BOOK II. BUSINESS ORGANISATIONS
TITLE I. GENERAL PROVISIONS
Art. 210. – Business organisation defined.
1. A business organisation is any association arising out of a partnership agreement.
2. Any business organisation other than a joint venture shall be deemed to be a legal person.
Art. 211. – Partnership agreement.
A partnership agreement is a. contract whereby two or more persons who intend to join together and to cooperate undertake to bring together contributions for the purpose of carrying out activities of an economics nature and of participating in the profits and losses arising out thereof, if any.
Art. 212. – Different business organisations.
1. There are six forms of business organisations under this Code:
a. ordinary partnership;
b. joint venture;
c. general partnership;
d. limited Partnership;
e. share company;
f. private limited company;
2. Special provisions applicable to cooperative organisations may be prescribed.
Art. 213. – Commercial business organisations.
1. Any business organisation other than an ordinary partnership may be a commercial business organisation within the meaning of Art. 10 (1) of this Code.
2. Where a commercial business organisation is created in the form of an ordinary partnership or where the form of the organisation is not specified, the commercial business organisation shall be deemed to be a general partnership.
Art. 214. – Formation to be in writing.
The formation of any business organisation other than a joint venture shall be of no effect unless it is made in writing.
Art. 215. -Vow provisions.
1. Any provision giving all the profits to one partner shall be of no effect.
2. Any provision relieving one 01′ more of the partners of his share in the losses shall be of no effect.
Art. 216 – Agents.
1. A business organisation shall acquire rights and incur liabilities by its agents in accordance with the provisions relating to agency.
2. A business organisation shall act in legal proceedings by its agents.
3. Any summons to be served on a business organisation shall be served at the head-office.
Art. 217. – Dissolution under the law or by agreement.
Any business organisation shall be dissolved:
a. where its purpose has been achieved or cannot be achieved;
b. where the partner agree to dissolution prior to the expiry of the term for which the busine!18organisation was formed;
c. where the term for which the business organisation was formed expires, unless the partners agree to continue the business organisation.
Art. 218. – Dissolution by the court.
1. Notwithstanding any provision to the contrary, a business organisation may be dissolved for good cause by the court on the application of a partner.
2. There shall be good cause in particular where a partner seriously fails in his duties or becomes through infirmity or permanent illness or for any other reason incapable of carrying out his duties or where disagreement exists between the partner.
Art. 219. – Publicity.
1. Any business organisation other than a joint venture sha11 be made known to third parties.
2. Such publicity shall be made:
a. by a notice published in a newspaper empowered to publish legal notices; and
b. by the deposit of two copies of the documents provided: in Art. 221 with the official in charge of the commercial register; and
c. by registration in the commercial register.
Art. 220. – Publication of notice.
A notice under Art. 219 (2) (a) shall be published in a newspaper empowered to publish legal notices circulating at the place where the heed-office is situate.
Art. 221. –Deposit of documents
1. A deposit under Art. 219 (2 (b) shall be made with the official in charge of the commercial register at the place where the head-office is situate.
2. Two copies of the memorandum and all complementary documents, if any, shall be deposited.
3. The official shall keep one copy of the documents deposited and shall send the second copy to the Department of the central commercial register provided in Art. 90 of this Code.
4. Any person may, on payment of the prescribed fee, require the official in charge of a local or of the central commercial register to deliver to him a copy of all entries relating to a business organisation.
Art. 222. – Registration.
1. The application for registration in the commercial register shall be deposited with the documents specified in Art. 221.
2. The provisions of Art. 95-99 of this Code shall apply. The official in charge of the register shall examine whether the legal conditions relating to the formation of the business organisation have been fulfilled.
Art. 223. – Effect of publicity.
A business organization shall have no legal existence nor personality until all the provisions of this Code relating to publicity have been complied with and registration is published in accordance with Art. 87 of this Code.
Art. 224. – Modifications.
1. Any modification in the memorandum of association shall be deposited.
2. Any modification of a fact published and registered, shall be published and the entry shall be corrected in accordance with Art. 108 of this Code.
Art. 225. – Branches.
1. Where a business organization comprises branches or agencies situate in places other than the place where the head-office is situate, the provisions of this Code relating to publicity shall be complied with in each place where a branch or agency is situate.
2. Registration in the commercial register shall be made by way of summary registration and shall refer to the principal registration.
3. A summary registration shall contain the same particulars as a principal registration and shall show the address of the branch and the name of the manager of the branch.
Art. 226. – Cancellation of registration.
Where a business organisation is dissolved and wound-up, the liquidators shall apply for the registration of the business organisation in the commercial register to be cancelled. The business organisation shall have no legal personality after cancellation has been published in the Official Commercial Gazette.
TITLE II. ORDINARY PARTNERSHIP
Chapter 1. General Provisions
Art. 227. – Definition.
A ‘partnership is an ordinary partnership within the meaning of this Title where it does not have characteristics which make it a business organisation covered by another Title of this Code.
Art. 228. – Joint ownership.
1. The provisions of’ this Title shall not apply to joint ownership, where property is held by several persons for reasons outside their control.
2. Joint owners may agree to create a partnership for the management of the property jointly owned.
Chapter 2. Contributions
Art. 229. – Nature and amount.
1. Each partner shall make a contribution, which may be in money, debts, other property or skill.
2. Property or the use of property may form a contribution.
3. Unless otherwise agreed, contributions shall be equal and of the nature and extent required for carrying out the purposes of the partnership.
Art. 230. – Guarantee.
- Where property is contributed, the contributing partner shall carry out the duties of a seller.
2. Where the use of property is contributed, the contributing partner shall carry out the duties of a lessor.
3. Where a partner contributes a debt, he guarantees only the existence of the debt and not the solvency of the debtor, unless otherwise agreed.Art. 231. – Risks.
- Where property is contributed, the risks shall pass to the partnership in accordance with the provisions relating to sale.
2. Where the use of property is contributed, the risks shall remain with the contributing partner.Art. 232. – Interest.
Where money is contributed, the contributing partner shall be liable to the partnership for interest thereon where payment is made after the due date.
Chapter 3. Management of the Partnership
Art. 233. – Modification of the agreement.
- The partnership agreement may be varied only with the consent the partners.
2. The partnership agreement may contain a clause providing for the variation of n particular clause with the consent of the majority of the partners.Art. 234. – Majority.
- Where the law or the partnership agreement provides that a decision may be taken by a majority of the partners, the majority means a majority of the individual partners.
2. The partnership agreement may provide that the majority shall be calculated on a majority holding, in the partnership.Art. 235. – Special acts.
The consent of all the partners shall be required for the appointment of an attorney or the carrying out of any act which goes beyond normal partnership practice.
Art. 236. – Appointment of managers.
All the partners shall have a right to act as managers, unless the partnership agreement or a decision of the partnership has appointed one or more of the partners or a third party to be the manager.
Art. 237. – More than one manager.
- Where several persons have been appointed managers and their duties have not been specified or where it has not been specified that they act jointly, they may each carry out acts of management.
2. Each manager may object to dealings contemplated by other managers.
3. The objection shall be decided on by a majority vote of all the partners.Art. 238. – Joint management.
- Where joint managers have been appointed, decisions shall be taken jointly.
2. Where an act of management is of an urgent nature and the other joint managers cannot be consulted, one joint manager may act alone.Art. 239. – Manager appointed under partnership agreement.
A partner appointed as manager under the partnership agreement may carry out all acts of management in disagreement with the other partners in the absence of fraud.
Art. 240. – Revocation of the statutory manager.
- The appointment of a manager appointed under Art. 239 may not be revoked or his powers restricted by the other partners, save for good cause.
2. Where there is good cause, the appointment may be revoked notwithstanding any provision to the contrary in the partnership agreement.
3. Gross breach of duty or unfitness to exercise powers of management shall constitute good cause under this Article.Art. 241. – Rights and duties of ma1lagers.
- The provisions relating to agency shall apply to the rights and duties of managers.
2. Managers shall be jointly and severally liable to the partners for failure to carry out their duties according to law or under the partnership agreement.
3. Where liability has been incurred and such liability is not due to the fault of a manager, the manager shall have a right of action against the person through whose fault the liability was occasioned.Art. 242. – Unauthorised agency.
Where a person holds himself out to be a manager of a partnership or where a manager exceeds his powers, the rules relating to unauthorized agency shall apply.
Chapter 4. Rights and Duties of Partners
Art. 243. – Duties of the partners.
1. Every partner shall in conducting partnership business, use the diligence end skill which he uses in conducting his private affairs.
2. Every partner shall be liable to the other partners in respect of any damage which he has caused by his default. Any benefit which he has procured for the partnership in handling other business may not be set off against such damage.
Art. 244. – Duty to obtain.
No partner may handle, either for his own benefit or for a third person, any business which would be contrary or prejudicial to the partnership.
Art. 245. – Use of partnership property.
- Property, debts and rights brought into or acquired by the partner-ship shall belong to the partners in common under the terms of the partnership agreement.
2. Every partner may use partnership property in accordance with usual partnership practice.
3. No partner may use partnership property against the interests of the partnership or so as to prevent his co-partners from using such property in accordance with their rights.Art. 246. – Necessary expenses.
Every partner may require his partners to share such expenses as may be necessary to preserve the partnership property.
Art. 247. – Advances or loans.
- A partner who makes an advance of funds to the partnership shall be entitled to interest.
2. A partner who borrows funds from the partnership shall pay interest.
3. He may, where appropriate, be liable to pay damages in addition to interest.Art. 248. – Right to check books and papers.
Every partner shall, notwithstanding any provision to the contrary in the partnership agreement, have the right to check the state of the firm’s business, to consult the books and papers of the partnership and to draw up a statement of the financial position.
Art. 249. – Reports.
- Where a partnership continues for more than one year, the partners may require a report on the management to be prepared at the end of each year.
2. Any provision in a partnership agreement for reports to be submitted at intervals exceeding twelve months shall be of no effect.Art. 250. – Association with third parties.
- No partner may introduce a third party as a partner without the consent of the other partners.
2. Where a partner gives an interest in his partnership share to a third party or assigns his share to him, the third party does not become a partner and has no right under Art. 248.Art. 251. – Profit sharing.
- The partners shall share all profits which, by their nature, are partnership profits.
2. Unless otherwise agreed, every partner may be distributed immediately after approval of require that the profits the management report.Art. 252. – Manner of distributing profits and losses.
- Unless otherwise agreed, every partner shall have an equal share in the profits and losses, irrespective of his contribution.
2. If the agreement specifies either the share in the profits or the share in the losses, this provision shall apply equally to the share of profits and losses.Art. 253. – Distribution by a third party.
- Where the partners agree to refer the distribution of profits to one of them or to a third party, such distribution may only be challenged as being inequitable.
2. No claim shall be entertained where the partner who considers himself to be aggrived by the distribution has not challenged such distribution within three months of his becoming aware thereof, or where such partner has initiated the execution of the distribution.Art. 254. – Contribution of skill.
Notwithstanding the provisions of Art. 215, provisions may be made to the effect that a partner who contributes skill only shall share in the profits and not in the losses.
Chapter 5. Relations of the partnership with third parties
Art. 255. – Creditors of the partnership.
- The creditors of the partnership may claim against partnership assets.
2. They may also claim against the personal property of the partners who shall, unless otherwise agreed, be jointly and severally liable to them for the obligations of the partnership. A partner who is sued on his personal property may require, as though he were a guarantor, that the creditor first distrain the property of the partnership.
3. Any provision relieving the partners or some of them of joint and several liability may not be set up against third parties unless it is shown that such parties were aware of such provision. Notwithstanding provision to the contrary, the partners who acted in the name of the partnership shall always be jointly and severally liable.
Art. 256. – Personal creditor.
- Personal creditors of the partners may attach the share in the profits due to their debtor.
2. They may take all steps necessary to protect the share due to their debtor upon the winding-up of the partnership.
3. If the personal property of their debtor is not sufficient to indemnify them, they may require that, within three months from the date of their demand, the debtor’s share in the partnership be disposed of.Art. 257. – Set-off.
A person who is a debtor of the partnership may not set off a debt one of the partners.
Chapter 6. Dissolution and winding-up of partnership
Art. 258. – Partnership for an undefined period.
- Where a partnership is entered into for an undefined period or for the life of one of the partners, or where the power to, dissolve on notice is provided in the agreement, every partner may bring about its dissolution by giving six months notice.
2. Notice to dissolve shall be given good faith and not be unseasonable.
3. Notice to dissolve shall be deemed to be unseasonable where the situation is not determined and the dissolution of the partnership should he postponed.Art. .259. – Withdrawal of a partner.
Where a partner has given notice to dissolve under Art. 258, his partners may prevent dissolution by paying out his share, and the partnership shall continue as between the other partners:
Art. 260. – Death, incapacity or bankruptcy.
- A partnership shall be dissolved where one of the partners dies or is no longer able, under the law, to be partner.
2. A partnership shall be dissolved where a partner is declared bankrupt or where one of his personal creditors causes his share to be disposed of under Art. 256 (3).
3. The partnership may by agreement continue as between the remaining partners, or with the heirs or representatives of the deceased, incapable or bankrupt -partner.Art. 261. Expulsion of a partner.
The court may order the expulsion of a partner for good cause and the partnership shall continue as between the remaining partners.
Art. 262. – Paying out partner leaving.
- Where a partner leaves a partnership and the partnership continues as between the other partners, the rights of the partner who has left shall be settled in cash, on the basis of the value of his rights on the day when he leaves the partnership.
2. A partner who leaves the partnership shall share in the profits and losses arising from dealings completed or outstanding on the day when he leaves.
3. He shall be liable to third parties for all dealings made prior to his leaving.Art. 263 – Powers of managers after dissolution.
- The managers shall retain on dissolution their powers until they have made arrangements for the dissolution.
2. During dissolution, they may only exercise such powers as are necessary to complete the dissolution.Art. 264. – Appointment of liquidators.
- After dissolution, the winding-up & shall be carried out by one or more liquidators, appointed under the partner agreement or by all the partners.
2. Failing the agreement of the partners, the court shall appoint liquidators.Art. 265. – Duties and responsibilities of liquidators.
- Unless otherwise provided in the partnership agreement or by law, the liquidators shall have the same duties and responsibilities as managers.
2. The appointment of liquidators may be revoked by the decision all the partners, or by the court at the request of one partner.Art. 266. – Inventory.
- The managers shall hand over to the liquidators the property of, and documents relating to, the partnership and render an account of their management upto the date of handing over.
2. The liquidators shall draw up an inventory of the assets and liabilities of the partnership.Art. 267. – Powers of the liquidators.
- The liquidators shall take all steps necessary to complete the winding-up of the partnership.
2. The liquidators may sell the property of the partnership, represent the partnership in legal proceedings and may compromise or refer to arbitration any matters in issue.
3. The liquidators may not undertake new business in the name of partnership but may complete business already started.
Art. 268. – Settlement with creditors.
1. The liquidators shall pay the creditors of the partnership, where necessary calling upon the partners for contributions.
2. They sha1l settle with the partners debts which they hold against the partnership and restore to partners property whose use only was contributed to the partnership.Art. 269. – Restitution of contributions.
- A partner who has contributed property may not claim it back in kind.
2. He shall have a claim to the value of his contribution as accepted in the partnership’s accounts.
3. If the value has not been so fixed, restitution shall be made on the basis of the actual value at the time the contribution was made.Art. 270. – Distribution of profits and losses.
- Where there is a surplus after all claims have been met and contributions returned, the surplus shall be distributed among the partners.
2. Where the assets are insufficient to repay contributions after payment of debts, expenses and advances, the loss shall be distributed among the partners.
3. The distribution of profits and losses is to be made among the partners in equal shares, where no other proportion has been specified in the partnership agreement.
TITLE III. JOINT VENTURE
Art. 271. – Definition.
A joint venture is an agreement between partners on terms mutually agreed and is subject to the general principles of law relating to partnerships.
Art. 272. – Absence of divulgation.
1. A joint venture is not made known to third parties.
2. A joint venture agreement need not be in writing and is not subject to registration and other forms of publication required in respect of other business organisations.
3. A joint venture does not have legal personality.
4. Where a joint, venture, is made known to third parties, deemed, insofar as such parties are concerned, to be actual partnership.
Art. 273. – Contributions.
Unless otherwise provided, every partner owns his contribution.
Art. 274. – Shares.
1. A joint venture may not issue negotiable securities.
2. Unless otherwise provided, shares may be assigned only with the agreement of all the partners.
Art. 275. – Management.
1. A joint venture shall be managed by one or more managers, who need not be partners.
2. Where no manger is appointed, all the partners shall have the status of managers.
3. The appointment of a partner as manager may not be revoked without good cause.
4. The powers of the manager shall be specified in the memorandum of association. The provisions relating to these powers may not be set up against third parties.
Art. 276. – Partners who are not managers.
1. The manager is known to third parties. He shall be fully responsible for the liabilities of the joint venture.
2. Partners who are not managers shall meet liabilities only to the extent fixed in the memorandum of association.
3. The partners may supervise the work of the manager.
4. In a commercial joint venture, partners who are not managers and who take part in the management shall be jointly and severally liable as between themselves and with the manager.
5. Every partner shall deal with third parties in his own name.
Art. 277. – Duty to account.
A manager shall account to the partners. Any provision relieving him from this duty shall be of no effect.
Art. 278. – Grounds for dissolution.
1. A joint venture may be dissolved on one of the following grounds:
a. the expiry of the term fixed by the memorandum of association, unless there is provision for its extension;
b. the completion of the venture;
c. failure of the purpose or impossibility of performance;
d. a decision of all the partners for dissolution taken at any time;
e. a request for dissolution by one partner, where no fixed term has been specified;
f. dissolution by the court for good cause at the request of one partner;
g. the acquisition by one partner of all the shares;
h. death, bankruptcy or incapacity of a partner, unless otherwise lawfully agreed;
i. a decision of, the manager, if such power is conferred upon him in the memorandum of association.
2. The provisions of this Article shall apply notwithstanding any provision to the contrary in the memorandum of association.
Art. 279. – Expulsion of a partner.
1. Where dissolution is requested for reasons attributable to one partner, the court may, on the application, of the other partners, order the expulsion of the partner at fault in lieu of dissolution.
2. The memorandum of association may provide for expulsion.
3. A partner who is expelled shall be paid what is due to him on the day of expu1sion.
TITLE IV. GENERAL PARTNERSHIP
Art. 280. – Nature of general partnership.
1. A general partnership consists of partners who are personally, jointly, severally and fully liable as between themselves and to the partnership for the partnership firm’s undertakings. Any provision to -the contrary in the partnership agreement shall be of no effect with regard to third parties.
2. Where the partnership is a commercial partnership, each partner shall have the status of a trader.
3. The partnership shall have a firm-name.
4. The provisions of Art. 282 shall apply where partnership shares are assigned or transferred.
Art. 281. – Firm-name.
1. The firm-name shall consist of the names of at least two of the partners followed by the words “General partnership,” and may not contain names of persons who are not partners.
2. Where a partner who is mentioned in the firm-name ceases to be a partner, the firm-name shall be changed accordingly.
3. Where a person not being a partner permits his name to be used in the firm-name, he shall be liable as a full partner.
Art. 282. – Rules concerning shares.
1. A share may be assigned or transferred where all the partners agree.
2. The memorandum of association may provide that approval shall be given by a majority of the partners.
3. Unless the firm’s creditors agree, a partner who has assigned his share shall be liable for the firm’s debts up to the date of assignment.
Art. 283. – Granting of beneficial interest in share to third party.
1. A partner may without approval grant to a third party the beneficial rights and interests in his share.
2. Such grant shall not bind the partnership.
3. The third party has none of the rights of a partner.
Art. 284. – Memorandum of association.
The memorandum of association shall be drawn up by the partners. It sha1l contain:
1. the name, address and nationality of each partner;
2. the firm-name;
3. the head office and branches, if any;
4. the business purposes of the firm;
5. the contributions of each partner, their value and the method of valuation;
6. the services required from persons contributing skill;
7. the share of each partner in the profits and in the losses and the agreed procedure for allocation;
8. the managers and agents of the firm;
9. the period of time for which the partnership has been established.
Art. 285. – Publication of notice and registration.
1. A notice published under Art. 219 (2) (a) and 220 shall contain the particulars specified in Art. 284 (1) – (6), (8) and (9).
2. The same particulars shall appear on the application for registration in the commercial register. The application shall be signed by the manager or a person acting on his behalf.
Art. 286. – Undertaking of partnership.
The partnership may acquire rights and liabilities and sue or be sued under its firm-name.
Art. 287. – Administration of partnership.
1. The partnership shall be administered by one or more managers who may or may not be partners.
2. Where no manager is appointed, each partner shall be a manager.
Art. 288. -More than one manager.
1. Where all the partners are managers, or where several persons have been appointed managers and their duties have not been specified, or it has not been specified that they act jointly, they may each carry out acts of management.
2. Where the memorandum provides for the separation of duties of the mangers, such separation shall only affect third parties where it has been entered in the commercial register or if it is shown that the third parties were aware of such separation.
3. Each manager may object to dealings contemplated by other managers. Such objection shall be decided on by a majority vote of all the partners.
Art. 289. – Scope of duties of managers.
1. Managers may, in accordance with the law, act for and bind their firm
2. Any provisions restricting the extent of these powers shall only affect third parties where such provisions have been entered in the commercial register or if it is shown that the third parties were aware of such provisions.
Art. 290 – Manager’s exercise of powers.
1. Where a manager acts in the firm-name for his own profit, the partnership shall be liable to third parties in good faith. Where it is shown by the firm that the third party was aware of the improper use of the firm-name by the manager, the manager alone shall be liable.
2. Where a manager deals with a third party without using the firm-name, he shall be deemed to have acted on his own behalf. The firm shall be liable where the third party can show that the manager was transacting business for the firm.
3. A manager who acts outside the scope of his employment shall alone be liable.
Art. 291. – Dealings with the partnership.
Except with the special approval of the partners, a manager may not have dealings with the firm on his own behalf.
Art. 292. – Restrictions on private trade.
1. Unless otherwise agreed, no partner may carry out transactions on behalf of a third party or on his own behalf which relate to business carried on by his firm, nor may he be a partner with joint and several liability in the management of a firm carrying on similar business.
2. An unlimited agreement under sub-article (1) shall be valid for one year only.
Art. 293. – Dismissal of manager.
1. A manager appointed in the memorandum of association or following an amendment of the memorandum may only be dismissed by the court for good cause.
2. A manager not appointed as provided in sub-art. (1) may be freely dismissed by the partners.
Art. 294. – Liability of partners.
No action may be taken against individual partners for debts due by the partnership until after payment has been demanded from the partnership: Provided that an action for the repayment of fictitious dividends may be brought directly against individual partners.
Art. 295. – Other provisions applicable.
The provisions of Art. 227-232, 233 (1) , 235, 248, 249, 258, 260, 267-270 of this Code shall apply to general partnerships.
TITLE V. LIMITED PARTNERSHIP
Art. 296. – Nature of limited partnership.
A limited partnership comprises two types of partners: general partners in full liable personally, jointly and severally and limited partners who are only liable to the extent of their contributions.
Art. 297. – Firm-name.
1. A limited partnership shall have a firm-name.
2. This name shall consist of the names of the general partners, with the words “Limited Partnership” added.
3. Where a limited partner allows his name to be included in the firm-name he shall be liable to third parties in good faith as though he were a general partner.
Art. 298. – Memorandum of association.
The memorandum of association shall contain the particulars required by, Art. 284 and particulars showing who are general or limited partners.
Art. 299. – Publication of notice and registration.
1. A notice published under Art. 219 (2) (a) and 220 shall contain the particulars specified in Art. 284 (1) – (6), (8) and (9) and 298.
2. The same particulars shall appear on the application for registration in the commercial register. The application shall be signed by the manager or a person acting on his behalf.
Art. 300. – General partners.
The general partners in a limited partnership shall have the same rights and obligations as partners in a general partnership and only they may be appointed managers.
Art. 301. – Limited partners.
1. Action may be taken by a firm’s creditor to compel limited partners to subscribe their contribution.
2. Limited partners need not repay dividends received by them in good faith after approval of the firm’s balance sheet.
3. Limited partners may not act as managers even under a power of attorney. A limited partner who contravenes this rule shall be fully jointly and severally liable for any liabilities arising out of his activities. Where appropriate, he may be declared jointly and severally liable in respect of some or all the firm’s undertakings.
4. A limited partner shall not be deemed to act as manager when he:
a. consults with other partners;
b. deals with the firm;
c. investigates managerial acts;
d. gives advice and counsel to the firm;
e. gives permission to do acts outside the manager’s powers.
5. Limited partners may be employed in the firm and bind themselves by contracts of employment.
6. Limited partners may inspect the books of the firm and may call for the accounts.
7. Unless otherwise agreed, nothing affecting a limited partner shall be a ground for dissolution.
Art. 302. -Assignment of shares.
Shares may not he assigned except with the agreement of the managers and the majority of the limited partners.
Art. 303. – Other provisions applicable.
Without prejudice to the provisions of the preceding Articles, the provisions of Art. 227-232, 233 (1), 235, 248, 249, 258, 260, 262-270, 282, 283, 286- 291, 293 and 294 shall apply to limietd partnerships.
TITLE VI. COMPANIES LIMITED BY SHARES
Chapter 1. General Provisions
Art. 304. – Definition of share company.
1. A share company is a company whose capital is fixed in advance and divided into shares and whose liabilities are met only by the assets of the company.
2. The members shall be liable only to the extent of their share holding.
Art. 305. – Company name.
The company name shall be as agreed but shall not offend public policy nor the rights of third parties and shall include the words “Share company.”
Art. 306. – Minimum amount of capital and a nominal value of shares.
1. The capital shall not be less than 50,000 Ethiopian dollars.
2. The amount of the par value of each share shall not be less than 10 (ten) Ethiopian dollars.
Art. 307. – Founders.
1. A company may not be established by less than five members.
2. Persons who sign the memorandum of association and subscribe the whole of the capital shall have the legal status of founders.
3. Where a company is to be formed by the issue of shares to the public, persons who sign the prospectus, bring in contributions in kind or are to be allocated a special share in the profits, shall have the status of founded.
4. Any person, even though outside the company, who has initiated plans or facilitated the formation of the company, shall have the status of a founder.
Art. 308. – Commitments entered into by the founders of the company.
1. The founders shall be fully jointly and severally liable to third parties in respect of commitments entered into for the formation of the company. All persons who have acted in the name of the company before its registration in the commercial register shall be similarly liable.
2. The company shall takeover these commitments from the founders and refund the founders with all the expense made by them insofar as such commitments and expenses were necessary for the formation of the company or approved by the general meeting of the subscribers.
3. Where the company is not established for whatever reason, the subscribers shall not be liable for the commitments or expenses made by the founders.
Art. 309. – Liability of the founders.
1. The founders shall be jointly and severally liable to the company and third parties for any damage in connection with:
a. the subscription of the capital and the payments for the formation of the company;
b. contributions in kind as provided under Art. 315;
c. the accuracy of statements made to the public in respect of the formation of the company.
2. Claims for damages under this Article shall be barred after five years from the date when the aggrieved party knew of the damage and of the person liable. There shall be absolute limitation after ten years from the date when the act complained of took place.
3. Nothing in this Article shall affect cases where the liability of the founder arises from the commission of a criminal offence.
Art. 310. – Limit of profits which may be allocated to the founders.
- The founders may, for a period not exceeding three years, reserve personally to themselves in the memorandum of association and in addition to their rights as shareholders, a share which shall not exceed one fifth of the net profits in the balance sheet.
2. No other advantage to founders may be provided in the memorandum of association.
3. The benefits provided by this Article are personal to the founders but no founder shares may be issued.Art. 311. – Members reduced in number below the legal minimum.
- No company shall remain in business for more than six months after the number of members is reduced to less than five. Every member aware of such reduction shall be personally liable for the debts contracted thereafter.
2. Where the members are less than five in number or the company does not possess the prescribed organs, the court may order the winding-up of such company on the application of a member or creditor. The court may adjourn its decision upon such term as it thinks fit to permit of the reorganisation of the company and order such conservatory measures as may be necessary.
Chapter 2. Formation of the companyArt. 312. – General requirements in respect of formation.
1. A share company shall not be formed until:
a. the capital has been fully subscribed;
b. one quarter at least of the par value of the shares has been paid up and deposited in a bank, in the name and to the account of the company.
2. Sums deposited under sub-art. (1) shall not be paid over to the legal representatives of the company until registration in the commercial register has been effected.
3. Where registration has not been effected within one year from deposit in a blank, the sums deposited shall be repaid to the subscribers. Such repayment shall be effected by the founders who shall be jointly and severally liable. After one year such sums shall bear interest at the legal rate.
Art. 313. – Memorandum of association.
The formation of a company shall be by public memorandum which shall contain:
1. the names, nationality and address of the members, the number of shares which they have subscribed, provided that a member may not subscribe less than one share;
2. the name of the company;
3. the head office, and the branches, if any;
4. the business purposes of the company;
5. the amount of capital subscribed and paid up;
6. the par value, number, form and classes of shares;
7. the value of contributions in kind, their object, the price at which they are accepted, the designation of the shareholder and the number of shares allocated to him by way of exchange;
8. the manner of distributing profits;
9. any share in the profits allocated to the founders and reasons for such share;
10. the number of directors and their powers and the agents of the company;
11. the auditors;
12. the period of time for which the company is to be established;
13. the manner in which the company will publish its reports.
Art. 314. – Articles of association.
- The articles of association which govern the operation of the company shall be drawn up by the founders in accordance with the law.
2. Articles of association may follow the model supplied by the Ministry of Commerce and Industry with any necessary modifications.
3. Articles of association shall be deemed to form part of the memorandum of association and shall be attached thereto.Art. 315. – Valuation of contributions in kind.
- A member who makes a contribution in kind shall file a report made and sworn by experts appointed by the Ministry of Commerce and Industry.
2. The report shall contain a detailed description of the property contributed, the value given to each item and the method of valuation. It shall be annexed to the memorandum of association.
3. Within six months from the date of formation of the company the directors and auditors shall verify and, where necessary, review the valuation given in the report. The shares representing contributions in kind shall remain deposited with the company and may not be assigned until the valuation has been verified.
4. Where verification under sub-art. (3) results in the value of the contribution being lowered by one fifth, the value of the capital shall be reduced accordingly: provided that the contributor may make good the difference or shall withdraw from the company.
5. The provisions of sub-art. (3) and (4) shall apply notwithstanding approval having been given to the report under sub-art. (1) by a general meeting of the subscribers.Art. 316. – Formation as between founders.
Where shares are not offered for public subscription, the founders shall show in the memorandum of association:
1. that all the shares have been allocated;
2. that the sums have been deposited in the manner required by Art. 312 (1) (b);
3. that the provisions of Art. 315 have been applied to contributions in kind;
4. that they have provided for the administrative organs of the company.
Art. 317. – Formation by public subscription.
Where a company is formed by public subscription, the provisions of Art. 318-322 shall apply.
Art. 318. – Prospectus.
- An offer to subscribers shall be made by a prospectus signed by all the founders and shall contain:
a. the text of the draft memorandum of association;
b. a summary of the principal provisions of the articles of association;
c. a summary of the expert report under Art. 315, if any;
d. the date until when the subscribers may be required to discharge their obligations;
e. the price at which shares are to be issued;
f. the amount to be paid up on the shares until the general meeting of the subscribers;
g. the place where applications and payments shall be made.
2. Copies of the prospectus and of the expert report shall be made available to all persons who may wish to subscribe.Art. 319. – Application for shares.
- Applications for shares shall be made on the form provided and deposited in the place of application.
2. The applicant for shares shall declare that he has read the prospectus and the expert report, if any. He shall state on the form his name and address, the number of shares applied for and the date of application.Art. 320. – Meeting of subscribers.
- When the time for milking applications has expired, the founders shall call a meeting of the subscribers.
2. The provisions relating to the calling and decisions of an extraordinary general meeting shall apply to meetings of subscribers, without prejudice to the provisions of Art. 322.Art. 321. – Purpose of the meeting.
The purpose of the meeting under Art. 320 shall be:
1. to verify that the requirements relating to the formation of the company have been complied with;
2. to draw up the final text of the memorandum and articles of association;
3. to approve contributions in kind, if any, and the share in the profits allocated to the founders;
4. to make all appointments required under the memorandum of association.
Art. 322. – Special rules regard resolutions of the meeting.
- Resolutions meetings shall be drawn up and signed by the founders and all documents submitted to the meeting shall be annexed thereto.
2. Any subscriber may take part in the discussions at the meeting and may exercise his voting rights under the article of association.
3. Founders may not vote in their capacity of shareholders or proxies on ,the resolution approving their special share in the profits. The same shall apply to contributors in kind as regards the resolution approving the valuation of their contributions in kind.
4. Amendments of substance to the draft memorandum and articles of association require the approval of all subscribers.
Provided that a majority vote shall be sufficient where the amendments relate to approval of contributions in kind or approval of shares allocated to the founders.
5. The provisions of Art. 315 (4) shall apply where the meeting reduces the number of shares allocated to contributors in kind.Art. 323. – Deposit of the memorandum of association and registration in the commercial register.
- The provisions of Art. 219-224 of the Code shall apply regardless of the manner in which the company was formed.
2. The following documents shall be deposited:
a. the memorandum of association;
b. the articles of association, if any;
c. the prospectus; ,
d. the minutes of the subscribers’ meeting and all complementary documents.
3. The notice to be published and the application for registration shall contain the particulars specified in An. 313 (1) – (7) and (10) – (12).Art. 324. – Effect of publicity.
- Where publication and registration have been made, the company shall have a legal existence and personality notwithstanding that all the legal requirements relating to the formation of the company have not been complied with.
2. Where the interests of creditors or shareholders are endangered by the legal or statutory requirements not having been complied with, the court may, on the application of any such creditor or shareholder, order the dissolution of the company and such provisional measures as may be necessary.
3. An application not made within three months from the date of publication in the Official Commercial Gazette shall not be considered.
Chapter 3. Shares and the rights and duties of shareholdersArt. 825. – Form of shares.
1. Shares are either registered the name of the shareholder or to bearer, as required by the shareholder.
2. Shares shall be registered in the name of the shareholder where bearer mares are prohibited by law, the memorandum or articles of association.
3. Where bearer shares are not prohibited, any shareholder may notwithstanding any provision to the contrary convert his bearer shares into registered shares and vice versa.
Art. 326. – Price at which shares issued.
- Shares may not be issued at a price lower than their par value.
2. Shares may be issued at a price greater than their par value where such issue is provided by the memorandum or articles of association or decided by an extraordinary general meeting. The difference between the par value and the price at which shares are issued shall be known as a premium.Art. 327. – Shares issued before registration of the company in the commercial register.
Shares issued before the registration of the company in the commercial register shall be null and void, but liabilities arising thereunder shall not be affected.
Art. 328. — Indivisibility of shares.
- Shares are indivisible.
2. Where several persons hold shares jointly, they shall appoint a representative to exercise the shareholder’s rights.
3. Failing such appointment, notices and declarations made by the company to one joint owner shall be effective against all joint owners.
4. Joint owners of a share shall be jointly and severally liable in respect of any liabilities as shareholder.Art. 329. – Pledge or usufruct.
- Where a share is pledged or subject to a usufruct, the right to vote at meetings shall, unless otherwise agreed, he exercised by the pledgee or usufructuary.
2. Where there is a preferential right subscription, such right shall be retained by the shareholder. If the right is not exercised, it shall be sold on behalf of the shareholder as provided in Art. 342.
3. The shareholder shall be liable for calls on shares which have been pledged. If the calls are not met, the pledgee may sell the share under Art. 342.
4. A usufructuary shall he liable for calls on shares but may claim for repayment when the usufruct expires.Art. 330. – Indications on shares.
Every share shall he signed by a director and shall show:
a. the name, head office and period for which the company is established;
b. the amount of capital and the par value of the share;
c. the date of the memorandum of association and of registration of the company in the commercial register, and the place of registration;
d. the serial number of the share, its series or class, whether it is ordinary or preferential and the kind of preference share;
e. the amount of part payments on shares not fully paid up, or a statement that the share is fully paid up;
f. a statement showing whether a share may he transferred to a foreigner.
Art. 331. – Register of Shareholders.
- Every share company shall keep at its head office a register of shareholders.
2. The register shall contain the names and addresses of shareholders, the number and numeration of the shares, the amount paid up and the date of entry of the shareholder in the register
3. The register may be inspected by any shareholder without charge; it may also be inspected by any other person upon payment of the prescribed fee.
4. Any person may within one month obtain a copy of or an extract from the register upon payment of the prescribed fee.
5. The Ministry of Commerce and Industry may, on the request of any interested party or partner or of the company itself, order the rectification of the register, where an error has occurred.Art.332. – Purchase by the company of its own shares.
- A company may acquire its own shares where:
a. the acquisition has been authorised by a meeting of the share holders; and
b. the purchase price is made from the net profits of the company; and
c. the shares are fully paid.
2. The directors may not dispose of shares thus purchased and the voting rights on such shares shall be suspended.
3. The provisions of sub-art. (1) shall not apply where purchase has been decided by an extraordinary general meeting to reduce the capital.
4. The provisions of this Article shall apply where a company receives its own shares in pledge.Art. 333. – Restriction on free transfer of shares.
- Provisions may be made in the articles of association or by resolution of an extraordinary meeting restricting the free transfer of shares.
2. Provisions may be made for the assignment of shares with the consent of the board of directors. Such provisions shall be of no effect unless:
a. a right of pre-emption is reserved to the company or the share holders; and
b. the conditions relating to the exercise of the right of pre-emption are specified and the price of pre-emption is fixed.
3. These provisions may not result in preventing assignment of shares nor in causing serious damage to a shareholder who may wish to assign his shares.
4. Where the pre-emptive right is reserved to the company, the price shall be paid from reserve funds.Art. 334. – Company shall not grant advances nor make loans on its shares.
A company shall not grant advances on its own shares, nor make loans to enable third parties to acquire shares.
Art. 335. – Classes of shares.
- The memorandum of association or an amendment thereto by a general meeting may provide for the setting- up of several classes of shares with different rights.
2. All shares of the same class shall have the same par value and the same rights.
3. No change in the rights conferred to a class of share may be made unless a meeting of the class of shareholders has agreed under the same conditions as the general meeting having recommended the change.Art. 336. – Preference shares.
- A share company may create preference shares either in the memorandum of association or by resolution of an extraordinary general meeting. Such shares enjoy a preference over other shares, such as a preferred right of subscription in the event of future issues, or rights of priority over profits, or assets or both.
2. The issue of shares with a preference as to voting rights is prohibited.
3. Notwithstanding the provisions of Art. 345 (3), the memorandum of association may provide that shareholders who have been given rights of priority over profits and distribution of capital upon dissolution of the company may vote only on matters which concern extraordinary meetings.
4. The number of shares having restricted voting right under sub-art. (3) may not exceed half the amount of capital.Art. 337. – Dividend shores.
- A company may repay, from profits or reserve funds, without reducing the capital, to shareholders the par value of their shares.
2. Shareholders whose shares are thus redeemed shall receive dividend shares (actions de jouissance). These shares do not confer any right to that part of the dividend representing the statutory interest, nor to repayment of contributions upon the dissolution of the company. They retain however a right of vote, unless otherwise provided in the memorandum of association, a right to that part of the dividend exceeding the statutory interest and a right to distribution of a share of the surplus in the winding-up.Art. 338. – Paying up of cash shares.
- Shares subscribed in cash shall be paid up upon subscription as to one fourth of their par value or a greater amount if so provided in the memorandum of association and, where appropriate, as to the whole of the premium. They may only be registered shares until they are fully paid.
2. Payment of the balance may be spread over a period of five years from the date of registration of the company.
3. Where shares have been issued by existing companies before the coming into force of this Code, the period of five years shall run from the date of coming into force.Art. 339. – Paying up of shares by way of contribution.
- Shares representing contributions in kind shall normally be fully paid at the time of formation of the company and not later than the day of registration of the company.
2. They may not be separated from the counterfoil and be negotiated before two years from registration.Art. 340. – Assignment of shares.
- Bearer shares are assigned by delivery, without any other requirement.
2. Unless the country is proved, such shares shall be deemed to be the property of the holder for the purpose of payment of dividends, redemption and right of participation in general meetings.
3. The provisions of Art. 731 of this Code shall apply to bearer shares which are lost or stolen.Art. 341. – Conveyance of registered shares.
- Ownership of registered shares shall be established by the relevant entry in the register kept at the head office.
2. No transfer is complete until recorded in this register.Art. 342. – Liability to meet calls.
- Holders, previous assignees and subscribers shall be jointly and severally liable for calls on shares.
2. Any subscriber or shareholder who has assigned his share shall cease to be liable for calls after two years from the date of the assignment.
3. Where a shareholder fails to pay the call at the due date, he shall be liable to pay interest at the legal rate where no rate has been provided in the articles of association.
4. The company may fifteen days after the receipt by the shareholder of a registered letter demanding payment offer the unpaid shares for sale by auction. These shares shall be cancelled and new shares delivered to the purchaser.
5. Where the sale of the shares cannot be effected, the directors may order the forfeiture of the shares and retain the amounts paid up, without prejudice to any other claim they may have.
6. Where unsold shares have not been put in circulation during the trading period in which forfeiture was ordered, they shall be cancelled and the capital reduced accordingly.
7. A member who fails to make payments on shares when they become due shall lose his voting rights.Art. 343. – Temporary warrants.
- Temporary bearer warrants shall only be issued in respect of bearer shares which are fully paid. Temporary warrants shall be of no effect where they are issued before bearer shares are fully paid.
2. Where temporary registered warrants are issued in respect of bearer shares, they may only be transferred under the provisions relating to the assignment of debts.
3. Temporary warrants in respect of registered shares shall be registered. The provisions relating to registered shares shall apply to the transfer of such warrants.Art. 344. – Joint holdings.
- Where ten per cent or more of the capital of one company is held by a second company, the first company may not hold shares in the second company.
2. Where two companies each have a capital holding in the other company and one of such holdings is ten per cent or more of the capital, the companies shall declare their holdings to the Ministry of Commerce and Industry which shall require the companies by agreement to reduce their holdings so as to conform to the provisions of sub-art (1). If the companies fail to agree, the Ministry of Commerce and Industry shall order the company possessing the smaller holding to dispose of that holding.
3. Where the respective holdings are equal, and failing one company disposing of its shares in the other, each company shall reduce its holding to less than ten per cent of the capital of the other.
4. The companies shall furnish to the Ministry of Commerce and Industry a sworn statement that they have complied with either sub-art. (2) or sub-art. (3) of this Article.Art. 345. – Rights arising out of shares.
- Every share shall confer a right to participation in the annual net profits and to a share in the net proceeds on a winding-up.
2. Unless otherwise provided in the memorandum or articles of association, the share in the profits or in the net proceeds on a winding-up shall be calculated in proportion to the amount of capital held.
3. Subject to the provisions of Art. 336, every share shall confer voting rights.
4. Every shareholder has a preferred right, in proportion to his holding, to allotment of cash shares issued on an increase of capital.
5. The provisions of Art. 470 et seq shall apply to the exercise of this right.
6. Similar rights may be reserved to holders of preference shares by an express provision in the memorandum or articles of association.Art. 346. – Liability of founders and directors.
Subject to the provisions of Art. 309, founders and directors shall be jointly and severally liable to the company and to third parties for the observance of the provisions of this Chapter.
Chapter 4. Directors, Auditors and Shareholders’ Meetings
Section 1. Management
Art. 347. – Directors.
1. Only members of a company may manage the company.
2. A company shall have not less than three nor more than twelve directors who shall form a board of directors.
3. Where the memorandum of association does not specify the number of directors but fixes only a maximum and a minimum, the meeting of subscribers shall decide the number of directors to be appointed.
4. Bodies corporate may be directors, but the chairman of the board of directors shall be a person.
Art. 348. – Chairman. – General Manager. – Secretary.
- The board shall elect a chairman from among its members where no chairman has been elected by a meeting of subscribers or shareholders.
2. The board may revoke the appointments of a chairman elected by the board.
3. A general manager shall be appointed by the board. The provisions of Art. 34, 35, 109 (1) (f) and 121 (h) of this Code shall apply.
4. The general manager is an employee of the company and may not be a director.
5. The board may appoint a secretary.Art. 349. – Qualification shares.
- The directors shall deposit as security with the company such number of their registered shares in the company as is fixed in the memorandum of association.
2. These shares shall not be handed back until the owners have ceased to be directors and have fully discharged their liabilities, if any to the company.Art. 350. – Appointment of directors.
- The first directors may be appointed under the memorandum or articles of association. This appointment shall be submitted to a meeting of subscribers for confirmation. If such confirmation is not given, the meeting shall appoint other directors.
2. Subsequent directors shall be appointed by a general meeting.
3. Directors may not be appointed for more than three years.
4. Unless otherwise provided in the memorandum or article of association, directors are eligible for re-election.
5. Where more than, two directors are to be elected, such elections may not take place simultaneously.Art. 351. – Replacement of directors.
- Where, during a financial year, one or more of the directors have left the board, the surviving directors may appoint other; persons to complete the period for which the directors who have left the board were appointed.
2. Their appointments shall be submitted to the next general meeting for -confirmation and the general meeting may confirm their appointments or appoint other directors in their place. The acts done by persons appointed under sub-art. (1) shall be valid notwithstanding that the appointment of such persons is not confirmed by the general meeting.
3. Where the surviving directors are less than half of the board of directors, they may not appoint directors under sub-art. (1) but shall convene a general meeting to appoint other directors.
4. Where there are no surviving directors, the auditors sha1l convene a general meeting without delay for directors to be elected.
5. During the period prior to the calling of the general meeting under sub-art. (4), the auditors may carry on the management of the company.Art. 352. – Rights of a minority.
Where there are several groups of shareholders with a different legal status, the articles of association shall provide for each group to elect at least one representative on the board of directors.
Art. 353. – Remuneration.
- Directors may receive a fixed annual remuneration, the amount of which shall be determined by a general meeting and charged against general expenses.
2. The articles of association may provide that the directors may receive a specified share in the net profits of a financial year.
3. The fixed remuneration and share in the profits to be allocated to the board of directors shall be allocated in one sum. The board shall arrange the distribution among its members in such proportion as it deems fit.
4. The amount of the share in the net profits may not exceed 10%. This share is calculated after deduction of:
a. amounts allocated to reserve funds provided by law or the articles of association;
b. the statutory dividend, where provided in the articles of association or where not provided, a sum representing 5% of the paid up value of shares which have not been redeemed;
c. amounts allocated to reserve funds established by resolution of a general meeting;
d. amounts carried forward.
5. In fixing the share under sub-art. (4) regard may be had to amounts distributed or capitalised and charged in a previous balance sheet, with the exception of those arising in a 1iuancial year closed before the coming into force of this Code.
6. The director’s share in the net profits shall not be paid where no dividend has been distributed to the shareholders.
7. The Ministry of Commerce and Industry, taking into account the special benefits which have been provided to directors having the status of founders and having regard to the position of the company and to the salaries and benefits of its employees, may, on the position of share holders representing not less than 10% of the capital, order the reduction of the remuneration of the directors where it considers it excessive.Art. 354. – Removal.
Notwithstanding any provision to the contrary, directors may be removed at any time by a general meeting: provided that a director who was removed without good cause may claim compensation.
Art. 355. – Restrictions on private trade.
Unless authorised by a general meeting, directors may not be partners with joint and several liability in rival companies nor compete against the company either on their own behalf or on behalf of third parties.
Art. 356. – Dealings between a company and its directors.
- Any dealings made directly or indirectly between a company and a director shall receive the prior approval of the board of directors and notice shall be given to the auditors.
2. Approval and notice under sub-art. (l) shall be required in respect of any dealings made between a company and another concern where one of the directors of the company is owner, partner, agent, director or manager of such concern.
3. The auditors shall submit a special report to the general meeting relating to dealings approved by the board of directors. The meeting may take any action it thinks fit.
4. Dealings approved by the meeting may only be set aside on the ground of fraud.
5. Dealings not approved shall remain in force but the director concerned shall be liable for damages arising from fraud and if he fails to meet his liability the board of directors shall be liable.
6. The provisions of this Article shall not apply to normal agreements between the company and its clients.Art. 357. – Directors may not contract loons with the company.
- Directors of a company other than bodies corporate may not borrow money from the company, obtain an overdraft in current account or have any obligation guaranteed in respect of business transacted with third parties.
2. The provisions of sub-art. (1) shall not apply in respect of day to day business of a company which carries on banking business.Art. 358. – Decisions Of the board of directors.
- No decision may be taken by the board of directors unless a majority of directors is present. Decisions shall be taken by an absolute majority. Voting may be by proxy.
2. An absent director may be represented at a board meeting only by another director who acts as proxy for the absent director only.
3. Decisions of the board shall be drawn up as minutes and shall be signed by the chairman and a secretary. The minutes shall be kept in minute book.
4. Copies of decisions shall be signed by the chairman and a secretary.Art. 359.- Register of directors.
- Every company shall keep at its head office a register of its directors and managers with, particulars as to their civil status, profession, and any directorship held in other companies and, where the director is a company, the name of the company and the address of its head office.
2. All particulars entered in the register and any amendments thereto sha1l be sent to the Ministry of Commerce and Industry within fifteen days from the making of the entry or amendment.
3. The register shall be open to inspection in accord1lnce with Art. 331 (3).Art. 360. – Register of shares and debentures held by the directors.
- Every company shall keep at its head office a register showing the number and value of shares or debentures held by each director:
a. in the company
b. in subsidiary companies;
c. in any holding company of which the company is a subsidiary.
2. The register and any documents to be submitted at the general meeting shall be open to inspection by any share or debenture holder before the annual general meeting.
3. The register shall be open to inspection by a representative of the Ministry of Commerce and Industry at any time and. extracts or a copy of the register may be taken.
4. The register of directors shall be available at the annual general meeting for inspection by any member attending the meeting.Art. 361. – Statements to be provided concerning remuneration of directors.
1. The balance sheet submitted to the annual general meeting shall show the total amount of remuneration, allowances, annuities, retirement benefits and benefits in kind given to the directors.
2. Loans or guarantees to directors shall also be shown.
Art. 362. – Duties of directors.
In addition to their duties under Art. 364, directors shall be responsible for:
a. keeping regular records of the management and of meetings;
b. keeping accounts and books;
c. submitting the accounts to the auditors and an annual report of the company’s operations including a financial statement to the meetings;
d. convening meetings as provided in the articles of association;
e. convening a general meeting without delay where three quarters of the capital are lost;
f. setting up the reserve funds required by law or the articles of association;
g. applying to the court where the company stops payments with a view either to a composition with creditors or the winding-up of the company.
Art. 363. – Powers of directors.
- The directors shall have such powers as are given to them by law, the memorandum or articles of association and resolutions passed at meetings of shareholders.
2. The articles of association shall specify whether the directors are jointly responsible as managers or agents of the company or whether one only of the directors is responsible.
3. Persons authorised to act as agents for the company may exercise in its name their powers as agents. Any restriction on their powers shall not affect third parties acting in good faith.Art. 364. – Liability of directors to the company.
- Directors shall be responsible for exercising the duties imposed on them by law, the memorandum or articles of association and resolutions of meetings, with the care due from an agent.
2. Directors shall be jointly and severally liable to the company for damage caused by failure to carry out their duties.
3. Directors who are jointly and severally liable shall have a general duty to act with due care in relation to the general management.
4. Directors shall be jointly and severally liable when they fail to take all steps within their power to prevent or to mitigate acts prejudicial to the company which are within their knowledge.
5. Directors shall be responsible for showing that they have exercised due care and diligence.
6. A director shall not be liable where he is not at fau1t and has caused a minute dissenting from the action which has been taken by the board to be entered forthwith in the directors’ minute book and sent to the auditors.Art. 365. – Proceedings to enforce directors liability,
- No proceedings shall be instituted against the directors without a resolution of a general meeting to this effect. Such a resolution may be moved and adopted although not on the agenda.
2. Where a resolution to institute proceedings or to compromise the claim is adopted by a vote of shareholders representing at least one fifth of the capital, the director concerned shall be removed. The same meeting shall appoint a director to replace the director who has been removed.
3. A resolution not to institute proceedings and to compromise shall not be adopted where shareholders representing one fifth of the capital vote against the resolution.
4. Where a resolution under sub-art. (2) is adopted but the company fails to institute proceedings within three months, the shareholders who voted for the resolution may jointly institute proceedings.Art. 366. – Liability to creditors.
- Directors shall be liable to the company’s creditors where they fail to preserve intact the company’s assets.
2. Proceedings may be instituted by the creditors against the directors where the company’s assets are insufficient to meet its liabilities.
3. A resolution of the general meeting not to institute proceedings against the directors shall not affect the creditor’s rights.
4. Creditors may not apply to set aside a resolution to compromise except on the grounds available to them under civil law.Art. 367. – Proceedings instituted by shareholders and third parties.
Nothing in this Section shall affect the rights of shareholders or third parties who have been injured by the fault or fraud of the directors.
Section 2. Auditors
Art. 368. – Appointment of auditors.
1. The general meeting of every company limited by shares shall elect one or more auditors and one or more assistant auditors.
2. Shareholders representing not less than 20% of the capital may appoint an auditor selected by them.
3. Where there is more than one auditor, they may exercise their duties jointly or separately.
4. A body corporate may act as auditor.
Art. 369. – Nomination and term of appointment.
- Auditors shall be elected by the meeting of subscribers and thereafter by the annual general meeting.
2. Auditors elected by the meeting of subscribers shall hold office until the first annual general meeting. Auditors elected at an annual general meeting may hold office for three years.
3. When signing as auditor, an auditor shall add the name of the company whose accounts he is auditing.Art. 370. – Persons not competent.
- The following persons may not be elected as auditors:
a. founders, contributors in kind, beneficiaries holding special benefits, directors of the company or of one of its subsidiaries or of its holdings company;
b. spouses or relatives by consanguinity of affinity to the fourth degree inclusive, of the persons mentioned in sub-art. (1) (a);
c. persons who receive from the persons mentioned in sub-art. (1) (a) a salary or periodical remuneration in connection with duties other than those of an auditor.
2. Auditors may not be appointed directors or managers of the company which they audit, nor of one of its subsidiaries or its holding company within three years from the date of the termination of their functions.
3. Reports submitted by an auditor and adopted by the annual general meeting shall not, save in the case of fraud, be invalid merely by reason of the fact that the provisions of this Article have not been observed.Art. 371. – Revocation of the appointment of an auditor.
A general meeting may at any time revoke the appointment of any auditor without prejudice to any claim he may have for wrongful dismissal.
Art. 372. Remuneration.
- The remuneration of auditors shall be fixed by the general meeting on their appointment.
2. Where the general meeting fails to agree on the remuneration of the auditors, the Ministry of Commerce and Industry may on the application of any interested party fix the remuneration.Art. 373. – Professional secrecy.
Auditors shall be liable to the penalties prescribed in Art. 407 of the Penal Code for breaches of professional secrecy.
Art. 374. – Duties of the auditors.
The auditors shall have the following duties:
a. to audit the books and securities of the company;
b. to verify the correctness and accuracy of the inventories, balance sheets and profit and loss accounts;
c. to certify that the report of the board of directors reflects the correct state of the company’s affairs;
d. to carry out such special duties as may be assigned to them.
Art. 375. – Report to general meetings.
- The auditors shall submit to the annual general meeting a written report on the manner in which they have carried out their duties and their comments on the report of the board of directors.
2. They shall recommend approval of the accounts and make such comments thereon as they think fit or refuse to recommend approval, giving reasons for referring the matter back to the directors.
3. They may comment on the proposed distribution of profits.
4. The general meeting shall not consider the balance sheet in the absence of a report under sub-art. (l).Art. 376. – Auditors to inform directors of irregularities.
- Where the auditors find irregularities or breaches of legal or statutory requirements, they shall inform the directors and, where grave irregularities or breaches have occurred, they shall inform the general meeting.
2. The auditors shall inform the public prosecutor of any matters which would appear to disclose the commission of an offence.Art. 377. – Calling of general meetings.
- The auditors shall call a general meeting where the directors fail to do so under the law or in accordance with the memorandum or articles of association.
2. They shall call a general meeting where shareholders representing at least 20% of the capital so request.
3. Where there are several auditors, they may jointly call a meeting in accordance with the articles of association and may, where they think fit, fix for the meeting a place other than the company’s head-office or other place laid down in the articles of association, but in the same locality.
4. The auditors shall prepare the agenda and a report to be read at the meeting giving the reasons for calling the meeting. One of the auditors shall preside over the meeting.
5. Where the auditors disagree, one of them may move the court having jurisdiction in the area in which the head office is situate for an order appointing an officer of the court to exercise the powers under sub-art. (3) and (4).
6. Expenses incurred under this Article shall be borne by the company.Art. 378. – Powers.
- The auditors may at any time make on the spot such audits and checks as they think necessary and may call for any information, agreements, books, accounts, minute books and such other documents as may be required for the proper execution of their duties.
2. Auditors shall be present at shareholders’ meetings and at the annual general meeting.
Art. 379. – Audit of the accounts of a holding company.
Auditors shall exercise their powers under Art. 378 in respect of the accounts of holding companies under Art. 451.
Art. 380. – Liability of auditors.
- Auditors shall be civilly liable to the company and third parties for any fault in the exercise of their duties which occasioned loss.
2. An auditor who knowingly gives or confirms an untrue report concerning the position of a company or fails to inform the public prosecutor of an offence which he knows to have been committed shall be punished under Art. 438 or Art. 664 of the Penal Code, as the case may be.Art. 381. – Investigation into the position of a company on the request of shareholders.
- Shareholders representing at least one tenth of the shares issued may ask the Ministry of Commerce and Industry to appoint one or more qualified inspectors to make an investigation and report on the company’s state of affairs.
2. The petition shall contain such evidence as the Ministry deems necessary and the petitioners may be required to guarantee up to a maximum of 500 Ethiopian dollars the expenses of the investigation.Art. 382. – Investigation compulsory.
The Ministry shall appoint one or more qualified inspectors to act under Art. 381 where there has been a resolution of a general meeting or an order of the court.
Art. 383. – Investigation ordered by the Ministry of Commerce and Industry.
The Ministry of Commerce and Industry may appoint inspectors to conduct an investigation where it has good reason to believe that the operations of the company are such as may reveal:
a. fraud on creditors; or
b. acts prejudicial to a class of shareholders; or
c. illegal or fraudulent activities; or
d. acts which constitute offences against the law.
Art. 384. – Investigations may be extended to the affairs of holding companies and subsidiaries.
Where inspectors have been appointed under Art. 381, 382 or 383 to investigate into the affairs of a company and they are of the opinion that a full investigation into the affairs of such company cannot properly be carried out without an investigation into the affairs of the holding or subsidiary company of such company, they shall report their opinion to the Ministry of Commerce and Industry which may order that the investigation he extended to the affairs of the holding or subsidiary company.
Art. 385. – Duties of companies under investigation.
- The directors and authorised agents of any company under investigation shall produce to the inspectors all hooks and documents required by them and furnish all information necessary for the investigation.
2. Any director or authorised agent who obstructs the inspectors in the course of the investigation shall be reported to the Ministry of Commerce and Industry which may cause proceedings to be instituted under Art. 433 of the Penal Code.Art. 386. – Inspectors’ Report.
On receipt of the inspectors’ report, the Ministry of Commerce and Industry shall send a copy thereof:
a. to the companies whose affairs have been investigated;
b. to the shareholders who petitioned for investigation;
c. to the court which ordered an investigation.
Art. 387. – Investigation regarding nominees.
- Where the Ministry of Commerce and Industry has good reason to believe that registered shareholders are only nominees of the persons who exercise effective control of a company, the Ministry may appoint inspectors to ascertain the real owners of the shares under Art. 383.
2. The Ministry may order an investigation under sub-art. (1) at the request of shareholders representing not less than one tenth of the shares issued.
Section 3. Shareholders’ Meetings
Paragraph 1. – General provisions
Art. 388. – General rules.
1. A general meeting of shareholders properly established and conducting its business in accordance with the law, acts on behalf of all shareholders. Decisions of a general meeting bind all shareholders whether absent, dissenting, incapable or having no right to vote.
2. The provisions of sub-art. (1) shall apply mutatis mutandis to special meetings.
Art. 389. – Rights proper to shareholders.
- Notwithstanding the provisions of Art. 388, no shareholder may be deprived without his consent of the rights inherent in membership.
2. Rights inherent in membership are rights which, under the law or the memorandum or articles of association, do not depend upon decisions of the general meeting or board of directors or which are connected with the right to take part in meetings, such as the right to be a member, to vote, to challenge a decision of the company or to receive dividends and a share in a winding-up.Art. 390. – Classes of meetings
- Shareholders’ meetings may be general or special.
2. General meetings are ordinary or extraordinary and comprise shareholders of all classes.
3. Special meetings comprise only shareholders of a specific class.Art. 391. – Calling meetings.
- General meetings are called by the directors, the auditors, the liquidators or, where appropriate, by an officer of the court.
2. The court of the place where the head-office is situate may appoint an officer of the court to call a meeting and to draw up the agenda for consideration where shareholders representing one tenth of the share capital show that such an appointment is necessary.Art. 392. – Mode of calling.
- Notices calling meetings shall be issued in accordance with the articles of association and shall be published in the Official Commercial Gazette and in one newspaper authorised to publish legal notices and circulating in the area where the head office is situate.
2. The provisions of sub-art. (1) shall not apply where all the shareholders are registered and are notified of meetings by registered letter at the company’s expense.
3. Any registered shareholder may, by registered letter, require the company to notify him of meetings by registered letter at his own expense.
4. The calling of meetings made necessary in the absence of a quorum is prescribed in the provisions relating to each class of meeting.Art. 393. – Ordinary meetings called by reason of lack of quorum.
Where an ordinary general meeting has been unable to function for lack of the quorum provided in Art. 421, a second meeting shall be called in the same manner and within the same period of time as the first meeting.
Art. 394. – Extraordinary or special meetings called by reason of lack of quorum.
Where for lack of the quorum provided in Articles 425 and 428 an extraordinary or special meeting has been unable to function, a second and a third meeting, if necessary, shall be called by two notices published at one weeks interval in the Official Commercial Gazette and in a newspaper authorised to publish legal notices, or under the provisions of Art. 392 (2), where appropriate.
Art. 395. – Time of notice of meetings.
Notice to be given for a first meeting shall be fifteen full days and for a second or subsequent meeting called for lack of a quorum at the first meeting, eight full days, irrespective of the mode of calling.
Art. 396. – Contents of notices of meetings.
- Notices of meetings shall give the company’s name, the nature, capital and head office of the company and the place where and time, within which hearer shares (if any) are to be deposited.
2. Notices of subsequent meetings made necessary by lack of quorum shall give the dates of the abortive meetings.Art. 397. – Agenda.
1. Save as is provided in Art. 391 (2), the agenda shall be prepared by the person calling the meeting.
2. Unless otherwise provided, only items on the agenda may be discussed. However, the meeting may at any time revoke the appointment of directors and appoint new directors in their place.
3. Only items on the agenda of the first meeting may be discussed at subsequent meetings made necessary by lack of quorum (Art. 393 and 394).
Art. 398. – Proxies.
- A shareholder may nominate one proxy only. Where a shareholder has appointed a proxy, he may not vote in person.
2. The representation of joint holders of shares, of reversioners and of pledgees is provided for in Art. 328 and 329.Art. 399. – Requirements in respect of conduct of business.
- A meeting is not legally constituted for taking decisions where there is not a quorum and a majority.
2. The quorum in relation to the capital is as laid down for each class of meeting. For all meetings the quorum shall be calculated on all the shares making up the capital, less these shares which carry no voting rights under the law or the articles of association.
3. The memorandum and the articles of association may not vary the provisions of this Code relating to majority and quorum.Art. 400. – Shares redeemed by the company carry no voting rights.
A company may not vote with shares which it has redeemed under Art. 332.
Art. 401. – Period of time for registration of shares.
The articles of association shall determine the period of time within which the holders of registered shares shall be entered in the company’s register and bearer shares deposited. This period of time shall not expire more than five full days before the date of the meeting. This period may be shortened in the articles of association.
Art. 402.- Proxy.
The form of proxy, the place where and the time within which they shall be deposited shall be determined by the directors: Provided that such period of time may not expire more than three full days before the meeting.
Art. 403. – Attendance sheet.
- An attendance sheet shall be kept for each meeting. It shall show the names and address of shareholders present or represented by proxy and the number of shares and votes held by each shareholder.
2. The attendance sheet shall be initialled by the shareholders or their proxies, and shall be certified as correct by the bureau of the meeting.Art. 404. – Chairman.
1. The chairman of the board of directors or, in his absence, the senior director shall preside at all meetings. In the absence of both such persons, the person named in the articles of association or appointed by the meeting shall preside.
2. Where the meeting has been called by the auditors, an officer of the court or a liquidator, the person calling the meeting shall preside.
Art. 405. – Tellers and secretary.
- The two members of the meeting who hold or represent the greater number of shares shall be appointed tellers, where they are willing to accept such appointment.
2. The bureau shall appoint a secretary who, unless otherwise provided, need not be a shareholder.Art. 406. – Right to inspect documents.
- Every shareholder may at all times, lilt the head office, inspect and take copies of:
a. balance sheets and profit and loss accounts;
b. reports submitted by the directors and by the auditors to general meetings relating to the three preceding financial years;
c. minutes and attendance sheets of these meetings.
2. Where a company refuses to give a shareholder access to any of the documents specified in sub-art. (1), the Ministry of Commerce and Industry shall be informed.
3. The rights under this Article are enjoyed by joint holders of shares, reversioners and usufructuaries, and pledgees.Art. 407. – Voting rights attached to shares.
- The voting rights attached to ordinary or dividend shares shall be in proportion to the amount of capital represented.
2. Every share carries at least one vote.Art. 408. – Limitation of votes.
The memorandum or articles of association may limit the number of votes which shareholders may exercise at meetings so long as such limitation is equal for all shares without distinction of class.
Art. 409. – Conflicts of interest.
- Where the interests of a member, acting on his own beha1f or on behalf of a third party, conflict with the interests of the company, such member may not exercise his right to vote.
2. Where failure to comply with the provisions of sub-art. (1) results in a resolution being adopted’ prejudicial to the company, such resolution may be set aside in accordance with the provisions of Art. 406.
3. Directors may not vote on resolutions relating to their duties and liabilities.
4. Shares which are deprived of voting rights under this Article shall he taken into account in calculating the quorum.Art. 410. – Provisions restricting the free exercise of voting rights invalid.
Any provision restricting the free exercise of voting rights in shareholders’ meetings shall be of no effect.
Art. 411. – Minutes.
- Discussions at meetings shall be reduced to minutes entered in a minute book and signed by a majority of the members of the bureau. Such entry shall be certified as correct by the chairman of the board of directors of the company or by two directors.
2. The minutes of a meeting shall include:
a. the manner in which the meeting was called; and
b. the place and date of the meeting; and
c. the agenda; and
d. the members of the bureau; and
e. the number of shares represented and the quorum; and
f. the documents laid before the meeting; and
g. a summary of the discussions; and
h. the results of votes taken; and
i. the texts of resolutions adopted.Art. 412. – Minute where there is no quorum.
Where a meeting lacks a quorum, the chairman shall record this fact in the minute book.
Art. 413. – Copies or extracts of the minutes.
Copies or extracts of the minutes shall be certified by the chairman of the board of directors or by two directors.
Art. 414. – Adjournment of meetings.
- Where shareholders representing one third of the capital represented at a meeting consider that they have insufficient information upon the matters to be discussed, they may require the meeting to be adjourned for a period not exceeding three days.
2. This right may be exercised once in respect of one matter.Art. 415. – Informal meeting of all shareholders.
- Shareholders or proxies representing all the shares may by agreement hold a general meeting without further formality.
2. Where shareholders or proxies representing all the shares are present, the meeting may take any decision and adopt any resolution as in a general meeting.
Art. 416. – Effect of resolutions.
- Resolutions adopted by a meeting in accordance with the law, the memorandum or articles of association shall bind all members, including those who were not present or dissented.
2. Resolutions adopted contrary to the law, the memorandum or articles of association may be challenged within three months from the resolution but in no case after three months from the entry of the resolution in the commercial register.
3. Applications to set aside resolutions shall be made to the court within whose area of jurisdiction the head office is situate. The court may require the claimant to provide security for costs.
4. On the request of the claimant and after hearing the directors and auditors, the court may, where good reasons are disclosed, suspend the execution of the resolution challenged pending the court’s decision.
5. Where a resolution is set aside, the decision of the court shall bind all members and the directors shall be responsible for taking all measures necessary to implement such decision.
6. Nothing in this Article shall affect rights of third parties acquired in good faith while the resolution was effective.PARAGRAPH 2. – ORDINARY MEETINGS
Art. 417. – Right to inspect documents.
In addition to his rights under Art. 406, any shareholder may, during the fifteen days which precede an annual ordinary general meeting, inspect and take copies at the head office of the balance sheet, the profit and loss account and the directors’ and auditors’ reports to be submitted at the annual general meeting.
Art. 418. – Meetings.
- Within four months from the end of each financial year, an ordinary annual general meeting shall be called by the directors.
2. This period of time may be extended to six months by the articles of association.
3. Where necessary, other ordinary general meetings may be held.Art. 419. – Business conducted at the meeting.
- The balance sheet, the profit and loss account and the directors’ and auditors’ reports shall be read out at the ordinary general meeting. After discussion it shall approve or reject the accounts for the past financial year. It shall decide, where necessary, on the allocation and distribution of profits and on all questions arising out of the accounts for the past financial year.
2. The meeting may appoint or remove directors and auditors, decide the amount of their remuneration, amend where necessary the accounts after considering the report required under Art. 375, approve the issue of debentures as well as the guarantees attached thereto and decide all matters other than those reserved, to extraordinary general meetings.Art. 420. – Taking part in meetings.
- Notwithstanding any provision to the contrary, any shareholder has the right to take part in ordinary meetings without regard to the number of shares held.
2. Unless otherwise provided in the articles of association, any person may be represented by a third party, whether a shareholder or not.
Art.421. – Majority and quorum in ordinary general meetings.
- When first called, general meetings shall be composed of that number of shareholders which represents either in person or by proxy at least one-quarter of the voting shares.
2. When called for a second time, the meeting may be held and discussions made without regard to the number of voting shares represented.
3. Decisions are taken by a simple majority, abstentions and blank ballots (if any) being disregarded.PARAGRAPH 3. – EXTRAORDINARY MEETINGS
Art. 422. – Right to inspect documents.
1. Any shareholder may, during the fifteen days which precede an extraordinary meeting, inspect and take copies at the head office of the text of resolutions to be proposed or of the auditors’ report to be submitted.
2. A shareholder may require the company in writing to send him copies at his own expense.
Art. 423. – Business.
Unless otherwise provided by law, only extraordinary meetings may amend the memorandum or articles of association.
Art. 424. – Admission.
Any shareholder, including preference shareholders, may take part in an extraordinary meeting without regard to the number of shares held.
Art. 425. – Majority and quorum in extraordinary meetings.
- Not less than a two-thirds majority is required for a resolution to be adopted in an extraordinary meeting, abstentions and blank ballots being disregarded.
2. Resolutions to:
a. change the nationality of the company; or require
b. require shareholders to increase their investments in the company, shall only he adopted where the holders of all shares having voting rights are present or represented and the vote is unanimous.
3. Resolutions other than resolutions under sub-art. (2) may only be adopted:
a. at a first meeting, where not less than one half of the holders of all shares having voting rights are present or represented;
b. at a second meeting, where not less than one third of the holders of all shares having voting rights are present or represented;
c. at a third mooting, where not less than one tenth of the holders of all shares having voting rights are present or represented.
4. Nothing in this Article shall affect the provisions of Art. 463.PARAGRAPH 4. – SPECIAL MEETINGS
Art. 426. – Cases where special meetings are to be called.
A resolution of a general meeting to modify the rights of a class of shareholders becomes effective only when confirmed by a special meeting of the shareholders in the class concerned.
Art. 427. – Right to inspect documents.
The provisions of Art. 422 shall apply mutatis mutandis to special meetings.
Art. 428. – Quorum and majority in special meetings.
- Special meetings shall he composed:
a. at a first meeting, of shareholders holding not less than one half of all voting shares;
b. at a second meeting, of shareholders holding not less than one third of all voting shares;
c. at a third meeting, of shareholders holding not less than one quarter of all voting shares. Shareholders may be represented by proxies.
2. The majority in special meetings shall he as provided in Art. 425 (1).Chapter 5. Debentures
Art. 429. – Cases where issue is prohibited.
No negotiable debentures shall he issued by:
2. companies whose capital is not fully paid;
3. companies which have not issued a balance sheet in respect of their first financial year.
Art. 430. – Maximum amount of the issue.
- Debentures issued by a company may not exceed the amount of paid up capital shown in the last adopted balance sheet. This amount may be exceeded:
a. where the company’s debentures issued do immovable property is mortgaged and the not exceed two thirds of the value of the mortgage; or
b. where the excess over the paid-up capital is guaranteed:
I. by registered securities or securities issued or guaranteed by the State and the date of redemption is not earlier than that of the debentures; or
II. by government or public authorities annuities.
2. Such securities shall he deposited ill a bank and such part of the annuities shall be blocked in a bank upto the time of repayment as is necessary to meet payments of interest and amortisation.
3. The provisions of sub-art. (I) shall not apply to real estate loan or agricultural mortgage companies.Art. 431. – Reduction of capital where there are debentures.
A company which has issued debentures may only reduce its capital in proportion to the debentures redeemed. Where a reduction of capital is necessary owing to losses, the amount of the legal reserve shall continue to be calculated on the basis of the capital existing at the time of issue for so long as the capital and the legal reserve are less than the value of the unredeemed debentures.
Art. 432. – Premium bonds and bonds at a discount.
- Bonds may be issued at a price greater than their par value.
2. Bonds may not be issued at a price lower than their par value except in accordance with special laws.Art. 433. – Contents of debenture certificates.
Debenture certificates shall be issued from a counterfoil register and shall show:
a. the company’s name, its objects, the head office of the company, and the place where the company was registered:
b. when the company was formed and for how long;
c. the paid-up capital on the date of issue;
d. the date of resolution of the general meeting and its entry in the register;
e. the serial number and nominal value of the certificate, the rate and dale of interest payments and the terms for redemption;
f. the amount of the issue and the special guarantees attaching to the debentures and the date of the deed setting up such guarantees;
g. the amount of debentures or loan stock issued previously and not amortised, indicating the guarantees attaching thereto;
h. where appropriate, the period or periods of time within which debenture holders may convert their debentures into shares, and the provisions for such conversion.
Art. 434. – Application of provisions relating to shares.
The provisions of Art. 318, 319, 325, 328, 329, 340 and 341 of this Code shall apply mutatis mutandis to debentures.
Art. 435. – Debenture holders’ meetings.
- Holders of debentures of a given issue may combine as a legal personality to protect their common interests as provided hereinafter.
2. Notwithstanding any provision to the contrary, debenture holders who have combined under sub-art. (1) may at any time meet in general meeting.Art. 436. – Calling of debenture holders’ meetings.
- A meeting of debenture holders may be called by the company or by the representative of the debenture holders, if any.
2. A meeting may also be called by debenture holders representing one twentieth of the issued and unredeemed debentures.
3. The provisions of Art. 388 et seq. relating to the calling and holding of shareholders’ meetings shall apply mutatis mutandis to the calling and holding of debenture holders’ meetings.
4. Directors, auditors or employees of the company having issued debentures or of companies having guaranteed such issue may not represent debenture holders in general meetings.
5. Holders of debentures which have been amortised and redeemed may not take part in meetings.
6. The company which has redeemed debentures may not take part in the debenture holders’ meeting by reason of the debentures it has redeemed. A company which holds more than 30 per cent of the capital of the company which has issued the debentures may not take part in the debenture holders’ meeting.
7. The calling and holding of general meetings of debenture holders shall be at the expense of the debtor company.Art. 437. – Business of debentures holders’ meetings.
- Resolutions adopted by debenture holders’ meetings bind all debenture holders, whether absent, dissenting or incapable.
2. Meetings may adopt resolutions to protect the interests of debenture holders, to enforce the loan agreement and to provide for all necessary expenses in connection therewith.Art. 438. – Decisions on proposals by the company.
- The meeting may also consider proposals of the debtor company relating to:
a. modifications in the structure of the company;
b. amalgamation with another company;
c. issue of debentures having priority over existing debenture.
2. The company may enforce proposals under sub-art. (1) notwithstanding that the debenture holders’ meeting does not approve such proposals: Provided that the company shall in such a case redeem within three months from such proposals having become effective the debentures of such debenture holders as may so request.
3. The meeting may also consider proposal relating to variations in the terms of the loan.
4. The meeting may not increase the liability of the debenture holders by imposing additional payments or agree to the conversion of debentures into shares, except by an unanimous vote, nor provide for differential treatment amongst the debenture holders.Art. 439. – Conditions for the validity of decisions Quorum.
- A meeting may take decisions where its members represent not less than one-third of the debentures which may be represented.
2. For matters to be decided under Art. 438, the quorum shall be three quarters.
3. Where the quorum under sub-art. (1) and (2) is not attained at the first meeting, a second meeting shall be called in the same manner and within the same period of time. The notice of calling shall contain the same agenda, showing the date of the abortive meeting. The second meeting may make decisions regardless of the quorum present.
4. For matters to be decided under Art. 438, where a quorum of one shall is not attained at the second meeting, a furhter meeting shall be called in the same manner and within the same period of time. Such meeting may make decisions where one-quarter of the debenture are present or represented.Art. 440. – Majority.
- Resolutions shall be adopted by simple majority.
2. Resolutions under Art. 438 shall be adopted by a two-thirds majority.
3. The voting rights of debentures shall be in proportion to the share of the loan which they represent respectively, each debenture giving the right to not less than one vote.Art. 441. – Confirmation of certain decisions.
- A resolution adopted under Art. 438 shall be submitted to the court for confirmation within fifteen days from the meeting by the company, the representative of the debenture holders or by a debenture holder. In default of submission, the resolution shall be of no effect.
2. Debenture holders who dissented or were absent may oppose the confirmation of the resolution.Art. 442. – Agent of debenture holders.
- Debenture holders may be represented by one or more agents who shall be nominated or removed by a general meeting of debenture holders having the quorum specified in Art. 439 (1) and (3) and a majority as specified in Art. 440 (1).
2. The same quorum and majority shall be required for a decision on their remuneration and powers. Remuneration shall be borne by the debtor company.
3. The agents of the debenture holders may, in case of urgency, be appointed or replaced by the court on the application of the debtor company in the absence of appointments made by a properly constituted general meeting, or on the application of one or more debenture holders holding not less than one twentieth of the debentures issued.
4. The provisions of Art. 436 (4) shall apply to the appointment of an agent of the debenture holders.Art. 443. – Powers of agents.
- Unless otherwise provided by the general meeting of debenture holders, agents of the debenture holders may do all things necessary in the interest of the debenture holders, and in particular accept and preserve securities guaranteeing the loan.
2. They shall represent the debenture holders in all legal proceedings.
3. They may take part in shareholders’ general meetings.
4. They shall be present at the drawing of debentures for redemption.Art. 444. – Duties in the event of the bankruptcy of the debtor company.
- Where the debtor company is adjudged bankrupt or enters into a scheme of arrangement, the agent of the debenture holders, if any, shall prove for all debenture holders thereof. He shall receive on their behalf all notices of meetings.
2. The agent of the debenture holders may, if so authorised by the general meeting of debenture holders, vote at creditors’ meetings on behalf of all the debenture holders. In calculating the quorum and majority, all debenture” issued on the same date shall be deemed to constitute one debt.
Chapter 6. Accounts of companies
Art. 445. – General provisions.
Unless otherwise expressly provided by law, the provisions of this Code relating to commercial Looks and book-keeping shall apply to be accounts of share companies.
Art. 446. – Account Annual report.
- At the end of each financial year, the directors shall prepare a detailed inventory and valuation of assets and liabilities.
2. They shall draw up a balance sheet and a profit and loss account and prepare a report on the state of the company’s activities and affairs during the last financial year.
3. The report shall give detailed information on the profit and loss account, an exact statement of the total amount of remuneration of the directors and auditors, and proposals for the distribution of dividends, if any.Art. 447. – Submission of accounts and report to the auditors.
The inventory, balance sheet, profit and loss account and the directors’ report shall be submitted to the auditors and the Ministry of Commerce and Industry not less than forty days before the notices calling the annual general meeting are dispatched.
Art. 448. – Drawing-up of the balance sheet and profit and loss account.
- The balance sheet and profit and loss account shall be prepared each year in the same form as in preceding years and the methods of valuation shall remain the same, unless the general meeting adopts variations in the mode of presentation of the accounts or the methods of valuation on the reasoned advice of the auditors.
2. The profit and loss account shall show under separate heads losses or profits arising out of the company’s various activities.Art. 449. – Annexures.
A return of liabilities which do not appear in the balance sheet, such as guarantees, shall be annexed to the balance sheet.
Art. 450. – Amortisation and allowances.
- Provisions for amortisation shall be made each year so that the item to be amortised be written off at the end of its period of use. Where, during the period of amortisation, the rate proves insufficient, such rate shall be increased so that the amortisation corresponds to the depreciation.
2. Provisions shall be made for amortisation and allowances for depreciation of assets at the end of each financial year, even where there are no profits.
3. The costs of capital issues and increases shall be amortised not later than on the expiry of the fifth financial year following that during which such issue or increase was made.Art. 451. – Accounts of holding companies.
- Where a company is a holding company, the accounts of its subsidiaries shall be submitted to the annual general meeting at the same time and in the same manner as its own accounts.
2. A consolidated balance sheet and profit and loss account shall be prepared in respect of the holding company and its subsidiaries.
3. The provisions of sub-art. (2) shall not apply where the directors are of opinion that the drawing up of such balance sheet would be impracticable or too onerous, or of little concern to the shareholders on account of the small financial interests involved.
4. The provision of sub-art. (2) shall not apply if the Ministry of Commerce and Industry approves, where the directors of the holding company are of opinion that the drawing up of such balance sheet could prejudice the company or its subsidiaries, or that the company and its subsidiaries carry out business of such a differing nature that they may not reasonably be deemed to form a single enterprise.Art. 452. – Profits.
- The net profits comprise the net receipts for the financial year after deduction of general costs and other charges, and of amortisation and allowances.
2. The profit for distribution is the profit for the financial year less previous losses and plus additional revenue and any distribution from the reserve funds specially approved by the general meeting.
3. The general meeting shall specify the reserve funds from which profit for distribution may be taken.Art. 453. – Reserve funds.
- Transfers to reserve funds shall be made from the net profits shown in the profit and loss account.
2. Reserve funds shall be as follows:
a. the legal reserve required by law;
b. the supplementary reserve created by an ordinary general meeting in accordance with the articles of association;
c. optional reserve created by an ordinary general meeting in accordance with the articles of association;
d. free reserve created by an ordinary general meeting there being no special provision in the law or articles of association;
3. Unless otherwise provided in the articles of association reserve funds shall not bear interest.Art. 454. – Legal reserve fund.
- Not less than one twentieth of the net profits shall be transferred each year to the legal reserve fund until it amounts to one-fifth of the capital.
2. Transfers shall be made to the legal reserve fund where it has fallen below the amount fixed in sub-art. (1).Art. 455. – Reserve created by issue premiums.
- Where an extraordinary general meeting has approved an increase in capital, the issue premiums may be transferred to a reserve fund.
2. Only former and new shareholders may share in the distribution of such reserve.Art. 456. – Allocation and distribution of profits.
1. Distribution of profits shall be effected after transfer to the legal reserve as provided in Art. 454.
2. Unless otherwise provided by law, the balance shall be distributed in accordance with the articles of association.
3. Payments to directors shall be made in accordance with the provisions of Art. 353.
Art. 457. – Fixed at interim interests.
- The articles of association may provide that a fixed or interim interest shall be paid to shareholders even where there are no profits.
2. Such interest, in a fixed amount, shall be carried to the debit of the installation account. It may only be provided for during the period of preparatory works and construction of the enterprise and shall cease to be payable as soon as normal business begins. The articles of association shall, within these limits, specify the date when such interest shall cease to be paid.
3. Where the articles of association provide for a fixed or interim interest as defined in sub-art. (1) and (2), such interest shall not be paid unless the articles of association have been published.Art. 458. – Payment of dividends. Rights of shareholders.
- Dividends may only be paid to shareholders from net profit shown in the approved balance sheet.
2. Dividends distributed contrary to the provisions of & sub-art. (1) shall be treated as fictitious dividends and the persons making the distribution shall be criminally and civilly liable.
3. The date and methods of paymel1lt of dividends shall be decided by the general meeting.
4. Up to the date fixed for payment, the general meeting may for good reason vary or cancel decisions of a preceding general meeting concerning the distribution of dividends or reserves.
5. A shareholder shall become a creditor of the company for the amount of the dividend from the date fixed for payment.Art. 459. – Claiming back of dividends.
Dividends distributed contrary to the provisions of Art. 458 may not be claimed back from the shareholders, except in the case of family companies or where distribution was made in the absence of a balance sheet or not in accordance with the approved balance sheet.
Art. 460. – Effect of approval of the balance sheet.
The approval of the balance sheet by the meeting shall not affect the liability of directors, auditors or general managers in respect of their management.
Art. 461. – Publication of the balance sheet.
Within thirty days of the approval of the balance sheet, a copy thereof together with the relevant minute of approval by the meeting shall be sent by the directors to the Ministry of Commerce and Industry for publication in the Official Commercial Gazette.
Chapter 7 Amendments to the memorandum or articles of association
Art. 462. – Application of general rules
1. Extraordinary meetings called to vote on amendments to the memorandum or articles of association shall conduct their business in accordance with the provision of Art. 388-416 and 422-425.
2. Resolutions shall be published in accordance with the provisions of Art. 224.
Art. 463. – Right of withdrawal from the company.
- Shareholders who dissent from resolutions concerning any change in the objects or nature of the company or the transfer of the head office abroad may withdraw from the company and have their shares redeemed, at the average price on the stock exchange over the last six months. Where the shares are not quoted on the stock exchange, they shall be redeemed at a price proportionate to the company’s assets as shown in the balance sheet for the last financial year.
2. Where shareholders wish to withdraw under sub-art. (1), they shall notify the company by registered letter:
a. within three days from the meeting, where they have taken part in such meeting; or
b. where they were not present at the meeting, within fifteen days from the publication of the resolution in the Official Commercial Gazette.
3. The provisions of this Article shall apply notwithstanding any provision to the contrary in the articles of association.Art. 464. – Increse of capital Procedure.
- The capital may be increased by the issue of new shares or by an increase in the par value of existing shares.
2. New shares issued may either be paid up:
a. in cash;
b. by paying off current debts with shares; or
c. by capitalisation of reserves or other funds at the disposal of the company; or
d. by conversion of debentures into shares.
3. An increase of capital by increasing the par value of shares may only be effected under Art. 425 (2) where such increase is not paid up by capitalisation of reserves or other funds.Art. 465. – Delegation of powers to directors.
- An extraordinary general meeting may by resolution delegate to the directors all powers to effect the increase of capital approved by the meeting.
2. Any provision in the memorandum or articles of association delegating such powers in advance to the directors shall be of no effect.Art. 466. – Period for effecting an increase of capital.
A resolution of a general meeting to increase the capital under Art. 465 shall become of no effect if not carried out within five years unless the increase is by conversion of debentures.
Art. 467. – Capital to be fully paid before a new issue.
Where a company whose capital is not fully paid increases its capital by a new issue of shares to be paid up in cash or of convertible debentures, such issue shall he null and void.
Art. 468. – Conditions for the issue of new shares.
Unless otherwise provided by law, a company may only issue new shares in accordance with the provisions relating to the formation of share companies.
Art. 469. – Subscription with offer to the public.
Where new shares are offered for public subscription, the offer to the subscribers shall be by prospectus signed by a representative of the company.
The prospectus shall show:
1. the date of registration of the company in the commercial register;
2. the company’s name and head office;
3. the existing amount and composition of the capital, showing the various kinds and classes of shares, their par value and preferences attaching thereto;
4. the managers and auditors;
5. the last profit and loss account, balance sheet and auditors’ report;
6. dividends paid during the last five years or since formation;
7. debenture loans issued;
8. the decision of the general meeting regarding the new shares, showing in particular the total amount, their number, par value, nature and issue price;
9. contributions in kind and special benefits allocated;
10. the period from which the new shares will give the right to a dividend and any restrictions regarding such right, as well as any preference accorded;
11. the date up to which the subscriber is bound.
Art. 470. – Preferred right of subscription.
- Shareholders shall have a preferred right of subscription of new cash shares, in proportion to the number of shares held.
2. This right may be transferred or assigned under the same conditions as the share itself, during the period of subscription.
3. This right may not be exercised in the event of conversion of debentures into shares. Shareholders shall renounce such right under the provisions of Art. 474, at the time of issue of debentures convertible into shares at the will of the holders.Art. 471. – Rights of reduced subscription.
Where any shareholder have not subscribed shares in respect of which they had a preferred right, the shares shall be allocated to those shareholders having applied for a greater number of shares than they would have been entitled to under their preferred right, such allocation being proportional to their share in the capital and within the limits of their applications.
Art. 472. – Allocation of the remainder.
Where preferred allocations and the reduced allocations provided in Art. 471 have not taken up the whole of the increase of capital, the balance shall he allocated in accordance with the decisions of the general meeting.
Art. 473. – Exceptions to the preferred right.
- The general meeting which resolves an increase of capital may also resolve that the provisions of Art. 470, 471 and 472 shall not apply, in whole or in part, but after considering:
a. a directors’ report giving reasons for the increase of capital and the setting aside of the preferred right of subscription, the allottees of the new shares, the number of shares allocated to each, the issue price and the basis for determining such price; and
b. an auditors’ report certifying the correctness of the directors’ report.
2. Any allottees of new shares may not vote in person or by proxy at a meeting which sets aside in their favour the application of the provisions of Art. 470, 471 and 472.
3. The quorum and majority required for such decision shall be calculated on the whole of the shares making up the share capital but to the exclusion of the shares held or represented by such allottees.Art. 474. – Issue of convertible debentures.
- The issue of convertible debentures is subject in the prior approval of ‘an extraordinary general meeting.
2. Such approval requires express renunciation by the shareholders of the preferred right of subscription of the shares to be issued under such conversion, for the benefit of the holders of the convertible debentures.
3. The directors’ report required under Art. 437 (1) (a) shall give reasons for the issue and the period of time within which the option granted to the debenture holders shall be exercised, and the manner of conversion.
4. The auditors shall prepare a special report on the propoaa1s submitted to the meeting as regards, the manner of conversion.Art. 475. – Documents conferring special preferred rights prohibited.
No documents conferring a preferred right of subscription may be issued.
Art. 476. – Periods of time for the exercise of the right of subscription.
The period of time within which shareholders may exercise their right of subscription may not be less than thirty days from the opening of the subscription.
Art. 477. – Publication of notices of subscription.
- The date of opening of a subscription shall be notified to shareholders by a notice published in the Official Commercial Gazette and in a newspaper empowered to publish legal notices circulating at the place where the head office is situate, ten days before the subscription list opens. Such notice shall indicate to shareholders their preferred right, the dates of opening and closing of the subscription list and the issue price of the shares and the amount to be paid-up.
2. Where all the shares are registered shares, the shareholders may be notified by registered letter ten days before the subscription list opens.Art. 478. – Subscription of new shares.
- An application to subscribe is not effective unless accompanied by the amount to be paid on subscription.
2. Where increases of capital are effected by the issue of cash shares, the provisions of Art. 312 (3) and 319-324 shall apply.Art. 479. – Declaration of subscription.
The directors shall keep a record showing that:
a. the new shares have been fully subscribed;
b. the amounts to be paid up have been paid;
c. the authorised increase of capital has taken place; and
d. the necessary amendment to the articles of association have been effected.
Art. 480. – Increase of capital by contribution in kind.
The provisions of Art. 315, 321 and 322 of this Code shall apply to increases of capital effected by contributions in kind or which carry special benefits.
Art. 481. – Payment by set off.
- New cash shares which form the whole or part of an increase of capital may he used to pay of the current liquid debts of the company at the date the subscription list opens.
2. An account showing the settlement of the debt shall be drawn up by the directors and certified as correct by the auditors who shall prepare a report showing the value of the debt so settled.Art. 482. – Capitalisation of reserves.
Subject to the provisions of Art. 454 (2), an extraordinary general meeting may decide to increase the capital by transferring thereto the whole or part of the reserves and to vary the articles of association accordingly: Provided that, where the legal reserve is so transferred, no distribution to shareholder may be made until the legal reserve is restored.
Art. 483. – Amortisation of capital.
- Only the articles of association or a resolution of an extraordinary general meeting may authorise amortisation of capital.
2. Only profits and reserves other than the legal reserve may be used for such amortisation.
3. Amortisation is effected by the redemption of shares within the same class. The date on which shares shall be redeemed may be selected by drawings.
4. Reduction of capital shall not result from amortisation.Art. 484. – Reduction of capital.
Proposals for a reduction of capital shall be sent to the auditors not less than fifteen days before calling the meeting to approve such reduction. The auditors shall report to the meeting their opinion and the reasons therefore on the proposals.
Art. 485. – Reduction of capital to be published.
Where a reduction of capital has been effected, an entry shall be made in the commercial register and published in accordance with the provisions of Art. 224.
Art. 486. – Reduction of capital following losses.
The provisions of Art. 487-490 shall apply when losses are the reason for a reduction of capital.
Art. 487. – Manner of reduction.
- A reduction of capital shall be effected;
a. by reducing the par value of shares; or
b. by exchanging old shares for a lesser, number of new shares.
2. Where a general meeting resolves that a reduction of capital shall be effected as provided in (b), the shareholders holding an insufficient number of shares to be exchanged shall within the period fixed by the meeting make up the number of shares to a number which can be exchanged or dispose of their shares to another shareholder.
Art. 488. – Preservation or conferral of rights on shareholders.
A general meeting may in a resolution authorising a reduction provide that the shareholders shall be paid as a compensation for the reduction of the number of their shares or of the par value thereof an amount corresponding to the reduction, before any distribution of profits is made in any financial year.
Art. 489. – Rights of creditors.
Where the claim of a creditor holding rights prior to the publication of the reduction of capital is not paid or such creditor is not given adequate guarantees for the payment of his claim, he may oppose the adoption of a resolution under Art. 488 or any distribution of profits until the capital is restored to the amount existing at the time when the claim originated.
Art. 490. – Reduction of capital below the minimum required by law.
- Where, by reason of losses, the capital is reduced below the minimum permitted in Art. 306 (1), the capital shall be increased to the minimum required in Art. 306 (1) within a period of one year from the date of publication in the official commercial gazette in accordance with the provisions of Art. 485.
2. Nothing in this Article shall affect the rights of creditors under Art. 489.
3. Where the increase of capital required by sub-art. (1) is not effected or the company is not reorganised, the dissolution of the company may be ordered by the court upon the application of any interested person.Art. 491. – Reduction of capital not motivated by losses.
The provisions of Art. 492-494 shall apply where losses are not the reason for a reduction of capital.
Art. 492. – Equality of shareholders.
The equality of shareholders shall not be affected by a reduction of capital.
Art. 493. – Rights of creditors.
- Any creditor holding rights prior to the publication in the official commercial gazette under Art. 485 may, where the reduction of capital is in an amount exceeding 10%, object to the resolution within three months from such publication.
2. The court may disallow such objection or order the company to pay the claimant or to provide adequate guarantees for payment.
3. No reduction of capital may be effected until the period specified in sub-art. (1) has expired.Art. 494. – Minute recording reduction.
- Where a reduction of capital has been effected, a minute shall be prcpared by the directors within one month and not later than one year from the date of publication in the official commercial gazette as provided in Art. 485.
2. The minute shall be published in the same time and manner as decisions of general meetings amending the articles of association.Chapter 8. Dissolution and Winding-up
Art. 495. – Grounds for dissolution.
1. A share company may be dissolved for one of the following reasons:
a. expiry of the life of the company as fixed in the memorandum of association, unless extended by a decision of an extraordinary general meeting;
b. completion of the venture for which the company was formed;
c. failure of the purpose or impossibility of performance;
d. voluntary dissolution resolved by an extraordinary general meeting;
e. dissolution by order of the court for good cause on the application of a member;
f. subject to the provisions of Art. 311, acquisition of all the shares by a member;
g. institution of bankruptcy proceedings;
h. loss of three-quarters of the capital.
2. An extraordinary general meeting shall be called to consider voluntary dissolution or the continuation of the company where three-quarters of the capital have been lost as provided in sub-art. (1) (h).
3. Where the directors or auditors fail to call a general meeting or a general meeting cannot be regularly held, the court may, on the application of any interested party, order dissolution.
Art. 496. – Appointment and removal of liquidators.
- Where the appointment of liquidators is not provided for in the memorandum or articles of association, they shall be appointed by the general meeting which resolved dissolution.
2. Where liquidators are not appointed under sub-art. (1), they may be appointed by the court on the application of the members, directors or auditors.
3. The appointment of liquidators may be revoked by the general meeting or by the court for good cause on the application of members or auditors.
4. Appointment of new liquidators shall be made as provided in sub-art. (1) and (2).Art. 497. – Survival of the company during winding-up.
- Until winding-up is completed, the company shall retain its legal personality and name, to which the words “in liquidation” shall be added.
2. During winding-up, the organs of the company shall restrict their activities to acts necessary to facilitate the winding-up and which are not acts within the scope of the liquidators.Art. 498. – Bankruptcy and winding-up.
- Where a company is declared bankrupt, the winding-up shall proceed under the provisions of Book V of this Code.
2. The directors’ powers shall be restricted to representing the company if necessary.Art. 499. – Duties and liability of liquidators.
- Unless otherwise provided by law or the articles of association, the liquidators shall have the same duties and liabilities as directors.
2. The liquidators shall take possession of the property and books of the company. The directors shall prepare a report for the liquidators on the management of the company from the end of the last financial year to the date of the winding-up.
3. The liquidators and directors’ shall jointly prepare and sign an inventory of assets and liabilities.
4. When, the assets appear to be insufficient cover the debts of the company, the liquidators shall call upon the members to pay according to their share holding such instalments as may be due on their shares.Art. 500. – Powers of liquidators.
- Subject to any limitations imposed by the articles of association by the meeting appointing them, liquidators shall have full powers.
Liquidators may sell the property of the company as whole, compromise and arbitrate and s hall represent the company in legal proceedings.
2. They may not undertake new business, unless required for the execution of contracts still running or where the interests of the winding-up so require. They shall be personally, jointly and severally in respect of any business undertaken outside the limits provided in this Article.Art. 501. – Prohibition from distributing assets among members before full payment of debts.
Until the creditors of the company have been paid or provisions for payment made, the liquidators may not distribute any part of the assets among the members.
Art. 502. – Calling on creditors.
- Creditors shall be paid on the basis of a balance sheet prepared by the liquidators as soon as they are appointed. .
2. Creditors shall be informed of the dissolution of the company and required to file their claims with supporting vouchers.
3. Creditors appearing in the company’s books or who are otherwise known shall be notified by registered letter. Notice to other creditors shall be given by notice, published in three successive monthly issues of the official commercial gazette and in the form laid down in the articles of association.Art. 503. – Protection of creditors.
- Where known creditors have failed to file their claims the amounts owing to them shall he paid into court.
2. Sums shall be set aside to meet claims in respect of undertakings of the company which are not completed or disputed claims where the creditors have not been guaranteed or distribution of assets has not been postponed until such undertakings are completed.Art. 504. – Final balance sheet.
- After paying the company’s liabilities, the liquidators shall prepare a final balance sheet, showing what percentage of the surplus assets is available for distribution on each share.
2. Subject to the provisions of the articles of association, the liquidators shall calculate the percentage under sub-art. (1) having regard to whether shares have been fully paid up and to preferential rights attaching to shares.
3. The balance sheet signed by the liquidators and the auditor’s report shall be deposited in the Ministry of Commerce and Industry.
4. Any shareholder may, within three months from the deposit of the final balance sheet under sub-art. (3), apply to the court to set aside the final balance sheet. Such application shall be heard after the period of three months has expired and, where there are several applications, they shall be heard together. The court’s decision shall be binding on all members and shareholders of the company.
5. Where no application has been made within three months, the final balance sheet shall be deemed to be approved.Art. 505.- Suspension of distribution.
The surplus assets shall not be distributed to the shareholders until one year from the third publication specified in Art. 502 (3) in the official commercial gazette:
Provided that the court may order the distribution of the surplus assets before the expiry of this period when satisfied that the creditors will not suffer.
Art. 506. – Deposit of amounts uncollected.
Where a shareholder has not collected the percentage of the surplus assets due to him within three months from the deposit mentioned in Art. 504 (3), the liquidators shall deposit such sum in a special account in the State Bank of Ethiopia together with the name of the shareholder or the numbers of the shares, if they are to bearer.
Art. 507. – Striking off the commercial register.
When the final balance sheet has been approved, the liquidators shall make an application for the registration of the company to be cancelled in accordance with the provisions of Art. 226.
Art. 508. – Rights of creditors.
- After action has been taken under Art. 507, creditors who have not been paid may claim against the shareholders in person to the extent of their shares in the surplus assets.
2. Creditors may claim against the liquidators, where they have not been paid owing to the liquidators’ negligence.Art. 509. – Preservation of the books.
- The books of a company which has been dissolved shall be deposited with the Ministry of Commerce and Industry where they shall be kept for ten years.
2. They shall be open to inspection after payment of the prescribed fee.
TITLE VII. PRIVATE LIMITED COMPANIES
Chapter 1. Formation and General Provisions
Art. 510. – Definitions. Nature.
1. A private limited company is a company whose members are liable only to the extent of their contributions.
2. A private limited company shall not have less than two or more than fifty members and is always commercial in form.
3. The company shall not issue transferable securities in any form.
Art. 511. – Reduction of the number of members below the legal minimum.
Where the number of members is reduced below two, or where the organs of the company cease to exist, the court may, on the application of a member or a creditor, order the dissolution of the company and make such provisional orders as are necessary unless the company makes arrangements to comply with the law within a reasonable time.
Art. 512. – Capital.
1. The capital of a private limited liability company shall not be less than 15,000 Ethiopian dollars.
2. The amount of a share shall not be less than 10 Ethiopian dollars.
3. All shares shall be of equal value and a member may hold more than one share.
Art. 513. – Prohibited transactions.
A private limited company shall not undertake banking, insurance or any business of a similar nature.
Art. 514. – Designation.
1. A private limited company may have a firm-name which may indicate the nature of its business.
2. The firm-name shall be followed by the words “Private Limited Company.”
Art. 515. – Particulars required on company papers.
The firm-name as defined in Art. 514 (2) and the amount of the capital of the company shall appeal on all company documents, invoices, publications and other papers.
Art. 516. – Formation.
The company is instituted when the deed, in the form of a memorandum of association, setting up the company is signed by all the members or by persons acting on their behalf and is authenticated.
Art. 517. – Terms of the memorandum of association.
The memorandum of association shall show:
a. the names, nationality and addresses of the members;
b. the company name, head office, and branches if any;
c. the business purposes of the company;
d. the amount or the capital;
e. the value of contributions made by each member;
f. the valuation of contributions in kind;
g. a statement that the capital is fully paid;
h. the number of shares held by each member;
i. the procedure for distribution of profits;
j. the number of managers, their powers and the agents, if any;
k. the number of auditors, if any;
l. the period of time for which the company is established.
Art. 518. – Articles of association.
The provisions of Art. 314 shall apply to private limited companies.
Art. 519. – Contributions in kind.
1. Where a member makes a contribution in kind, the memorandum of association shall show the nature and the value of the contribution, the price accepted by the other members and the share in the capital allocated to the member.
2. The method of valuation shall be determined by the members.
3. Members shall be jointly and severally liable to third persons for the valuation fixed.
4. Where it is shown that a contribution has been overvalued, the contributing member shall make good the overvaluation in cash. Members shall be jointly and severally liable for such payment, notwithstanding that they were not aware of the overvaluation.
Art. 520. – Publicity.
1. The company shall be made known to third parties in accordance with the provisions of Art. 219-224 of this Code. The memorandum of association and the articles of association, if any, shall be deposited.
2. The notice to be published and the application for registration in the commercial register shall contain the particulars specified in Art. 517 (a)-(h) and (j) – (1).
3. The provisions of Art. 324 shall apply.
Chapter 2. Shares
Art. 521. – Share register.
1. All shares shall be entered in a register which shall show:
a. the names of the members;
b. the value of all contributions made by the members;
c. all transfers of shares;
d. all amendments to these particulars.
2. At the beginning of each calendar year a list containing the particulars under (a) and (b) of sub-art. (1) shall be signed by the managers and sent to the Ministry of Commerce and Industry, unless the managers declare that there has been no change since the last list was deposited.
3. The managers shall be jointly and severally liable for any loss occasioned by inaccuracy in the keeping of the share register or lists. The lists shall be open for inspection by the public.
Art. 522. – Assignment of shares.
Assignments of shares shall be in writing and shall be of no effect in relation to the company or third parties unless they have been entered in the share register.
Art. 523. – Assignment of shares outside the company.
1. Unless otherwise provided in the articles of association, there shall be no restriction on the transfer of shares between members.
2. A transfer of shares outside the company shall be approved by a majority of the members representing at least three-quarters of the capital, unless a larger majority or unanimity is fixed in the art1des of association.
3. Such approval shall be entered in the commercial register.
4. The provisions of sub-art. (2) shall app1yeven where the company is in liquidation.
5. Where execution is levied on a member’s share, the purchaser shall obtain the consent of the other members.
Art. 524. – Devolution of shares by way of succession.
1. Unless otherwise provided in the articles of association, the shares of a deceased member devolve upon his heirs.
2. The articles of association may provide that a member has the right to leave his shares to the heir he wishes.
Chapter 3. Organisation of the Company
Art. 525. – Management.
1. A private limited company shall be managed by one or more managers.
2. Where there are more than twenty members, decisions shall be taken at meetings of the members and auditors shall be appointed.
3. Where there are twenty or less members, the members shall not be bound by the provisions of sub-art. (2).
Art. 526. – Appointment of managers.
Managers, other than members, may be appointed by the members or by the memorandum or articles of association for such period as is considered desirable.
Art. 527. – Dismissal of managers.
1. A manager appointed by the memorandum of association may only be dismissed by the members under a decision taken in accordance with the provisions of Art. 536.
2. A manager appointed by the members may be dismissed in accordance with the provisions of Art. 535.
3. Dismissal shall only be for good cause acceptable to a court. A manager who has been dismissed shall forthwith and for ever cease to function. Where the court is of opinion that a dismissal was without good cause, it may grant damages to the manager who has been dismissed.
4. Notwithstanding the provisions of sub-art. (3), the articles of association may stipulate that managers may be removed at the pleasure of the members, irrespective of the form of appointment.
5. Revocatory proceedings for due cause may be brought by any member individually.
Art. 528. – Powers of managers.
1. Within the limits of the objects of the company, managers shall have full powers.
2. Provisions in the articles of association restricting the powers of the managers shall be binding only as between members and managers. They shall not bind third parties, even if properly published.
Art. 529. – Manager’s remuneration.
The manager’s remuneration shall be fixed by the members. It may consist either of a fixed salary, or of a share in the profits, or both.
Art. 530. – Liability of managers.
In accordance with civil law, managers shall be liable individually or jointly and severally, as the case may be, to the company and third parties for any breach of their duties under this Code or the articles of association.
Art. 531. – Bankruptcy of the company.
1. Where in a bankruptcy the assets are shown to be inadequate, the court may, on the application of the trustee in bankruptcy, order that the company’s debts or part of them shall be paid by the managers or by the members or by both or some of them, with or without joint liability.
2. An order under sub-art. (1) shall not be made in respect of members who have not acted as managers, nor shall it be made where the managers and members show that they have acted with due care and diligence.
Art. 532. – Meetings.
1. A company consisting of more than twenty members shall hold a general meeting each year at the date fixed by the articles of association.
2. Other meetings may be called by the manager or, in his absence, by the auditors, if any, and in their absence by members representing more than one-half of the capital.
Art. 533. – Decision taken without a meeting.
Where the holding of a meeting is not required by the law or by the articles of association, the managers shall send to each member the text of resolutions or decisions to be taken and ask for the members written vote thereon.
Art. 534. – Votes held by members.
1. Notwithstanding any provision to the contrary in the memorandum of association, every member may take part in the meetings.
2. Each member shall be entitled to a number of votes equal to the number of shares held by him.
Art. 535. – Majority and quorum.
1. Decisions under Art. 532 (1) and Art. 533 shall be taken by a majority of members representing more than one half of the capital.
2. Where such majority is not obtained, the members shall be called again by registered letter, and decisions shall be taken by a simple majority without regard to the capital represented.
Art. 536. – Modification of the articles of association.
1. Change in the nationality of the company requires the unanimous decision of the members.
2. All other amendments to the articles of association require a majority vote of the members representing three-quarters of the capital, unless a larger majority is provided in the articles of association. No member may be required to increase his contribution without his consent.
3. Amendments shall be published in accordance with the law.
Art. 537. – Right to inspect documents.
1. Where there are twenty or less members, every member may at any time, in person or through his agent, inspect and take a copy of the inventory, the balance sheet and the auditors’ report, if any, at the head office.
2. Where there are more than twenty members, the rights under sub-art (I) may only be exercised during the fifteen days preceding the general meeting.
Art. 538. – Auditors.
1. Where a company consists of more than twenty members, not less than three auditors shall be appointed in the memorandum of association.
2. Auditors may be re-elected at such periods and under such conditions as may be provided in the articles of association.
3. Auditors may be dismissed as provided in the articles of association. Failing such provision, they may be dismissed as provided in Art. 535.
4. The provisions of Art. 374 and 378 shall apply to auditors.
5. Auditors shall be liable, individually or jointly and severally, to the company and third parties for any fault or negligence in the execution of their duties.
6. Auditors shall not be civilly liable managers, unless they were aware of them to the meeting for offences committed by the managers such offences and failed to report them the meeting.
Chapter 4. Accounts
Art. 539. – Legal reserve.
Not less than one-twentieth of the profits shall be transferred each year to the legal reserve fund until such fund amounts to one-tenth of the capital.
Art. 540. – Fictitious dividends.
1. Members may be required to repay dividends which have been paid out of sums which are not actual profits.
2. Claims for repayment shall be barred after five years from the date the dividends were paid.
Art. 541. – Fixed interest.
1. The memorandum of association may provide that a fixed interest shall he paid to members, even where there are no profits, during the period when works are being constructed prior to business operations. Such period shall be fixed in the memorandum of association.
2. Such provision shall be of no effect unless published in the official commercial gazette.
3. Such interest shall be carried to the debit of the installation account and spread over the years where profits are made, in accordance with the articles of association.
Chapter 5. Dissolution
Art. 542. – Grounds of dissolution.
1. A private limited company may be dissolved on the grounds applicable to all business organizations, including dissolution by the court for good cause and dissolution at the request of any member where the term of the company has not been fixed.
2. Provision may be included in the articles of association permitting redemption of the members’ shares for a fixed sum.
3. A judicial interdiction, bankruptcy or insolvency of a member shall not cause dissolution of a company, nor shall the death of a member, unless otherwise expressly provided in the articles of association.
4. The articles of association may provide that the heirs of a deceased member may, at their option, join the company or be repaid the decease member’s shares at a rate based on the last inventory.
Art. 543. – Loss of three-quarters of the capital.
1. Where three-quarters of the capital are lost, the managers shall consult with the members and decide whether the company should be dissolved.
2. Where the managers fail to consult the members or no valid decision is taken, any interested person may apply to the court for dissolution.
TITLE VIII. CONVERSION AND AMALGAMATION
Art. 544. – General provisions.
1. The conversion of one form of business organization into another form does not necessarily cause the creation of a new legal person.
2. The members may unanimously or by the majority required by law or the articles of association decide on conversion. In no case shall the decision increase the liabilities of a member without his consent.
3. A member may not be deprived, in whole or in part, of the rights of membership without his consent in cases of conversion.
4. Such decisions shall be by a duly authenticated deed and shall be published in accordance with the provisions of Art. 224.
5. The rules relating to the formation of the relevant business organisation shall apply without prejudice to the rights of third parties.
Art. 545. – Conversion of a general partnership, a limited partnership or a share company into a private limited company.
1. Any general or limited partnership and company limited by share may be converted into private limited companies.
2. In the case of a company limited by shares, the decision shall be taken by an extraordinary general meeting held under the provisions of Art. 425.
3. Members who dissent may withdraw as provided in Art. 463.
Art. 546. – Rights of creditors.
1. The assets of the former firm shall pass automatically to the new business organisation as from the date of registration in the Commercial Register.
2. On registration, creditors of the former firm shall be required to establish their claims within a reasonable time and shall be informed that, unless they object thereto, they shall be deemed to be creditors of the new firm.
3. The provisions of Art. 502 shall apply to calls to creditors under sub-art. (2).
4. Creditors who do not accept the new firm shall be paid off or guaranteed. No payment out of the assets shall be made to shareholders until all creditors have been paid or guaranteed.
5. Managers shall be jointly and severally responsible for carrying out the provisions of sub-art. (2 )-( 4) inclusive.
6. Managers shall cause the conversion of the former firm to be published. They shall cause the registration of the former firm to be cancelled where the provisions of sub-art. (4) have been complied with.
Art. 547. – Conversion of a private limited company into a company limited by shares.
1. Private limited company may be converted into share companies under the provisions of Art. 536.
2. The names of the members taking the decision shall be written in the minutes and such members shall become founders of the new share company.
3. Members who dissent and whose dissent is recorded in the minutes may withdraw under the provisions of Art. 463.
Art. 548. – Liability of members.
1. The conversion of a firm shall not discharge members with unlimited liability of their liability for undertakings made prior to the registration of the decision of conversion in the commercial register, unless such registration indicates that the creditors have approved the conversion.
2. Approval shall be presumed where creditors have been informed of the decision of conversion by registered letter and have not expressly dissented there from within thirty days from the date of such notification.
Art. 549. – Amalgamation.
1. Two or more firms may amalgamate, either by taking over or by the formation of a new firm.
2. The provisions of sub-art. (1) shall apply to firms in liquidation.
Art. 550. – Decision to amalgamate.
A decision to amalgamate shall be taken by each of the firms concerned. Special meetings of shareholders of different classes or meetings of debenture holders shall approve the taking over or being taken over.
Art. 551. – Deed of amalgamation.
1. The terms of the amalgamation shall be drawn up by a deed which shall be published in accordance with the provisions of Art. 224.
2. Notices of the amalgamation shall be published at the head office of the firm taking over or of the new firm resulting from the amalgamation, as well as at the head offices of firms ceasing to exist on amalgamation.
3. The claims and liabilities of the firm ceasing to exist shall pass to the firm taking over or to the new firm.
Art. 552. – Rights of creditors.
1. Creditors of the firm or firms taken over or the firms constituting a new firm, whose claims came into being before the publication of the deed of amalgamation in the official commercial gazette may object to the amalgamation within three months from the date of such publication.
2. The court shall reject such objection where it is satisfied that all the creditors have agreed to amalgamation and that those who dissented have been paid or that sums corresponding to their debts have been paid into a special account in the State Bank of Ethiopia.
3. The court may reject such objection and order that the deed of amalgamation shall be confirmed and that the firm taking over or the new firm resulting from the amalgamation shall pay the debts or provide adequate guarantees.
Art. 553. – Rights of debenture holders.
1. Where amalgamation is not approved by a meeting of the debenture holders of the firm being taken over, the debtor firm shall redeem the debentures of holders who so require, not later than three months from the date of publication of the deed of amalgamation in the official commercial gazette.
2. These provisions shall apply to debenture holders of firms amalgamating on the creation of a new firm.
Art. 554. – Publication of the rights of creditors and debenture holders.
Entries made in the commercial register shall expressly refer to the rights of creditors w1der Art. 552 and of debenture holders under Art. 553.
TITLE IX BUSINESS ORGANISATIONS INCORPORATED ABROAD OR OPERATING ABROAD
Art. 555. – Finns incorporated abroad having their head office in Ethiopia.
Finns incorporated abroad and whose head office or principal place of business is in Ethiopia shall be subject to all, the provisions of this Code and regulations made there under, including provisions relating to memoranda of association.
Art. 556. – Firms incorporated abroad having a subsidiary office or branches in Ethiopia.
1. Firms incorporated abroad and which have subsidiary offices or branches in Ethiopia, with permanent representation, shall be subject in respect of each office or branch to the provisions of this Code relating to deposit and publication of the memorandum of association and publication of balance sheets.
2. Such firms shall publish the names of persons representing them permanently in Ethiopia, and shall furnish their signatures.
3. Such firms shall be subject as regards their branches or subsidiaries to the provisions governing the operation of the enterprise and imposing special conditions.
Art. 557. – Foreign firms which differ from the forms of Ethiopian business organizations.
Finns incorporated abroad, which differ from those provided for and covered by this Code, shall be subject to those provisions of this Code concerning share companies, which relate to the publication of the acts of the firm and the liability of directors.
Art. 558. – Liability arising out of failure to comply with requirements.
Persons acting in the name of the firm who have not -plied with the provisions of Art. 555-557 inclusive shall in full be jointly and severally liable in respect of the firm’s undertakings.
Art. 559. – Finns incorporated in Ethiopia and operating abroad.
The provisions of Ethiopian laws shall apply to firms which are incorporated in Ethiopia for the purpose of business activity abroad.
Art. 560. – Firms in which foreign interests are represented.
Nothing in this Code shall affect the provision of special prohibiting, 01′ subjecting to special conditions, the exercise of certain activities by firms in which foreign interests are represented.