Code.
However, we can say that these proclamations of 1983 as well as that of 2002 have introduced
the idea of equity joint venture in Ethiopian legal system because they provide that the joint
ventures to be established as per these proclamations should be share-based and they should have
their own capital. Since the legal formations of these joint ventures follow either of the legal
forms of Share Company or private limited company, we can also say that these proclamations
have introduced a corporate joint venture in Ethiopia.

3 Private Limited Company

3.1 Definition

A private limited company is a company which is privately held for small businesses. The
liability of the members of a Private Limited Company is limited to the amount of shares
respectively held by them.Shares of Private Limited Company cannot be publically traded. Alll
the aspects of Private Limited Company is discussed in the article.

3.2 Characteristics of Private Limited Company

1. Members– To start a company, a minimum number of 2 members are required and a

maximum number of 200 members as per the provisions of the Companies Act
2. Limited Liability– The liability of each member or shareholders is limited. It means that
if a company faces loss under any circumstances then its shareholders are liable to sell
their own assets for payment. The personal, individual assets of the shareholders are not
at risk.
3. Perpetual succession– The company keeps on existing in the eyes of law even in the
case of death, insolvency, the bankruptcy of any of its members. This leads to the
perpetual succession of the company. The life of the company keeps on existing forever.

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4. Index of members– A private company has a privilege over the public company as they
don’t have to keep an index of its members whereas the public company is required to
maintain an index of its members.
5. A number of directors– When it comes to directors a private company needs to have
only two directors. With the existence of 2 directors, a private company can come into
operations.
6. Paid-up capital– It must have a minimum paid-up capital of Rs 1 lakh or such higher
amount which may be prescribed from time to time.
7. Prospectus– Prospectus is a detailed statement of the company affairs that is issued by a
company for its public. However, in the case of a private limited company, there is no
such need to issue a prospectus because this public is not invited to subscribe for the
shares of the company.
8. Minimum subscription– It is the amount received by the company which is 90% of the
shares issued within a certain period of time. If the company is not able to receive 90% of
the amount then they cannot commence further business. In the case of a private limited
company, shares can be allotted to the public without receiving the minimum
subscription.
9. Name– It is mandatory for all the private companies to use the word private limited after
its name.

3.3 Procedure to register Private Limited Company

1. Once a name for the company is decided, the following steps have to be taken by
the applicant: 
2. Step 1: Apply for DSC (Digital Signature Certificate) and DIN (Director
Identification Number)
3. : Apply for the name availability
4. File the MOA and AOA to register the private limited company
5. Apply for the PAN and TAN of the company
6. Certificate of incorporation will be issued by RoC with PAN and TAN
7. Open a current bank account on the company name

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3.4 Requirements for Private Limited Company Registration

The requirements for private limited company registration are:

Members- A minimum number of two and a maximum number of 200 members or shareholders
are required as per the companies’ act 2013 before registration of the company.

Directors- A minimum number of two directors is required for registering the private limited
company. Each of the directors should have DIN i.e. director identification number which is
given by the ministry of corporate affairs. One of the directors must be a resident of India which
means he/she should have stayed in India for not less than 182 days in a previous calendar year.

Name- It is one of the major components of a private limited company. The name of the
company contains three parts i.e. the name, the activity, and private limited company. It is
necessary for all private companies to use the word private limited company at the end of its
company name. Every company has to send 5-6 names for approval to the registrar of the
company and all the names should be unique and expressive. The name for approval should not
resemble with any other companies name. So choosing the right company name is an important
component is it will stay with the company throughout its life.

Registered office address- While going for the registration of the company, the owner should
provide the temporary address of the company until it does not get register. However when the
company has been registered then the permanent address of its registered office should be suited
with the registrar of the company. The Registered office of the company is where the company’s
main affairs are been conducted and where all the documents are placed.

Professional certification- In a company there are many professionals which have required for
many purposes. For incorporating a private limited company certification by these professionals
are necessary. Various professionals such as company secretary, chartered accountant, cost
accountant, etc are required to make their certification at the time of company incorporation.

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