Regulation of Group of Companies in Ethiopia: A Comparative Overview

Abstract

Companies that are organized in a group aim at leveraging the market share, mitigate liability or facilitate long-term management efficiency. The reasons that make group establishment attractive for the parent company can be a basis for concern to other stakeholders, mainly, minority shareholders and creditors of the subsidiary company. The strict application of separate existence of a company and directors’ fiduciary duties towards their companies –applicable in cases of single entity companies– may be difficult in the case of group companies. States, therefore, devise regulatory mechanisms to protect the subsidiary company and its minority shareholders and creditors while at the same time protecting corporate freedom and entrepreneurial reality. Ethiopia has introduced regulatory rules regarding group company (Parent-Subsidiary Company). The objective of this article is to discuss the nature and regulation of Group Company as specified under the new commercial code and in comparison, with other countries’ laws. The article argues that the rules stipulated are not designed to adequately protect the interests of the subsidiary and its stakeholders. It also argues that the liberal interpretation of the provisions governing group companies to include the application of rules governing single company can contribute to potential protection rules missing under the sections in the group company.