Founders of share companies under the Ethiopian share company law: legal analysis

Abstract

This article explores the Commercial Code and other laws of Ethiopia regarding founders – who they are, liabilities and benefits - who are also called ‘promoters’ by many other company laws. To some extent, it also looks into the business practice based on documents like memorandum of associations, articles of association and prospectuses. By so doing, it discloses many of the flaws in the existing laws. It argues that the Ethiopian share company law recognizes large number of persons as founders which is against the general convention in the area. Accordingly, it tries to indicate that not all founders in the law shall be held responsible for the liabilities that may emanate from the activities pertaining to forming a share company. In addition, it shows that the law does not adequately regulate the matters connected with the liabilities and benefits of founders. Apart from imposing liabilities on a person who should not be responsible at all, it is found that there are several challenges for both the injured parties to claim against the founders and the founders to get their benefits. Accordingly, the article suggests that the law on founders should be revisited to avoid the pitfalls arising out of the process of establishing share companies.

Keywords: founder, joint and several liability, pre-incorporation commitments, promoter, Share Company