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The Nation’s commercial code has not been touched for over half a century. Now that is about to change.

The government announced that it is modifying the former law to allow for the formation of group and holding companies in the new commercial code.
At the third Public Private Partnership Consultative Form, (PPPCF) organized by the Ethiopian Chamber of Commerce and Sectoral Association (ECCSA), held on Thursday December 26, on the issue of ‘challenges and solutions on the formation of share companies’ government representatives said they are working on a new law to modernize the system.
In the past, the government said it was going to develop the aging code that was ratified in 1960, but other than partial amendments that affected only some businesses, nothing substantial had ever been passed. According to experts, even though the 53 year old commercial code has noble themes, it has some limitations that fail to address changes of modernity.
At the event, the PPPCF office presented the limitations and challenges of forming businesses and suggested recommendations to modernize the scheme.
The paper argues that share companies have to be strong and expand because Ethiopia is on track to join the World Trade Organization. If share companies are not strengthened then it will hinder international trade, especially when public enterprises are transferred to the private sector. The paper suggests that, in order to accomplish this, laws that govern the formation of share companies must be better developed.
One of the topics raised in the study paper is the process at the Document Authentication and Registration Office (DARO). The paper stated that the document authentication and registration process takes unnecessary time and money when shareholders are forced to sign to form share companies and to amend the decision of the board and general assembly.
For the share company formation it suggests that based on the country’s commercial code, the process should be undertaken by two major shareholders, the chairman of the general assembly, the secretary of the general assembly and relevant bodies.
In relation to the controlling system and the legality of the formation of the share company, the paper stated that there is a legal framework gap to govern the share company and a lack of institutions that exclusively follow the share companies. It recommended that a specific institution to closely follow the share companies be formed under the Ministry of Trade.
“Establishing an auditing framework that can audit the expenses of the share company once it is under formation is mandatory,” the paper stated.
The paper also recommended that there should be a clear law that allows founders of the PLC to form a board to manage the company. The paper stated that lack of a clear law allowing PLC founders to form a board to manage the company is affecting the company’s shareholders. “Mainly foreign investors are affected,” the paper stated.
“The absence of a law that allows them to form a group company, holding company and lack of clear definition about sister companies is a barrier and limitation to organize different companies that are owned by a similar owner. This limitation forces the business owners to assign different managers for every business, so they are unable to control different businesses under a single umbrella and this affects the expansion of businesses in different sectors,” the paper continues.
During the discussion chaired by Kebede Chane, Minister of Trade (MoT) and Mulu Solomon, President of ECCSA, and other relevant office representatives the suggestions and questions raised by the paper presented by the Forum and the private sector, were explained.
Kebede said that the government is now working on the commercial code to go with the current situation and the country’s development. The national committee that has five sub committees is working on the new commercial code. He said that the national community that is led by the Ministry of Justice (MoJ) would also develop procedures about the formation of share companies and a regulatory body that will follow the activities of share companies.
Ali Siraj, state minister of MoT, told Capital that five committees comprised from different sectors are developing the new law. For the past month the five committees centered at Bishoftu (Debre Zeit) developing the new commercial code. He said that the new law will go to parliament as soon as it finalized for amendment.
He confirmed that the law will include new business structures that were not included in the half century old commercial code. The law will create the possibility that allows the business community to form a parent company that owns smaller companies under one umbrella. The possibility of forming a group company and a holding company will be included in the new commercial code.  
During the discussion Kebede promised the formation of a special committee that includes ECCSA, DARO, MoJ, Ethiopian Investment Agency and MoT to determine barriers in the formation of share companies. The financial sectors have excellent experience forming share companies. “The new committee that will be formed by the five bodies and chaired by MoT will find conditions that will create clear procedures about the formation of share companies from the experience of the financial sector,” he said.
The economic growth and the expansion of private companies have been raising questions about the establishment of many types of companies.
The current commercial code has created some obstacles for the business owners to organize and manage their businesses with a single entity.
Recently, MIDROC Ethiopia, the biggest private business owned by the tycoon, Sheik Mohammed Hussein Ali Al Amoudi, asked the government about the possibility of forming a holding company to control all businesses he owns, that include mining, agriculture, health, chemical, construction, education, agro processing and other manufacturing sectors like steel and cement.
When the business tycoon raised the question the government promised that it would consider finding a legal procedure about the formation of a holding company and other similar company formations. Since then the government has been working on it, facilitating conditions that allow giant companies and investors to form a holding group or other companies allowing them to control their business more easily than the current situation.
According to information obtained from MoT, the number of questions to form holding or group companies is now increasing. Sources at MoT told Capital that the founder of Sunshine Construction Samuel Tafesse, who is one of the major Ethiopian business actors involved in various large investments in the country, has also asked the ministry about the possibility of forming a holding company.
Currently, the businessman has investments in the hotel, construction, real-estate and manufacturing sectors, among others.   
A holding company is a type of business organization that allows a firm (called a parent) and its directors to control or influence other firms (called subsidiaries). This arrangement makes venturing outside one’s core industry possible and, under certain conditions, able to benefit from tax consolidation, sharing of operating losses, and ease of divestiture.
A corporate group (or a “group of companies”) is a collection of parent and subsidiary corporations that function as a single economic entity through a common source of control. The concept of a group is frequently used in tax law, accounting and (less frequently) company law to attribute the rights and duties of one member of the group to another or the whole. If the corporations are engaged in entirely different businesses, the group is called a conglomerate. The forming of corporate groups usually involves consolidation via mergers and acquisitions, although the group concept focuses on the instances in which the merged and acquired corporate entities remain in existence rather than the instances in which they are dissolved by the parent.
Currently share companies that exist in the country have reached 659 and there are 9,878 PLCs. According to the report presented by the PPPDF office, the capital registered by PLCs as of 2011 was 52.32 billion birr and the capital from share companies reached 7.04 billion birr.
Within the past two decades, investment including public enterprises is 184.5 billion birr and 28 percent has been invested under PLCs, while private share companies’ segment is four percent. According to the study, public enterprises investment takes the lion’s share reaching about 57 percent of the total investment in the country.
“The economic contribution (number of employees, investment capital and market share) of share companies is significant,” the paper stated.
According to the paper, even though the amount of share companies’ capital is lower than other businesses; the country’s future is dependent on the enhancement of these share companies.