Social Enterprise in Ethiopia: Examining Major Regulatory Issues

Abstract

Traditionally, private entities were divided into for-profit and non-profit organizations, with the goal of maximizing profit and social impact, respectively. Recently, however, both social and financial maximization have begun to be carried out in a single institution. Investors start a firm with the primary purpose of fixing the community's social, environmental, economic, and cultural (SEEC) concerns while earning a modest profit. These types of businesses are called social enterprises. Social enterprises combine profit and social mission into a single company. Though their income is primarily derived from their business, they also get donor-funded grants and government subsidies. Though these types of businesses are flourishing in Ethiopia, there is no special regulatory framework in Ethiopia designed for social enterprise so far. They are treated and regulated as ordinary for-profit businesses under Ethiopia's existing Commercial Code. The goal of this article is to investigate the regulatory concerns of social enterprises and the viability of regulating them within Ethiopia's existing commercial laws. To achieve this goal, the author applies doctrinal research methods. Finally, the author discusses important regulatory challenges for social companies in Ethiopia. The major issues of social enterprise regulation identified by this study include business legal form, evaluation of the social mission, profit allocation, asset transfer, business sale and merger, disclosure of enterprise performance, the duty and liability of directors and managers to stakeholders, and supervision. The author concluded that the existing rules of the Commercial Code are not suitable to regulate these major concerns of social enterprises. Thus, the author recommends that the government promulgate a specific law that regulates these issues of social enterprises.